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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GERIMED OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
COLORADO 8093 84-1244056
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
333 WEST HAMPDEN AVENUE, SUITE 200, ENGLEWOOD, COLORADO 80110 (303) 781-6430
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)
</TABLE>
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JAMES F. RIOPELLE, M.D.
CHIEF EXECUTIVE OFFICER
GERIMED OF AMERICA, INC.
333 WEST HAMPDEN, SUITE 200
ENGLEWOOD, COLORADO 80110
(303) 781-6430
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
KAREN L. BARSCH, ESQ.
JEFFREY A. SHERMAN, ESQ.
NATHANIEL G. FORD, ESQ.
FAEGRE & BENSON LLP
2500 REPUBLIC PLAZA, 370 SEVENTEENTH STREET
DENVER, COLORADO 80202
(303) 592-9000
FAX: (303) 820-0600
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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: [X]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
==========================================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
OFFERING PRICE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PER SHARE (1) PRICE (1) REGISTRATION FEE
TO BE REGISTERED REGISTERED
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value 7,759,335 $2.50 $19,398,338 $5,121.16
==========================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
------------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND WILL BE AMENDED AND
COMPLETED. A REGISTRATION STATEMENT RELATING TO THE COMMON STOCK HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION AND WE MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED MARCH 31, 2000
GERIMED OF AMERICA, INC.
7,759,335 Shares Of Common Stock
--------------------
GeriMed of America, Inc. and its shareholders are offering up to
7,759,335 shares of common stock, including:
o Up to 1,060,000 shares that we may offer to our employees
directly through our stock option plan
o Up to 3,545,000 shares that our officers and directors may
offer through the internal market
o Up to 3,154,335 shares that our other shareholders may offer
through the internal market
This offering of common stock is designed to allow trading of the
common stock among our employees, directors, and other current shareholders up
to four times each year on the internal market. No exchange will list the common
stock. For more details on how the internal market will function, see "Internal
Market Information" beginning on page 12.
All of the shares being offered for sale by this prospectus will be
sold through the internal market at the price set by the Board of Directors from
time to time. Effective for the second quarter of 2000, the price for the common
stock is $2.50 per share.
-----------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
-----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
Prospectus dated , 2000
<PAGE> 3
TABLE OF CONTENTS
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PROSPECTUS SUMMARY................................................................................................1
RISK FACTORS......................................................................................................4
SECURITIES OFFERED BY THIS PROSPECTUS............................................................................12
INTERNAL MARKET INFORMATION......................................................................................12
USE OF PROCEEDS..................................................................................................18
DIVIDEND POLICY..................................................................................................18
DILUTION.........................................................................................................19
SELECTED FINANCIAL DATA..........................................................................................20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................21
BUSINESS.........................................................................................................27
STOCK OPTION PLAN................................................................................................37
MANAGEMENT.......................................................................................................44
CERTAIN TRANSACTIONS.............................................................................................49
PRINCIPAL SHAREHOLDERS...........................................................................................50
SECURITIES OFFERED BY THE CURRENT SHAREHOLDERS...................................................................53
DESCRIPTION OF CAPITAL STOCK.....................................................................................55
SHARES ELIGIBLE FOR FUTURE SALE..................................................................................63
LEGAL MATTERS....................................................................................................63
EXPERTS..........................................................................................................63
WHERE YOU CAN FIND MORE INFORMATION..............................................................................63
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
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ii
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. Before investing in the common stock, you should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to those statements. Any references to "we," "us,"
"our" or similar words or phrases refer to GeriMed of America, Inc. and its
subsidiaries. We are not affiliated with GeriMed, Inc., a Kentucky corporation
that purchases and distributes pharmaceuticals for the long term care industry.
GENERAL
We are a health care delivery and medical management organization
specializing in providing health care services to patients eligible to
participate in the federal Medicare program who are 65 years of age and older.
Our primary business focus is on providing comprehensive health care services
for Medicare beneficiaries under global risk contracts with health maintenance
organizations. Global risk contracts obligate us to provide comprehensive
medical services to health maintenance organization patients on a percent of
total premium basis.
The foundation of our health care delivery model is the MedWise Primary
Care Center, a primary care medical center that uses a physician-led team and
our proprietary care management software to provide comprehensive primary care
services for older adults. The MedWise Primary Care Center's interdisciplinary
team concept works to provide earlier, less costly intervention in medical and
psycho-social problems, with a goal of improving the quality of care and patient
satisfaction and decreasing utilization of inappropriate and costly health care
services.
A key component of our health care delivery model is our proprietary
care management software. This software is a tool used by our MedWise Primary
Care Center interdisciplinary teams and administrative staff to manage the care
of their patients throughout the entire healthcare continuum. In addition, we
are in the development stages of a physician support module for integration into
our software, which we are currently beta testing for use as an electronic
medical record. If such testing is positive, we will investigate potential
commercialization of such software. However, we currently cannot predict the
commercial viability of such software, nor our ability to fund such
commercialization.
Our clients include HMOs and hospitals. HMOs contract with us to
provide comprehensive health care services to their members under their health
plans. We currently provide most of our services under Medicare health care
plans, but approximately 7% of our service revenues in 1999 were attributable to
non-Medicare health care plan enrollment. We arrange for the delivery of these
services for a fixed per member monthly fee, typically referred to as a
capitated fee arrangement. Primary care physician services are provided
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through physicians employed by or under contract with us. For services, other
than primary care services, we generally arrange for these services by
contracting with hospitals and other providers under a variety of fee
arrangements. As of March 1, 2000, we were under contract to provide
comprehensive health care services to approximately 17,150 HMO patients in
Florida and Colorado, of which approximately 14,600 are Medicare HMO patients.
Historically, hospitals have contracted with us for the development and
management of primary care outpatient clinics primarily for patients who are 65
years of age or older. In connection with such clinics, we have also licensed
our care management software. Our hospital clients typically pay a one-time
fixed development fee and monthly fixed management and licensing fees for our
services and the use of our software. We are currently phasing out of the
business of managing hospital clinics to focus on providing medical services to
managed care organizations through our own centers. We currently manage six
hospital clinics.
EXPANSION AND LIQUIDITY OF COMMON STOCK OWNERSHIP
Historically, our shareholder agreements have restricted ownership and
transfer of our common stock. To expand the ownership of our common stock, the
Board of Directors decided to establish a new ownership program as a replacement
for the shareholders' agreements. The main goals of the new program are:
o Establishing an internal market to enable shareholders to buy and sell
common stock; and
o Expanding the opportunity for common stock ownership to include all of
our employees and directors.
OPERATION OF THE INTERNAL MARKET
Through the internal market, any eligible shareholder may offer shares
of common stock for sale to eligible buyers up to four times each year on
predetermined trade dates. Shares will be bought and sold through the internal
market at a price determined by the Board of Directors that is intended to
represent fair value. The stock price is determined by the Board of Directors
based upon our results of operations and total revenue, as well as a subjective
analysis of market factors the Board of Directors considers relevant. We may
purchase and the broker administering the internal market may purchase or sell
shares of common stock on the internal market on any trade date to balance the
supply and demand for common stock between sellers and buyers, but neither we
nor the broker will be obligated to do so.
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CORPORATE INFORMATION
We were incorporated in Colorado in 1993. Our executive offices are at
333 West Hampden Avenue, Suite 200, Englewood, Colorado 80110. Our telephone
number is (303) 781-6430; and our website is www.gerimed.com. Information
contained on our website is not part of this prospectus.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON
STOCK.
We have incurred significant losses.
Although we had net income of approximately $364,000 during the 12
months ended December 31, 1998, we have incurred significant losses, including
losses of approximately $2.9 million during the 12 months ended December 31,
1999 and $700,000 during the 12 months ended December 31, 1997, resulting in an
accumulated deficit of approximately $873,000 as of December 31, 1999. Losses
may continue until such time, if ever, that we are able to consistently generate
a level of revenue sufficient to offset our cost structure. There can be no
assurance that we will achieve significantly increased revenue or profitable
operations.
We will need additional capital to implement our business plan.
Our efforts to grow our business has required, and will continue to
require, us to acquire and develop MedWise Primary Care Centers, purchase
furniture and equipment for existing centers, and reserve for risk assumed in
connection with contracts with HMOs. We have incurred substantial losses and may
continue to do so. As of December 31, 1999, we had a working capital deficit of
approximately $1.9 million. Due to the need to continue to expand our business
and other factors, we expect that we will need to raise additional capital in
the future. If we experience greater than anticipated capital requirements, if
the implementation of our operating strategy fails to produce anticipated
revenue growth and cash flows, or if additional working capital is required for
any other reason, we will be required to obtain additional capital earlier than
currently anticipated. There can be no assurance that we will be able to obtain
equity, debt or lease financing when needed or on terms that we find acceptable.
Any issuances of additional equity or convertible debt may cause substantial
dilution to our shareholders. If we are unable to obtain sufficient funds to
satisfy our capital requirements, we will be forced to reduce the scope of our
plans, which could have a material adverse effect on our business, financial
condition and results of operations.
Health care costs may be greater than we predict.
We use a large portion of our revenue to pay the costs of health care
services and supplies delivered to our patients. Our total health care costs are
affected by the number of individual services rendered and the cost of each
service. Much of our revenue is based upon a percentage of premium paid to our
HMO clients and is agreed to before services are delivered and the related costs
are incurred. Although we try to base the percentage of premium we receive in
part on our estimate of future health care costs over the fixed health
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care delivery period, the amount we are ultimately paid is based largely upon
certain government calculations. Due to the unpredictability of the government
calculations, our revenues may or may not cover our actual costs of providing
services.
In addition, many factors may and often do cause actual health care
costs to exceed what we estimated in negotiating fees with our HMO clients.
These factors include increased use and cost of individual services,
catastrophes, epidemics, the introduction of new or costly treatments, general
inflation, new mandated benefits or other regulatory changes, and insured
population characteristics.
The operating results we report for any particular quarter include
estimates of covered services incurred by our enrollees during that period for
claims that have not been received or processed. Because these are merely
estimates, our operating results may be adjusted later to reflect actual costs.
Relatively insignificant changes in the medical expense ratio, because of the
narrow margins of our health plan business, can create significant changes in
our operating results.
Because we have three HMO clients that accounted for approximately 72% of our
revenues, if we lose one it may significantly impact our results of operations.
In 1999, revenues from Humana accounted for approximately 57%, CIGNA
Healthcare of Florida, Inc. accounted for approximately 10%, and PacifiCare of
Colorado, Inc. accounted for approximately 5% of our gross revenues. All of our
globally capitated patients are in Colorado and Florida. Due to this
concentration of revenues, if any of these HMO clients terminated their
contracts with us in one or more markets, such termination could have a material
adverse effect on our business, results of operations or financial condition.
After an initial term, our agreements with HMOs are terminable without cause
upon 90 to 120 days prior written notice. At the end of 1999, one of our smaller
HMO clients terminated their Medicare operations in Colorado.
Negative publicity regarding the managed care industry may impact our business
and results.
The managed care industry receives significant negative publicity. This
publicity has led to increased legislation, regulation and review of industry
practices. These factors may adversely affect our ability to market our
services, require us to change our services, and increase the regulatory burdens
under which we operate, further increasing the costs of doing business and
adversely affecting our operating results.
We are dependent on our executive officers and other key employees.
Our operations are dependent upon the continued services of James F.
Riopelle, our Chairman of the Board and Chief Executive Officer, Michael R.
Wasserman, our President and
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Chief Medical Officer, and Clemencia Rasquinha, our Regional Medical Director in
Orlando. The loss of the services of any of Dr. Riopelle, Dr. Wasserman or Dr.
Rasquinha could have a material adverse effect on us. We maintain a key-person
life insurance policy on the life of Dr. Riopelle in the amount of $1.0 million.
Our success also is dependent on our ability to hire and retain other qualified
management, technical, and medical personnel. There can be no assurance that we
will be successful in recruiting and retaining such personnel.
We suffer intense competition.
In our geographic markets, we compete with a number of other entities,
some of which may have certain characteristics or capabilities that give them a
competitive advantage. We believe the barriers to entry in these markets are not
substantial, so the addition of new competitors can occur relatively easily.
Moreover, consumers enjoy significant flexibility in moving to new managed care
providers or back to traditional Medicare. Certain of our providers may decide
to market services to our clients and/or patients in competition with us. To the
extent that strong competition exists or that competition intensifies in any
market, our ability to retain and add HMOs, patients or providers, or maintain
or increase our revenue growth, pricing flexibility, control over medical cost
trends and marketing and recruiting expenses may be adversely affected.
We are subject to burdensome government regulations.
Our business is heavily regulated on federal, state and local levels.
The laws and rules governing our business and interpretations of those laws and
rules are subject to frequent change. The agencies administering those
regulations have broad latitude to enforce them. Existing or future laws and
rules could force us to change how we do business, restrict revenue and
enrollment growth, increase our health care and administrative costs, impose
capital requirements, and increase our liability for medical malpractice or
other actions.
A significant portion of our revenues relate to federal, state and
local government health care coverage programs. These types of programs, such as
the federal Medicare program, generally are subject to frequent change,
including changes that may reduce the number of persons enrolled or eligible,
reduce the amount of reimbursement or payment levels, or reduce or increase our
administrative or health care costs under such programs. These types of changes
have adversely affected our results in the past and may also do so in the
future.
We are also subject to various governmental reviews, audits and
investigations. This oversight could result in the loss of the right to
participate in certain programs, or in the imposition of fines, penalties and
other sanctions. In addition, disclosure of any adverse investigation or audit
results or sanctions related to us, any of our physicians, or any of our
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HMO clients could damage our reputation in various markets and make it more
difficult for us to sell our products and services.
Some states may require HMO subcontractors, such as us, to obtain
licenses as risk-bearing health care entities that could be similar in nature
and scope to licenses required for insurance companies and HMOs. States may
alternatively require HMO subcontractors, such as us, to maintain certain
capitalization levels. These requirements could take the form of risk-based
capital rules. Depending on the nature and extent of possible minimum
capitalization requirements that states may ultimately implement, we could be
required to set aside potentially significant funds that would otherwise be
available as working capital.
Regulation in the healthcare field is constantly evolving. We are
unable to predict what additional government regulations, if any, affecting our
business may be promulgated in the future. Our business may be adversely
affected by failure to comply with existing laws and regulations, failure to
obtain necessary licenses and government approvals or failure to adapt to new or
modified regulatory requirements.
If we fail to comply with state corporate practice of medicine laws our business
and results could be negatively impacted.
Most states limit the practice of medicine to licensed individuals or
professional organizations comprised of licensed individuals. Many states also
limit the scope of business relationships between business entities such as us
and licensed professionals and professional corporations, particularly with
respect to fee-splitting between physicians and non-physicians. Laws and
regulations relating to the practice of medicine, fee-splitting and similar
issues vary widely from state to state, are often vague, and are seldom
interpreted by courts or regulatory agencies in a manner that provides guidance
with respect to business operations such as ours. We attempt to structure all of
our operations to comply with applicable state statutes regarding medical
practice, fee-splitting and similar issues. However, there can be no assurance
(i) that courts or governmental officials with the power to interpret or enforce
these laws and regulations will not assert that we are in violation of such laws
and regulations or (ii) that future interpretations of such laws and regulations
will not require us to modify the structure and organization of our business.
If we fail to maintain good relations with our providers our results may suffer.
One of the significant techniques we use to manage health care costs
and utilization and monitor the quality of care being delivered is by
contracting with physicians, hospitals and other providers. In any particular
market, however, providers could refuse to contract, demand higher payments, or
take other actions that could result in higher health care costs. In some
markets, certain providers, particularly hospitals, physician/hospital
organizations or
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multi-specialty physician groups, may have significant market positions or near
monopolies. If these providers refuse to contract with us or our HMO clients,
use their market position to negotiate more favorable contracts, or otherwise
place us at a competitive disadvantage, those activities could adversely affect
our operating results in that market area.
We must effectively manage our growth.
We have experienced rapid growth. Continued growth could place a
significant strain on our management and other resources. We anticipate that
continued growth, if any, will require us to continue to recruit, hire, train
and retain a substantial number of new and highly-skilled medical,
administrative, information technology, finance and support personnel. Our
ability to compete effectively depends upon our ability to implement and improve
operational, financial and management information systems on a timely basis and
to expand, train, motivate and manage our work force. If we continue to
experience rapid growth, there can be no assurance that our personnel, systems,
procedures and controls will be adequate to support our operations or that
management will anticipate adequately all demands that growth will place on our
resources. In addition, due to the initial costs incurred upon the acquisition
of new HMO contracts, rapid growth could adversely effect our short-term
profitability. If we are unable to manage growth effectively, our business,
operating results and financial condition could be materially and adversely
affected.
We may be subject to claims relating to medical malpractice.
Our contract providers and certain employees of ours are involved in
the delivery of healthcare services to the public and, therefore, are exposed to
the risk of medical malpractice claims. We currently have one such malpractice
claim pending, which is being defended by our insurance carrier. In addition,
states are beginning to adopt legislation that permits HMOs to be held liable
for negligent treatment decisions, which liability may extend to us either
directly or through contractual obligations with our HMO clients. Claims of this
nature, if successful, could result in substantial damage awards against us, our
physician employees and contract providers that could exceed the limits of any
applicable insurance coverage. We maintain medical malpractice insurance
covering us and our employees. However, successful malpractice or tort claims
asserted against us or our physician employees could have a material adverse
effect on our financial condition and profitability.
In addition, there can be no assurance that we will not be subject to
other litigation that may adversely affect our business or results of
operations. We maintain errors and omissions insurance and such other lines of
coverage as we believe is reasonable in light of our experience to date. There
can be no assurance, however, that such insurance will be sufficient or
available at reasonable cost to protect us from liability which might adversely
affect our business or results of operations.
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We are subject to fraud and abuse and illegal remuneration laws.
The Federal Anti-Kickback Statute prohibits the offer, payment,
solicitation or receipt of any form of remuneration to induce or in return for
the referral of Medicare or other governmental health program patients or
patient care opportunities, or in return for the purchase, lease or order of
items or services that are covered by Medicare or other governmental health
programs. Violations of the statute can result in the imposition of substantial
civil and criminal penalties. In addition, the Stark Amendments prohibit a
physician with a "financial interest" in an entity from referring a patient to
that entity for the provision of any of eleven "designated health services."
States in which we conduct our healthcare services business have
enacted statutes similar in scope and purpose to the federal Anti-Kickback
Statute and Stark Amendments, with applicability to services other than those
covered by Medicare or other governmental health programs. In addition, most
states have statutes, regulations or professional codes that restrict a
physician from accepting various kinds of remuneration in exchange for making
referrals.
We believe that our arrangements with our contract providers and
employees comply with the Anti-Kickback Statute, the Stark Amendments and
applicable state laws. However, all of the foregoing laws are subject to
modification and interpretation, have not often been interpreted by appropriate
authorities in a manner applicable to our business and are enforced by
authorities vested with broad discretion. We have attempted to structure all of
our operations so that they comply with all applicable anti-kickback and
anti-referral prohibitions. We also continually monitor developments in this
area. If these laws are interpreted or amended, or if new legislation is enacted
with respect to healthcare fraud and abuse, illegal remuneration or similar
issues, we will seek to restructure any affected operations to maintain
compliance with applicable law. No assurance can be given that such
restructuring will be possible, or, if possible, will not adversely affect our
business or results of operations.
Absence of a public market may prevent you from selling your stock and cause you
to lose all or part of your investment.
There is no public market for our common stock. While we intend the
internal market to provide liquidity to shareholders, there can be no assurance
that there will be enough, if any, orders to purchase shares to permit
shareholders to resell their shares on the internal market, or that a regular
trading market will develop or be sustained in the future. The price in effect
on any trade date may not be attractive enough to both buyers and sellers to
result in a balanced market because the price will be fixed in advance by the
Board of Directors, using their judgment of the fair value of the common stock,
and not by actual market trading activity. Moreover, although we may enter the
internal market as a buyer of common stock if
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there are more sell orders than buy orders, we have no obligation to engage in
internal market transactions and will not guarantee market liquidity.
Consequently, insufficient buyer demand could cause sell orders to be prorated,
or could prevent the internal market from opening on any particular trade date.
Insufficient buyer demand could cause shareholders to suffer a total loss of
investment or substantial delay in their ability to sell their common stock. No
assurance can be given that shareholders desiring to sell all or a portion of
their shares of common stock will be able to do so. Accordingly, the purchase of
common stock is suitable for you only if you have limited need for liquidity in
your investment.
Control by existing shareholders will limit your ability to influence the
outcome of matters requiring shareholder approval.
James F. Riopelle, M.D. and Spectrum Healthcare Services, Inc.
beneficially own in the aggregate approximately 85% of our issued and
outstanding common stock. As a result, Dr. Riopelle and Spectrum effectively
control all matters requiring approval by our shareholders, including the
election of directors, appointment of our management and approval of mergers,
amendments to our Articles of Incorporation and the sale or disposition of all
or substantially all of our assets. Spectrum also has certain veto rights on
corporate actions including, without limitation, merging with other companies
under certain circumstances, declaring or paying dividends and amending our
Articles of Incorporation. In addition, Spectrum has certain rights of first
refusal if we issue any shares other than those reserved for issuance under our
stock option plan. These veto rights and rights of first refusal may prevent or
delay a merger, takeover or other change in control of us and thus discourage
other companies from acquiring us and may have a material adverse effect on the
value of our common stock.
Investors in the offering will experience immediate and substantial dilution.
The weighted average exercise price per share of common stock
underlying options issued exceeds our net tangible book value per share.
Accordingly, the purchasers of shares sold under our stock option plan will
experience immediate and substantial dilution. The weighted average exercise
price of our outstanding options is $2.13 per share. Based on our net tangible
book value per share of $(.27) as of December 31, 1999, new investors under our
outstanding stock options will experience immediate dilution of $2.10 per share,
or 88%.
Transfer restrictions on the common stock could prevent you from selling your
stock and cause you to lose all or part of your investment.
The transfer restrictions applicable to the common stock could cause
you to lose all or part of your investment. Because all of the shares of common
stock will be subject to transfer restrictions, you will generally only be able
to sell your stock on one of the four trade dates for the internal market in
each year. Unlike shares that are actively traded in the public
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markets, you may not be able to sell at a particular time even though you would
like to. The stock price could decline between the time you want to sell and the
time you become able to sell.
The offering price is determined by the board of directors' judgment of fair
value and not by market trading activity.
The offering price is, and subsequent offering prices at each trade
date will be, established by the Board of Directors approximately 30 days before
the trade date. In establishing the price, the Board will take into
consideration the factors which are described in the section of this prospectus
called "Internal Market Information." However, since the Board of Directors will
set the offering price in advance of the trade date, market trading activity on
any given trade date cannot affect the price on that trade date. This is a risk
to you because our stock price will not change to reflect supply of and demand
for shares on a given trade date as it would in a public market. You may not be
able to sell shares or you may have to sell your shares at a price that is lower
than the price that would prevail if the internal market price could change on a
given trade date to reflect supply and demand. Our Board of Directors intends
for its deliberations to result in offering prices for the common stock that
represent fair value. The formula and methodologies used to determine the
offering price is subject to change at the discretion of the Board of Directors.
In addition, the Board of Directors may discontinue the internal market at any
time, without notice.
The limited market and transfer restrictions on the common stock will likely
have anti-takeover effects.
Only our employees, directors, other current shareholders and certain
brokers may own our common stock and participate in the internal market. In
addition, we have imposed significant restrictions on the transfer of our common
stock other than through sales on the internal market. These limitations make it
extremely difficult for a potential acquirer who does not have the prior consent
of our Board of Directors to acquire control of our company, regardless of the
price per share the acquirer may be willing to pay and whether or not
shareholders are willing to sell at that price. As a result, it is unlikely that
a hostile bidder would try to take control of our company.
Actual results may differ from results discussed in forward-looking statements.
This prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to:
o actual health care costs in excess of our projected costs;
o negative publicity regarding the managed care industry;
o changes in government regulations;
o our ability to maintain good relations with our providers; and
o general economic conditions.
11
<PAGE> 15
SECURITIES OFFERED BY THIS PROSPECTUS
The shares of common stock offered by us may be offered to our present
and future employees, including executive officers and directors through our
stock option plan. This offering of common stock is not intended to raise
capital for us; however, to the extent stock options are exercised, we will
receive proceeds, which will be used for working capital and general corporate
purposes.
Officers and directors may sell up to an aggregate of 3,545,000 shares
of common stock through the internal market. Other employees may sell up to an
aggregate of 10,000 shares of common stock on the internal market. Other
shareholders may sell up to an aggregate of 3,154,335 shares on the internal
market. In addition, our officers, directors and other employees may resell
shares they have purchased or may purchase under our stock option plan or on the
internal market. We do not know whether these persons will offer or sell some,
none or all of such shares. Our officers, directors and employees will not be
treated more favorably than other shareholders participating in the internal
market.
Pursuant to our Restated Bylaws, all shares of common stock are subject
to our repurchase right, right of first refusal and other restrictions on
transferability.
INTERNAL MARKET INFORMATION
GENERAL
This section contains a summary of the material provisions of how the
internal market will work. We encourage you to read the entire internal market
rules, which are included as an exhibit to the registration statement filed with
the Securities and Exchange Commission. Until this offering, our principal
policy on stock ownership has been our shareholder agreements.
As of December 31, 1999, approximately 50 persons held our common
stock. To expand our ownership base and to provide liquidity to our current
shareholders, the Board of Directors decided to establish a new ownership
program. The main goals of the new program are:
o Establishing an internal market to enable shareholders to buy and sell
common stock; and
o Expanding the opportunity for common stock ownership to include all of
our employees and directors.
In connection with establishing a new ownership program, in January
2000, the Board of Directors approved the establishment of an internal market,
effective on the date that the
12
<PAGE> 16
contingencies described below are satisfied. These actions by the Board of
Directors, however, remain subject to the effectiveness of the registration
statement and to the rules and regulations of the Securities and Exchange
Commission and the securities commissions of a sufficient number of states so
that the internal market can function efficiently, as determined by the Board of
Directors in its discretion. The Board of Directors intends to review the status
of these contingencies at its meeting following the date of this prospectus and
determine at that time whether to proceed with the internal market offering.
HOW THE INTERNAL MARKET WORKS
The internal market will permit current shareholders, employees and
directors to buy and sell shares of common stock up to four times each year on
predetermined trade dates. In addition, to the extent there is excess demand to
either buy or sell shares, a broker will be permitted to act as a market maker.
AUTHORIZED BUYERS. All sales of common stock on the internal market
will be restricted to the following authorized buyers:
o Employees
o Directors
o Current shareholders
o GeriMed of America, Inc.
o The broker administering the internal market or a predecessor broker
Limitations on the number of shares which an individual may purchase may be
imposed when there are more buy orders than sell orders for a particular trade
date.
BROKER. We established and will manage the internal market through a
broker, initially Bigelow & Company, which will act upon instructions from the
buyers and sellers and may, but is not obligated to, participate on its own
behalf to the extent of excess buy and sell orders. Bigelow & Company is not
affiliated with us. Individual stock ownership account records will be
maintained by the broker or its designee. Subsequent to determination of the
applicable stock price for use on the next trade date, and at approximately 15
days prior to such trade date, we will advise all employees, directors and
current shareholders as to the new stock price and the next trade date,
inquiring whether such individuals wish to purchase or sell shares on the
internal market and advising them on how to deliver written buy and sell orders
approximately five days prior to such trade date.
WE AND THE BROKER MAY PURCHASE SHARES IF THE MARKET IS
UNDER-SUBSCRIBED. We and the broker may, but are not obligated to, purchase
shares of common stock on the internal market on any trade date at the price in
effect on that trade date, but only to the extent that the
13
<PAGE> 17
number of shares offered for sale by shareholders exceeds the number of shares
sought to be purchased by employees, directors and other shareholders. We will
consider a variety of factors including, but not limited to, our cash position,
our financial performance and number of shares outstanding in making the
determination of whether to participate in an under-subscribed market.
If the aggregate number of shares offered for sale on the internal
market on any trade date is greater than the number of shares sought to be
purchased, shareholder offers to sell will be accepted as follows:
o If enough orders to buy are received to purchase all the shares
offered by each seller selling fewer than 500 shares and at least
500 shares from each other seller, then all sell orders will be
accepted up to the first 500 shares and the portion of any sell
orders exceeding 500 shares will be accepted on a pro-rata basis.
o If not enough orders to buy are received to purchase all the shares
offered by each seller selling fewer than 500 shares and at least
500 shares from each other seller, then the purchase orders will be
allocated equally to each seller.
THE BROKER MAY SELL SHARES IF THE MARKET IS OVER-SUBSCRIBED. To the
extent that the aggregate number of shares sought to be purchased exceeds the
aggregate number of shares offered for sale, the broker may, but is not
obligated to, sell shares of common stock that it owns, if any, on the internal
market on any trade date at the price in effect on that trade date to satisfy
purchase demands. The broker may not sell shares short.
If the aggregate purchase orders exceed the number of shares available
for sale, employees, directors and other shareholders (excluding the broker)
desiring to purchase may purchase on a pro rata basis.
SELLERS PAY SALES COMMISSION. All sellers on the internal market will
pay the broker, initially Bigelow & Company, a commission equal to 2% of the
proceeds from such sales. No commission is paid by buyers on the internal
market.
STOCK PRICE DETERMINED BY BOARD OF DIRECTORS. The Board of Directors
will determine the price, which is intended to be the fair value of our shares
of common stock on each trade date pursuant to the formula and valuation process
described below. The price per share of common stock is as follows:
Share Price = (M x P) + (N x R)
-----------------
OS
14
<PAGE> 18
In order to determine the fair value of the stock in the absence of a
public trading market, the Board of Directors felt it appropriate to develop a
formula to use as a tool to determine a price that would be within a fair value
range. The Board of Directors believes that the process we have developed
reflects modern equity valuation techniques and is based on those factors that
are generally used in the valuation of equity securities.
"M" is the market factor multiplier for variable "P" and "N" as the
multiplier for variable "R," which are subjectively determined in the sole
discretion of the Board of Directors. In determining the market factors, the
Board of Directors will take into account factors the directors consider to be
relevant in determining the fair value of the common stock, including:
(1) the market for publicly traded equity securities of companies
comparable to our common stock;
(2) the merger and acquisition market for companies comparable to us;
(3) the prospects for our future performance;
(4) general economic conditions;
(5) general capital market conditions; and
(6) other factors the Board of Directors deems appropriate.
We believe that starting the internal market program with a market
factor "M" equal to 1.0 will make it easier for shareholders to understand
future changes, if any, to the market factor "M". We believe that starting the
internal market program with a market factor "N" equal to 0.4818 is appropriate
based on the Board of Director's current analysis.
The existence of an over-subscribed or under-subscribed market on any
given trade date will not affect the stock price on that trade date. However,
the Board of Directors, when determining the stock price for a future trade
date, may take into account the fact that there have been under-subscribed or
over-subscribed markets on prior trade dates.
The Board has not assigned predetermined weights to the various factors
it may consider in determining the market factor. A market factor "M" greater
than 1.0 or a market factor "N" greater than 0.4818 would increase the price per
share and a market factor "M" less than 1.0 or a market factor "N" greater than
0.4818 would decrease the price per share.
In its discretion, the Board of Directors may change, from time to
time, the market factor component of the formula price. The Board of Directors
could change the market
15
<PAGE> 19
factor, for example, following a change in general market conditions that either
increased or decreased stock market equity values generally, if the Board of
Directors felt that the market change were appropriately applicable to the
common stock as well. The Board of Directors will not make any other change in
the method of determining the price per share of common stock unless in the good
faith exercise of its fiduciary duties and, if appropriate, after consultation
with its professional advisors, the Board of Directors determines that the
method for determining the price per share of common stock no longer results in
a stock price that reasonably reflects our fair value on a per share basis.
"P" is net income after taxes for the four fiscal quarters immediately
preceding the trade date.
"R" is the total revenue for the four fiscal quarters immediately
preceding the trade date.
Nonrecurring or unusual transactions could be excluded from the
calculation at the discretion of the Board of Directors. Nonrecurring or unusual
transactions are unforeseen developments that the market would not generally
take into account in valuing an equity security. A change in accounting rules,
for example, could increase or decrease net income or total revenue without
changing the fair value of the common stock. Similarly, such a change could fail
to have an immediate impact on the value of the common stock, but still have an
impact on the value of the common stock over time. As a result, the Board of
Directors feels that in order to determine the fair value of the common stock,
it needs the ability to review unusual events that affect total revenue.
"OS" is the number of shares of common stock outstanding during the
four fiscal quarters immediately preceding the trade date, calculated on a fully
diluted basis. By "fully diluted" we mean that the calculations are made as if
all vested options to purchase common stock had been exercised and as if other
"dilutive" securities were converted into shares of common stock.
For 1999, the results of the stock price formula are as follows:
<TABLE>
<S> <C>
Share Price = (M x P) + (N x R) = (1.0000 x -$2,924,263) + (0.4818 x $39,925,916) = $2.50
----------------- -----------------------------------------------
OS 6,525,092
</TABLE>
Following a determination by our Board of Directors at their meeting
following the date of this prospectus to put the internal market into effect,
commencing in the next quarter of 2000, the stock price will be reviewed by the
Board of Directors up to four times each year. This review will be made in
conjunction with Board of Directors meetings, currently scheduled for February,
May, August and November. The Board of Directors believes that
16
<PAGE> 20
the process described above will result in a stock price that will reasonably
reflect the fair value of our common stock on a per share basis.
QUARTERLY TRADE TIMELINE
<TABLE>
<CAPTION>
Fiscal Board of Trade Date Set Buy/Sell Orders Confirmations
Quarter Directors and Buy/Sell Due to TRADE and Checks
Ends Meets Orders Scheduled Broker DATE Mailed
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Approximately Approximately Approximately Approximately Buy/Sell Approximately
75 Days 30 Days 15 Days 5 Days Before Orders 5 Days After
Before Trade Before Trade Before Trade Trade Date Effective Trade Date
Date Date Date
</TABLE>
We intend to publish the current stock price and upcoming trade date
prior to each trade date to all participants in the internal market through
internal communications, including bulletins, electronic mail communications or
mailed reports. Trade dates are expected to occur approximately 75 days after
the end of each fiscal quarter.
We will distribute our audited annual financial statements to all of
our employees, directors and shareholders. We will also be required to file
annual and quarterly reports with the SEC.
The Board of Directors may discontinue the internal market at any time
without notice.
17
<PAGE> 21
USE OF PROCEEDS
We do not intend or expect this offering to raise significant capital.
Any net proceeds received by us from the sale of the common stock offered under
our stock option plan will be added to our general funds and used for working
capital and general corporate purposes.
DIVIDEND POLICY
We do not currently anticipate paying any cash dividends on the common
stock and intend to retain any future earnings to finance the growth and
development of our business. We are prohibited from paying cash dividends
pursuant to our line of credit. In addition, Spectrum Healthcare Services, Inc.,
a principal shareholder, has certain veto rights that could prevent us from
declaring and paying cash dividends.
18
<PAGE> 22
DILUTION
Our tangible book value on December 31, 1999 was a deficit of
$1,180,889 or $(.27) per share. Tangible book value per share represents the
amount of total tangible assets less total liabilities, divided by the shares of
common stock then outstanding. Total common stock outstanding at December 31,
1999 was 4,370,000 shares. As the following table demonstrates, after giving
effect to the sale of 622,500 shares of common stock by us pursuant to
outstanding stock options at a weighted average exercise price per share of
common stock of $2.13, the pro forma book value of the common stock on December
31, 1999 would have been $145,036 or $.03 per share, representing an immediate
dilution of $2.10 per share to new investors purchasing shares of common stock
at the weighted average exercise price per share of common stock. "Dilution per
share" represents the difference between the price per share to be paid by new
investors for shares issued pursuant to the stock option plan and the net pro
forma book value per share as of December 31, 1999. There are shares of
convertible preferred stock and warrants that could also have a potentially
dilutive effect that are not considered herein.
<TABLE>
<S> <C>
Weighted average exercise price per share of common stock
under our stock option plan................................................................. $2.13
Net tangible book value per share before the offering of shares
under our stock option plan................................................ $(.27)
Increase per share attributable to new investors pursuant to
the stock option plan...................................................... .30
-----
Pro forma net tangible book value per share after the offering
of shares under our stock option plan....................................................... .03
-----
Dilution per share to new investors............................................................ $2.10
=====
</TABLE>
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<PAGE> 23
SELECTED FINANCIAL DATA
The following table presents selected historical financial data derived
from the audited Financial Statements of GeriMed of America, Inc. During the
periods presented, we paid no cash dividends on our common stock. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and related notes thereto, included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Medical services $ 34,443,851 $ 12,946,408 $ 5,082,149 $ 3,499,633 $ 765,393
Management services 5,482,065 10,996,772 10,858,568 8,789,559 3,520,146
Total revenues 39,925,916 23,943,180 15,940,717 12,289,192 4,285,539
Company operated centers and purchased
medical services expenses 36,064,577 13,709,669 6,165,926 3,480,411 739,341
Clinics managed for others expenses 3,503,808 6,731,497 7,289,238 6,794,858 1,246,140
General and administrative expenses 2,991,335 2,988,925 2,821,738 2,702,157 1,867,242
Net income (loss) (2,924,263) 364,432 (700,884) (1,052,902) 174,734
Net loss allocable to common shareholders (4,337,275) (859,035) 0 0 0
BALANCE SHEET DATA:
Total assets 4,468,871 5,380,675 4,056,920 3,328,041 3,861,261
Long-term debt 0 0 0 400,000 126,314
Stockholders' equity (deficiency) (873,421) 1,996,342 1,584,909 (589,199) (539,177)
CASH FLOW DATA:
Net cash provided by (used in)
operating activities (1,001,923) 1,125,361 151,570 (1,474,091) 288,406
Investment in property and equipment 507,151 192,661 531,681 175,401 257,767
PER COMMON SHARE DATA:
Net income (loss) - Basic (0.99) (0.20) (0.16) (0.25) 0.04
Net income (loss) - Diluted (0.99) (0.20) (0.16) (0.25) 0.04
Weighted averages shares outstanding -
Basic 4,364,167 4,347,500 4,340,000 4,273,333 4,395,833
Weighted average shares outstanding -
Diluted 4,364,167 4,347,500 4,340,000 4,273,333 4,647,203
</TABLE>
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements, including the notes thereto, and the selected financial
data.
OVERVIEW
We were formed in 1993 as a Colorado corporation. Our initial
operations consisted solely of developing and managing clinics operated by
hospitals as outpatient departments dedicated to providing medical services to
the elderly. Management service revenue was generated through services for
feasibility studies, clinic development and management, and patient care
management software. The management services segment of our business is in
decline following announced changes in Health Care Finance Administration rules
governing hospital outpatient clinics.
In 1998, we began operating our own primary care medical centers and
contracting with HMOs to assume full or shared risk for the medical care of a
portion of HMO's Medicare enrollees. Under full risk or "global capitation"
contracts we receive a fixed monthly amount per enrollee for which we are
financially responsible to provide the enrollees with all necessary medical
services, including institutional, professional and pharmacy. The fixed monthly
premium is recognized as revenue and the costs of medical services, including an
estimate of claims incurred but not reported, is recognized as expense. Under
shared risk contracts we are responsible for primary care services provided by
our physicians and a share of any profits or losses after payment of medical
expenses out of premium revenues assigned by the HMOs to institutional,
professional, or pharmacy funds. Under shared risk contracts, fees received for
primary care services are recognized as revenue net of our share of profits or
losses of various risk pools.
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<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth statement of operations data expressed
as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---------- ---------- ----------
REVENUES:
<S> <C> <C> <C>
Medical services 86.3% 54.1% 31.9%
Management services 13.7 45.9 68.1
---------- ---------- ----------
Total revenues 100.0 100.0 100.0
---------- ---------- ----------
EXPENSES:
Company operated centers and
purchased medical services 90.3 57.3 38.7
centers managed for others 8.8 28.1 45.7
General and Administrative 7.5 12.5 17.7
Depreciation and amortization 0.8 0.8 0.9
---------- ---------- ----------
Total expenses 107.4 98.7 103.0
---------- ---------- ----------
Income (loss) from operations (7.4) 1.3 (3.0)
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 0.1 0.2 0.1
Interest expense 0.0 0.0 (1.5)
---------- ---------- ----------
Total other income (expense) 0.1 0.2 (1.4)
---------- ---------- ----------
Net Income (loss) (7.3%) 1.5% (4.4%)
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Total revenue increased $15,982,736 to $39,925,916 in 1999
compared to $23,943,180 in 1998, an increase of 66.8%. The increase in revenue
resulted from the addition of five new centers in the Florida market in 1999 and
the execution of a second globally capitated contract in Orlando. The opening of
the centers in the Florida market allowed for the addition of new patients to
the existing patient base and opened up a new market in Tampa. Medical services
revenue increased $21,497,443 to $34,443,851 from $12,946,408 an increase of
166.0%. The increase in revenue from medical services segment of our business
was partially offset by the decline in revenue from management services of
$5,514,707 to $5,482,065 from $10,996,772, a decrease of 50.1%. The decline in
management services revenue resulted from the non-renewal of expiring contracts,
the change in our focus to promote and expand the medical services segment of
business, and the
22
<PAGE> 26
Health Care Financing Administration (HCFA) adoption of rules related to
outpatient clinics operating as departments of hospitals. The rules adopted by
HCFA include the implementation of the Outpatient Prospective Payment System on
July 1, 2000. These rules will result in a significant reduction in the
profitability of these clinics for our management customers and, therefore, we
do not expect these customers to renew their contracts with us.
COMPANY OPERATED CENTERS AND PURCHASED MEDICAL SERVICES EXPENSES.
Company operated centers and purchased medical services expenses include the
cost of operating our MedWise Primary Care Centers, plus the cost of services
purchased from other providers. Purchased services include services provided by
specialist physicians, institutional costs, and the cost of pharmacy benefits
for HMO patients to whom are contractually obligated to provide medical care.
These costs increased $22,354,908 to $36,064,577 in 1999 from $13,709,669 in
1998, an increase of 163.1%. The increase in purchased medical services resulted
from the change in our focus from management services to medical services in
1999. As a percent of revenues, the costs of centers operated by us and
purchased medical services are typically highest during a start-up period
following commencement of a new HMO contract that generally is about 90 days in
duration.
Clinics managed for others expenses are the costs of operating primary
care physician offices for our hospital clients under management contracts for
their Medicare patients whose services are paid for by the HCFA Medicare
program. These expenses decreased $3,227,689 to $3,503,808 in 1999 from
$6,731,497 in 1998, a decrease of 47.9%. The decrease resulted from the
expiration and non-renewal of management contracts caused by the changing HCFA
regulations.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
increased $2,410 to $2,991,335 in 1999 from $2,988,925 in 1998, an increase of
.1%. Resources previously dedicated to management services were reassigned to
the tasks of growing enrollment, opening new centers, and operating centers
owned by us in Florida.
NET INCOME (LOSS). We recorded a net loss in 1999 of $2,924,263
compared to net income of $364,432 in 1998. The change in the operating
performance resulted from the transition from management services to medical
services. Our management services business typically generates low volume but
high operating margins. With the declining future of management services caused
by the changing HCFA regulations, the expansion into medical
23
<PAGE> 27
services led to start-up and expansion costs not associated with management
services. Typically, medical services results in significantly higher volumes of
revenue, but a significantly lower operating margin, particularly during the
early months of new contracts.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Total revenue increased $8,002,463 to $23,943,180 in 1998
from $15,940,717 in 1997, an increase of 50.2%. Medical services revenue
increased $7,864,259 to $12,946,408 in 1998 from $5,082,149 in 1997, an increase
of 154.7%. The increase resulted from the acquisition of four centers in Florida
in August 1998. The acquisition was our first step toward providing medical
services directly to patients and away from providing management services to
hospital clients. Management services revenues increased $138,204 to $10,996,772
in 1998 from $10,858,568 in 1997, an increase of 1.3%. Management contracts that
were not renewed in 1998 were replaced with new contracts, resulting in little
change in management services revenue.
COMPANY OPERATED CENTERS AND PURCHASED MEDICAL SERVICES EXPENSES.
Company operated centers and purchased medical services expenses increased
$7,543,743 to $13,709,669 in 1998 from $6,165,926, an increase of 122.3%. The
increase resulted from the acquisition of four centers on August 1, 1998.
Clinics managed for others expenses decreased $557,741 to $6,731,497 in 1998
from $7,289,238 in 1997, a decrease of 7.7%. The decrease in expenses resulted
from our change in focus to primary care centers owned and operated by us from
management of primary care centers for others. Management contracts expiring in
1998 were replaced with new contracts, which resulted in little change in
expenses from 1997 to 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $167,187 to $2,988,925 in 1998 from $2,821,738 in 1997, an
increase of 5.9%. In addition to normal inflation, additional general and
administrative expenses were incurred related to the acquisition of the four
centers in Florida.
24
<PAGE> 28
NET INCOME (LOSS). Net income increased $1,065,013 to net income of
$364,432 in 1998 from a net loss of $700,884 in 1997. The improvement was
related to the increase in the management services operating profit of $695,945
to $4,265,275 in 1998 from $3,569,330 in 1997 and a reduction in the operating
loss of the medical services business of $320,516 to an operating loss of
$763,261 in 1998 from an operating loss of $1,083,777 in 1997. The increase in
management services revenue resulted in minimal increase in expenses due to the
high operating margin of that segment of business. In addition to these
improvements in operations, we also arranged for the investment of $3,000,100 in
capital that was used to pay off existing debt and fund operations. The
repayment of debt reduced interest expense $230,341 to $3,961 in 1998 from
$234,302 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
We require capital for the acquisition and development of MedWise
Primary Care Centers, the purchase of furniture and equipment for existing
centers, working capital requirements, and reserves for risk assumed in
connection with full risk contracts with HMOs. As of December 31, 1999, we had a
working capital deficit of $1,919,854. The risk sharing and full risk
arrangements that we have with HMOs can affect cash needs because settlements in
connection with the arrangements typically do not occur until several months
after they are accrued. Losses incurred during the startup of new full risk
contracts in 1999 will adversely effect cash flow in 2000 as accrued contractual
settlement liabilities are discharged.
Liquidity has been provided by a revolving line of credit, which allows
for borrowings of up to $1,800,000. The line of credit is available through June
1, 2000. The line of credit is supported by James F. Riopelle, our Chief
Executive Officer and Chairman, who is a co-borrower on the line of credit. Mr.
Riopelle has committed to continue to personally support this borrowing
arrangement, and is currently negotiating with the bank for an extension of the
line of credit beyond its expiration date. There can be no assurance that the
line will be renewed, or if not renewed, that replacement financing will be
available. If the line is not renewed, Mr. Riopelle has committed to personally
fund fiscal year 2000 operating deficits, if any. As of December 31, 1999, no
borrowings were outstanding under the line.
In 1997, our operations generated $151,570 and we sold 906,891 shares
of Series A convertible preferred stock and a stock purchase warrant for
$3,000,100. Proceeds from the sale were used for retiring bank debt and for
working capital purposes. Property purchases in 1997 consisted primarily of
furniture, equipment and improvements at MedWise Primary Care Centers.
In 1998, our operations provided $1,125,361. We acquired four operating
primary care centers for a purchase price of $250,000 cash plus contingent
consideration based on the primary care centers first full year of operations.
Property additions included furniture and equipment for our MedWise Primary Care
Centers and our corporate office. Also, during
25
<PAGE> 29
1998, we sold the furniture, equipment and improvements of a center that we
operated to a hospital customer in connection with the center's transfer to a
management contract.
In 1999, our operations used $1,001,923 in cash primarily due to the
net loss of $2,924,263, partially offset by non-cash depreciation and
amortization and the increase in our working capital deficit. Operating losses
were funded by available cash, and increases in the amounts owed to HMOs for
claims and contractual settlements. Cash used for investing activities consisted
primarily of $507,151 for furniture, equipment and improvements for our centers
and $164,224 of additional purchase price paid after the contingent purchase
price referred to above was determined.
Amounts due to HMOs are typically secured by certificates of deposit,
letters of credit, or performance bonds. During 1999, we replaced $633,918 of
certificates of deposit, which had been used to secure our performance under our
HMO contracts, with a performance bond, and added such funds to available
working capital.
26
<PAGE> 30
BUSINESS
GENERAL
We are a healthcare delivery and medical management organization
specializing in providing health care services to patients eligible to
participate in the federal Medicare program who are 65 years of age and older.
Our primary business focus is on providing comprehensive health care services
for Medicare beneficiaries under global risk contracts with health maintenance
organizations. Global risk contracts obligate us to provide comprehensive
medical services to HMO patients on a percent of total premium basis.
The foundation of our health care delivery model is the MedWise Primary
Care Center, a primary care medical center that uses a physician-led team and
our proprietary care management software to provide comprehensive primary care
services for older adults. The MedWise Primary Care Center's interdisciplinary
team concept works to provide earlier, less costly intervention in medical and
psycho-social problems, with a goal of improving the quality of care and patient
satisfaction and decreasing utilization of inappropriate and costly health care
services.
A key component of our health care delivery model is our proprietary
care management software. This software is a tool used by our MedWise Primary
Care Center interdisciplinary teams and administrative staff to manage the care
of their patients throughout the entire healthcare continuum. In addition, we
are in the development stages of a physician support module for integration into
our software, which we are currently beta testing for use as an electronic
medical record. If such testing is positive, we will investigate potential
commercialization of such software. However, we currently cannot predict the
commercial viability of such software, nor our ability to fund such
commercialization.
Our clients include HMOs and hospitals. HMOs contract with us to
provide comprehensive health care services to their members under their health
plans. We currently provide most of our services under Medicare health care
plans, but approximately 7% of our service revenues in 1999 were attributable to
non-Medicare health care plan enrollment. We arrange for the delivery of these
services for a fixed per member monthly fee, typically referred to as a
capitated fee arrangement. Primary care physician services are provided through
physicians employed by or under contract with us. For services, other than
primary care services, we generally arrange for these services by contracting
with hospitals and other providers under a variety of fee arrangements. As of
March 1, 2000 we were under contract to provide comprehensive health care
services to approximately 17,150 HMO members in Florida and Colorado, of which
approximately 14,600 are Medicare HMO members.
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Historically, hospitals have contracted with us for the development and
management of primary care outpatient clinics primarily for patients who are 65
years of age or older. In connection with such clinics, we have also licensed
our care management software. Our hospital clients typically pay a one-time
fixed development fee and monthly fixed management and licensing fees for our
services and the use of our software. We are currently phasing out of the
business of managing hospital clinics to focus on providing medical services to
managed care organizations through our own centers. We currently manage six
hospital clinics.
THE GERIMED STRATEGY
Our objective is to become the leading provider of global risk
geriatric medical management. Our strategy to achieve this objective includes
the following:
o To train our employed and contract physicians to provide high
quality, early intervention health care throughout the continuum of
the geriatric patients' life.
o To grow our business both by growing our patient enrollment under
existing HMO contracts and through acquisition or reassignment of
large numbers of patients from new and existing HMO clients.
o To seek out strategic alliance opportunities with HMOs, providers
and alternative service providers.
DELIVERY OF HEALTH CARE SERVICES
PRIMARY CARE SERVICES. We provide primary care health care services to
patients, including those patients assigned to us by HMOs or our hospital
clients through MedWise Primary Care Centers. The MedWise Primary Care Center is
a primary care doctor's office, but with several important differences. Our
delivery model primarily targets patients who are 65 years of age or older. An
interdisciplinary team, composed of a physician and a care coordinator provides
primary care services to seniors. As volume through a facility increases, a
nurse practitioner or physician assistant is added to the team.
The professionals who staff MedWise Primary Care Centers
are specially trained in the field of geriatric services. Our team approach to
care management helps ensure that seniors are monitored closely, which
facilitates earlier, better quality, less costly intervention along the entire
health care continuum. We believe that most physicians focus on their patients'
immediate medical complaints, potentially overlooking non-medical issues that,
if ignored, could lead to health
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care problems. With a comprehensive care approach that employs a team in the
provision of health care services, MedWise physicians can manage a broader range
of issues than other physicians typically take into account and thus resolve
many issues before they turn into high-cost health problems. The MedWise team is
focused on health management and the functional status of its patients.
Another aspect of the MedWise Primary Care Center is the Wellness and
Prevention Program. This program has been designed to help seniors understand
their health concerns and offer practical advice about prevention and
self-treatment. We believe that this program increases the quality of patient
care and reduces the overall cost of the provision of health care services. In
addition, we believe it makes our services attractive to managed care payors
because of the reduction in inappropriate healthcare resource utilization,
improved member satisfaction and maximization of member retention associated
with the program.
While thousands of seniors are hospitalized each year as a result of
avoidable complaints such as malnutrition, our delivery model can help patients
avert such problems thereby reducing overall health care costs. A MedWise
Primary Care Center team will often send a care coordinator to a patient's home
to determine whether diet is the source of the patient's weight loss. If so, the
care coordinator may arrange for Meals on Wheels or another similar provider to
visit, which can improve the patient's quality of life, eliminate unnecessary
medical tests and avert a possible hospitalization. We take a similar approach
to other issues as well, in an effort to avert unnecessary hospitalizations. Our
delivery model is more expensive in staffing the outpatient setting than a
typical primary care physician's office, because of the cost of care
coordinators and other team members. However, we believe that under this
delivery model, physicians do not order unnecessary diagnostic studies and are
able to lower the number of referrals to specialists and unnecessary
hospitalizations, thereby lowering overall health care delivery costs.
The MedWise Primary Care Center team is dedicated to discussing
important issues with patients in the early stages of the team/patient
relationship. A member of the team sits down with each patient and his or her
family to discuss the patient's wishes if he or she should become seriously ill
so that the physician and the patient's family know what to do if problems begin
to mount. As a rule, the greatest costs incurred by an older adult for health
care are during the final six months of a patient's life. This is because many
people nearing death regularly shuttle between nursing homes and hospitals as
medical crises reach a peak. Hospitalizations can cost thousands of dollars yet
do little to improve the quality of a patient's life. The MedWise Primary Care
Center team tries to consult with patients before they end up in such
predicaments and has found that many patients request not to be hospitalized. A
patient's wishes regarding health care are honored by the MedWise Primary Care
Center team whatever they may be.
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SPECIALTY CARE SERVICES. Members of an HMO typically select a primary
care physician to serve as their personal physician from a listing of
contracting physicians or groups. If a member of an HMO selects one of our
primary care physicians, we become obligated to provide all of such member's
health care services, except for certain "carve-outs" discussed below. The
GeriMed physician selected by the HMO's members will oversee their medical care
and refer them to a specialist when medically necessary.
For health care services, other than primary care services, we arrange
for the delivery of services by contracting, directly or indirectly through our
HMO clients, with physicians, IPAs, medical groups, hospitals and other health
care providers. We pay contract providers under a variety of fee arrangements,
including capitated fee arrangements, fee-for-service, discounted
fee-for-service, and incentive pool arrangements. Under capitated fee
arrangements, the amount of the monthly capitated fee does not vary with the
nature or extent of services utilized. In exchange for the capitation fee, the
physicians employed by or contracting with the IPA, medical group or other
contracting entity provide professional services to members of our HMO clients.
We contract for hospital services, directly or through the applicable
HMO, with various hospitals under a variety of arrangements, including
fee-for-service, discounted fee-for-service, per diem and flat rate per
admission based on diagnosis (DRG methodology). Except in emergency situations,
a member's hospitalization must be approved in advance by the utilization review
committee of the HMO and must take place in hospitals contracted with us or the
HMO. When emergency situations arise requiring medical care by physicians or
hospitals not contracted with the Company, we are typically financially
responsible for the cost of medically necessary care.
Under our agreements with HMOs, we generally do not accept financial
responsibility for substance abuse or mental health services for HMO members.
These excluded services are referred to as "carve-outs."
CLIENTS
We provided services to HMOs owned and operated by Humana, CIGNA
Healthcare, Inc. and Pacificare, Inc. Approximately 57% of our revenues in 1999
were attributable to Humana, 10% were attributable to CIGNA Healthcare of
Florida, Inc. and 5% were attributable to PacifiCare of Colorado, Inc. The
agreements with these HMOs are generally terminable by us or the HMO upon 90
days' prior written notice. We also provided management services for
hospital-owned MedWise Primary Care Centers for eight hospitals. Hospital fees
represented approximately 14% of our revenues in 1999.
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MARKETING
We market our medical management services primarily to HMOs through
direct selling efforts.
COMPETITION
Management believes our direct competition is most likely to come from
the following sources.
HEALTH MAINTENANCE ORGANIZATIONS. Most HMOs are eligible to offer
comprehensive services to the elderly for a fixed payment from Medicare and many
HMO's are developing geriatric health care systems. Therefore, Medicare risk
HMOs represent either a client or competitor for us. To the extent an HMO
manages its own provider network in a market in which we provide services, such
HMO will compete with us for both medical providers and patients.
MEDICAL MANAGEMENT COMPANIES. There are other medical management
companies providing medical management services to HMOs under fully-capitated
arrangements. These medical management companies compete directly with us for
HMO contracts.
HEALTH CARE PROVIDERS. We also face competition from hospitals and
other health care providers who have combined and formed their own networks to
contract directly with HMOs for the delivery of health care services.
GOVERNMENT REGULATION
The health care industry is subject to extensive, stringent and
frequently changing federal, state and local regulation which is interpreted and
enforced by a number of government/regulatory entities with broad discretion.
Government regulation of health care coverage products and services is
a changing area of law that varies from jurisdiction to jurisdiction. Changes in
applicable laws and regulations are constantly being considered and the
interpretation of existing law and rules also change from time to time.
Regulatory agencies have broad discretion in promulgating regulations and in
interpreting and enforcing laws and rules. We are unable to predict what
regulatory changes may occur or what the impact on us will be from a particular
change.
The federal government and each of the states in which we conduct our
business have adopted laws and regulations that govern our business activities
to varying degrees regarding
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managed care operations, submission of claims, patient confidentiality,
competition and the corporate practice of medicine.
MANAGED CARE. One of the most important laws affecting our business is
the Federal Health Maintenance Organization Act of 1973, as amended (the "HMO
Act"), and the regulations promulgated thereunder by the federal Secretary of
Health and Human Services and the various state regulations mandating compliance
with certain net worth and other financial requirements.
We are not, and are not required to be, federally qualified under the
HMO Act. All of our HMO clients, however, are required to be federally qualified
under the HMO Act. As a result, federal regulations governing HMOs are generally
applied to us through our contracts with HMOs. Under federal regulations,
services to patients must be provided substantially on a fixed, prepaid, monthly
basis; without regard to the actual utilization of services. From time to time,
the U.S. Congress considers modifications to the HMO Act. We are unable to
predict what, if any, modifications to the HMO Act will be passed into law or
what effect, if any, legislation would have upon our operations, profitability
or business prospects.
Other areas regulated by federal and state law, although not
necessarily by each state, are the scope of benefits available to patients, the
manner in which premiums are structured, procedures for the review of quality
assurance, enrollment requirements, the relationship between an HMO and its
health care providers, procedures for resolving grievances, licensure, expansion
of service areas, financial condition, grounds for termination or non-renewal of
patients and providers, and patient rights. The HMOs, and their providers, are
subject to periodic review and/or audit by the federal and state licensing
authorities regulating them.
The Medicare risk contracts entered into by our HMO clients subject
participating HMOs to regulation by the Health Care Financing Administration
(HCFA), a branch of the federal Department of Health and Human Services. HCFA
has the right to audit HMOs operating Medicare risk contracts to determine
compliance with contract terms, regulations and laws governing the use of
federal funds and to monitor the quality of care being rendered to HMO
enrollees. HCFA also has the right to terminate our Medicare contracts, or the
Medicare contracts of our providers, and exclude us or our providers from
participation in government health programs, if we or our providers fail to meet
established government compliance standards.
In 1997, the Balanced Budget Act (the "BBA") was enacted which, among
other things, replaced the Medicare risk contract program with the
Medicare+Choice (M+C) program. The BBA modified the method of federal
reimbursement and the requirements for organizations participating in the M+C
program. M+C organizations are contractually obligated to meet all of the
requirements specified in the M+C regulation, and otherwise
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articulated in its M+C contract with HCFA. M+C organizations may meet these
requirements by directly providing required health or administrative services,
or by engaging in contracts for the provision of health or administrative
services that obligate the contracting party to meet all of the requirements
specified in the M+C regulation. These services may be furnished either by a
person or entity directly contracting with the M+C organization or with another
person or entity whom they have assigned the responsibility to furnish the
services. M+C organizations, or organizations contracting with an M+C
organization, are required to ensure that their employees are fully informed of
their obligations under the M+C regulations.
CLAIMS. As part of our services, we contract with a billing company to
submit claims, as our agent, under governmental programs. Federal law, and the
laws of some states where we conduct business, provide that it is both a civil
and a criminal violation for any person to submit a claim to any payer,
including Medicare, Medicaid and private health plans and managed care plans,
seeking payment for any services or products that overbills or bills for items
that have not been provided to the patient. We believe that we have in place
policies and procedures to assure that claims submitted are accurate and
complete, provided that the information given to us by our patients is also
accurate and complete.
CONFIDENTIALITY. Existing federal and state laws and regulations
regulate the disclosure of confidential medical information, including
information regarding conditions like AIDS, substance abuse and mental illness.
In addition, the federal Department of Health and Human Services recently
published a proposed rule regarding the disclosure of electronic confidential
medical information, which is expected to become final in June of 2000. As part
of our operations, patients may provide to us patient-specific confidential
medical information. We believe that we have policies and procedures in place to
assure that any confidential medical information received is handled in a manner
that complies with all current federal and state confidentiality requirements.
COMPETITION. Apart from basic antitrust laws such as the Sherman,
Clayton, Federal Trade Commission, and Robinson-Patman Acts, the health care
industry is subject to specific regulation regarding anti-competitive activities
by the Federal Trade Commission (FTC). The FTC's published guidelines,
"Statements of Antitrust Enforcement in Health Care" and additional "Revised
Statements" prohibit agreements between providers to fix prices or divide
markets, and provide some "safety zones" for arrangements between providers that
will not be challenged by the agency. The majority of the health care
competition issues raised by the FTC, however, are determined by a process that
does not lend itself to predicting outcomes as the agency attempts to determine
if an action creates pro-competitive efficiencies that, on balance, outweigh any
anti-competitive effects.
RENEWABILITY. The Health Insurance Portability and Accountability Act
of 1996 ("HIPAA") requires, among other things, the guaranteed issuance and
renewability of health
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insurance coverage for certain individuals and small groups, and guaranteed
renewability for large and small groups and certain individuals. Further, HIPAA
limits exclusions for preexisting conditions, and the grounds for terminating
coverage. HIPAA also imposed significant regulations and penalties designed to
prevent health care fraud and abuse.
CORPORATE PRACTICE OF MEDICINE. Most states, including some states in
which we conduct business, have adopted laws and regulations that limit the
practice of medicine to licensed individuals or professional organizations
comprised of licensed individuals. Many states also limit the scope of business
relationships between business entities such as us and licensed professionals
and professional corporations, particularly with respect to fee-splitting
between physicians and non-physicians. Laws and regulations relating to the
practice of medicine, fee-splitting and similar issues vary widely from state to
state, are frequently vague, and are infrequently interpreted by courts or
regulatory agencies in a manner that provides reliable guidance with respect to
our business operations. We attempt to structure all of our healthcare service
operations to comply with applicable state statutes regarding medical practice,
fee-splitting and related issues. There can be no assurance, however, that
courts or government officials with the authority to interpret or enforce these
laws and regulations will not assert that we are in violation of such laws and
regulations; or that future interpretations of such laws and regulations will
not require us to modify the structure and organization of our business.
EMPLOYEES
As of March 10, 2000, we employed 226 full-time employees. None of our
employees are represented by a labor union or covered by a collective bargaining
arrangement. We believe our employee relations are good.
FACILITIES
The following table sets forth the facilities that we are currently
leasing for our corporate headquarters and for our MedWise Primary Care Centers.
We believe that these facilities will be adequate for our needs for the
foreseeable future.
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<TABLE>
<CAPTION>
LEASE
CURRENT EXPIRATION SQUARE
SITE LOCATION MONTHLY RENT DATE RENEWAL OPTION FOOTAGE
---- -------- ------------ ---------- -------------- -------
<S> <C> <C> <C> <C> <C>
Corporate Offices Englewood, CO $7,407 09/30/05 -- 11,111
MedWise Primary Care Aurora Aurora, CO 8,526 06/14/02 -- 5,070
MedWise Primary Care Palm Coast Palm Coast, FL 5,048 12/31/04 3 5-year options 3,672
MedWise Primary Care Deltona Deltona, FL 2,916 12/31/01 -- 2,800
MedWise Primary Care New Smyrna New Smyrna Beach, 5,250 02/28/05 1 5-year option 4,200
FL
MedWise Primary Care Sun City Sun City, FL 4,771 12/31/03 1 5-year option 4,200
MedWise Primary Care Bloomingdale Valrico, FL 4,737 12/31/00 -- 3,395
MedWise Primary Care Largo Largo, FL 5,699 09/14/04 1 5-year option 2,981
MedWise Primary Care Gore Orlando, FL 5,124 01/14/04 1 5-year option 3,617
MedWise Primary Care Winter Park Winter Park, FL 3,966 02/28/01 -- 4,068
MedWise Primary Care Kirkman Orlando, FL 5,032 02/28/02 1 3-year option *
MedWise Primary Care Semoran Orlando, FL 4,800 07/31/04 -- 3,807
MedWise Primary Care Altamonte Altamonte Springs, 4,636 08/14/06 -- 3,007
Springs FL
MedWise Primary Care Casselberry Casselberry, FL 6,852 07/31/01 1 5-year option 2,615
MedWise Primary Care Kissimmee Kissimmee, FL 3,160 09/30/04 1 5-year option 2,615
Reno Primary Care for Seniors Reno, NV 9,234 04/30/02 -- 4,865
</TABLE>
- --------
* Denotes entire building.
INTELLECTUAL PROPERTY
We believe that recognition of our name is important to successful
marketing of our services. We own the servicemarks "GeriMed," "Years Ahead" and
"MedWise," all of which have been registered with the United States Patent and
Trademark Office. We also registered copyrights for our MedWise Healthy Living
Manual and MedWise Marketing Manual in July 1997.
In late 1994, GeriMed, Inc., a Kentucky corporation, f/k/a Institute
for Healthcare Cost Containment, Inc. challenged our right to use the
servicemark "GeriMed." Upon investigation, it was determined that we filed for
servicemark registration first and obtained registration of the servicemark
first. As part of our settlement agreement with GeriMed, Inc., GeriMed, Inc.
agreed to not use the servicemark in the field of clinical delivery of medical
services for seniors and we agreed that GeriMed, Inc. would have exclusive right
to use the servicemark for group purchasing activities for pharmacies. We are
not aware of any other litigation or challenges to our intellectual property.
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LEGAL PROCEEDINGS
We are involved in litigation incidental to our business from time to
time. We are not currently involved in any litigation in which we believe an
adverse outcome would have a material adverse effect on our business, financial
condition, results of operations, cash flows or prospects.
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STOCK OPTION PLAN
WHAT IS THE STOCK OPTION PLAN?
The stock option plan was adopted by us on December 28, 1993 to enable
our employees, whose judgment, initiative and continued efforts are expected to
contribute to the successful conduct of our business (referred to as "Key
Employees") to own our common stock and to take advantage of the tax benefits
allowed by the Internal Revenue Code to employer stock option plans. The stock
option plan was amended on June 27, 1995 to increase the number of shares of
common stock issuable upon exercise of options granted pursuant to the stock
option plan. The stock option plan is not a qualified deferred compensation
stock option plan under 401(a) of the Internal Revenue Code nor is it subject to
the provisions of the Employee Retirement Income Security Act of 1974.
The stock option plan's purpose is to attract and retain the services
of qualified and capable Key Employees, to encourage superior performance of the
Key Employees, and to promote our success.
HOW MANY SHARES OF STOCK ARE RESERVED FOR ISSUANCE UNDER THE STOCK OPTION PLAN?
We have reserved a total of 1,100,000 shares of common stock for
issuance under the stock option plan.
WHO ADMINISTERS THE STOCK OPTION PLAN?
The stock option plan is administered by a committee, appointed by our
Board of Directors, consisting of at least two directors who are not our
employees (the "Option Committee"). The Option Committee has final authority to
interpret any provision of the stock option plan or any grant made under the
stock option plan. The Option Committee currently consists of Douglas W. Kinzley
and Raymond M. Culp, M.D.
Subject to the express provisions of the stock option plan, the Option
Committee has the power to:
o grant incentive stock options to Key Employees;
o grant non-qualified stock options to Key Employees;
o make all determinations necessary or desirable for the
administration of the stock option plan;
o construe the respective option agreements and the stock option plan;
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o prescribe, amend and rescind rules and regulations relating to the
stock option plan;
o determine the terms and provisions of the respective option
agreements, which need not be identical; and
o correct any inconsistencies in the stock option plan.
WHO IS ELIGIBLE TO PARTICIPATE IN THE STOCK OPTION PLAN?
Our Key Employees are eligible to participate in the stock option plan.
WHO SELECTS THE KEY EMPLOYEES WHO RECEIVE OPTIONS?
The Option Committee selects the persons who receive options under the
stock option plan. The Option Committee may consider the present and potential
contributions of a Key Employee and any other factors they deem proper and
relevant in making determinations regarding grants of options under the stock
option plan.
WHAT TYPES OF GRANTS ARE PERMITTED UNDER THE STOCK OPTION PLAN?
The stock option plan permits us to grant incentive stock options and
non-qualified stock options. The options are described below.
WHAT IS A STOCK OPTION?
An option is a right to buy stock in the future at a predetermined
price. Incentive stock options are options that qualify for preferred tax
treatment under Section 422 of the Internal Revenue Code. Non-qualified stock
options are options that do not qualify as incentive stock options.
Subject to the terms of the stock option plan, the Option Committee
determines the number of shares subject to each option. The Option Committee
also determines the option exercise price. However, the exercise price of an
incentive stock option may not be less than the fair market value of the common
stock on the date of grant. Additionally, if you own more than 10% of the total
combined voting power of all classes of our outstanding stock at the time of
grant, the exercise price of an incentive stock option may not be less than 110%
of the fair market value on the date of grant.
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WHEN MAY I EXERCISE AN OPTION?
You may exercise the incentive stock options and non-qualified stock
options only after they become vested. The portion of an option grant that is
vested depends upon the period of time that has elapsed since the date it was
granted. The Option Committee establishes the vesting schedule for the options
granted under the stock option plan.
WHEN DO MY VESTED OPTIONS EXPIRE?
Vested stock options expire as of the earliest of:
o 10 years from the date the Option was granted (5 years if you own
more than 10% of the total combined voting power of all classes of
our outstanding stock on the date of grant), or
o three months after your termination of employment with us for any
reason other than death or disability, or
o twelve months after your death or disability resulting in your
termination of employment with us.
WHEN DO MY UNVESTED OPTIONS EXPIRE?
All unvested options expire if your employment relationship with us
terminates for any reason.
HOW DO I EXERCISE AN OPTION?
You exercise vested options by delivering written notice, properly
addressed postage prepaid, by registered or certified mail to our Secretary, at
our principal offices. In your notice, you must state the number of shares of
common stock with respect to which you desire to exercise your options and the
date of exercise, which date must be at least five days after signing the
notice.
HOW MAY I PAY FOR THE EXERCISE PRICE?
The exercise price is payable in cash, unless another form of
consideration is approved by the Option Committee.
DO I HAVE AN OBLIGATION TO NOTIFY GERIMED OF AMERICA, INC. IF I SELL COMMON
STOCK?
You must notify us when you sell common stock received upon exercise of
an incentive stock option if you sell the common stock (i) within two years
after we granted the
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incentive stock option you exercised or (ii) within one year after you received
the common stock upon exercise of the incentive stock option. Your written
notice should be delivered, properly addressed postage prepaid, by registered or
certified mail to the Option Committee, at our principal address, and set forth
the number of shares of common stock sold and the amount received upon the sale.
WHAT OTHER TERMS APPLY TO ALL AWARDS?
WRITTEN OPTION AGREEMENTS. Options granted under the stock option plan
are evidenced by a written agreement between us and the Key Employee to whom the
award is granted.
NON-TRANSFERABILITY OF OPTIONS. Generally, you cannot transfer the
options granted under the stock option plan. However, the option may be
transferred by will or the laws of descent and distribution. Additionally,
non-qualified stock options may be transferred, subject to the Option
Committee's approval, and on such terms and conditions as the Option Committee
determines in its sole and absolute discretion.
ADJUSTMENT FOR CHANGES IN CAPITALIZATION. In the event any change, such
as a stock split, dividend, recapitalization, or stock reclassification, is made
in our capitalization, an appropriate adjustment will be made in the price of
each option and in the number of shares subject to each option.
EFFECT OF DISSOLUTION OR LIQUIDATION OF GERIMED OF AMERICA, INC. In the
event of our dissolution or liquidation, other than in connection with a merger
or reorganization, all outstanding options shall be deemed terminated.
EFFECT OF CORPORATE TRANSACTIONS. Upon the merger, consolidation,
reorganization, or similar transaction with another entity, the Option Committee
may, without the consent of the Key Employee, accelerate the exercisability of
any outstanding option and shorten the time period within which the Key Employee
must exercise his or her options. Additionally, the Option Committee may
authorize modification of any outstanding option with the consent of the Key
Employee when and subject to such conditions as are deemed to be in our best
interests and in accordance with the purposes of the stock option plan.
If we do not accelerate the exercisability of any options upon the
occurrence of a merger, consolidation, reorganization, or similar corporate
transaction, and, as a result of the transaction, shares of common stock are
exchanged for other of our securities or securities of another corporation which
has assumed the outstanding options under the stock option plan or substitutes
for such options its own options, each Key Employee shall be entitled (subject
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to the conditions stated in the stock option plan or applicable to the
substituted options) to purchase that amount of the other of our securities or
the other corporation sufficient to ensure the value of the Key Employee's
options before such corporate transaction is equivalent to the value of the
substituted options immediately after the transaction. Upon the occurrence of
such corporate transaction, the class and aggregate number of shares subject to
the stock option plan, whether or not previously granted, shall be appropriately
adjusted to reflect the transaction.
LIMITATIONS ON GRANTS. The Option Committee cannot grant incentive
stock options to any Key Employee to the extent that the fair market value of
the common stock on the date of grant issuable upon exercise of such incentive
stock options exercisable for the first time in any one year would exceed
$100,000. No incentive stock options can be granted under the stock option plan
after December 28, 2003. The total number of shares of common stock that may be
issued upon exercise of options issued under the stock option plan may not
exceed 1,100,000 shares. If options issued under the stock option plan expire or
terminate unexercised, new options may be issued with respect to the share of
common stock underlying the expired or terminated options.
AMENDMENT AND TERMINATION. The Board may make such modifications to the
stock option plan at any time as it deems advisable and in accordance with
Section 422 of the Internal Revenue Code. To the extent necessary and desirable
to comply with Section 422 of the Internal Revenue Code (or any other applicable
law or regulation), we must obtain shareholder approval of certain amendments to
the stock option plan in the manner and to the degree required by such laws and
regulations. Except in the case of merger or reorganization (as described in the
stock option plan), the Board may not, without approval of our shareholders,
increase the number of shares reserved for options under the stock option plan.
WITHHOLDING TAXES. We may take any steps we deem to be necessary or
appropriate for the payment of withholding taxes payable as a result of the
grant, vesting, or exercise of options or the sale of common stock issued
upon exercise of options.
TAX INFORMATION
The following is a brief summary of the effect of U.S. federal income
tax laws upon options to purchase common stock granted under the stock option
plan based on U.S. federal income tax laws in effect on March 1, 2000.
This summary is not intended to be exhaustive and does not discuss the
tax consequences of a participant's death or the provisions of any income tax
laws of any municipality, state or foreign country in which a Key Employee may
reside. Moreover, the federal income tax laws have been frequently revised, and
may be changed again at any time
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in the future. You should consult your own tax advisor regarding the taxation of
these options.
INCENTIVE STOCK OPTIONS. Generally, you will not recognize taxable
income upon the grant or exercise of an incentive stock option (unless the
alternative minimum tax rules apply). If you acquire common stock pursuant to
the exercise of an incentive stock option and you do not dispose of the stock
before the later of (i) two years after the date the option was granted to you
or (ii) one year after the issuance of the stock to you, then upon the resale of
the stock, any amount realized in excess of the option exercise price will be
treated as a long-term capital gain and any loss sustained will be treated as a
long-term capital loss. We will not realize a tax deduction if you dispose of
the stock after these periods. If you dispose of the stock before the expiration
of the periods described above, you will recognize ordinary income in the year
of disposition in an amount equal to the excess (if any) of the fair market
value of the shares at exercise (or, if less, the amount realized on the
disposition of the shares) over the option exercise price paid for such shares,
and we will be entitled to a tax deduction in the same amount. Any further gain
or loss you realize will be taxed as short-term or long-term capital gain or
loss, as the case may be, and will not result in any deduction by us.
If your option designated as an incentive stock option first becomes
exercisable in any calendar year for shares whose aggregate fair market value
exceeds $100,000, the exercise of such excess shares will be treated for income
tax purposes as having been acquired by you pursuant to an non-qualified stock
option. For purposes of this rule, (i) all incentive stock options granted by us
to you are aggregated, (ii) the fair market value of the shares is the value of
the common stock on the date of grant of the option, and (iii) options are taken
into account in the order in which they are granted.
ALTERNATIVE MINIMUM TAX. The exercise of an incentive stock option
granted under the stock option plan may subject you to the alternative minimum
tax ("AMT") under Section 55 of the Code. In computing alternative minimum
taxable income, shares purchased upon exercise of an incentive stock option are
treated as if they had been acquired by you pursuant to an non-qualified stock
option. Under certain circumstances, you may affect the timing and measurement
of AMT by filing an election with the Internal Revenue Service under Section
83(b) of the Code within 30 days after the date of exercise of an incentive
stock option. Accordingly, you should consult your tax advisor prior to
exercising an incentive stock option concerning the advisability of filing an
election under Section 83(b) of the Code for AMT purposes.
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<PAGE> 46
If you pay AMT in excess of your regular tax liability, the amount of
such AMT relating to incentive stock options may be carried forward as a credit
against any subsequent years' regular tax in excess of the AMT.
NON-QUALIFIED STOCK OPTIONS. Generally, you do not recognize income at
the time a non-qualified stock option is granted to you. At exercise, you
generally recognize ordinary income (subject to tax withholding) in an amount
equal to the difference between the option exercise price paid for the shares
and the fair market value of the shares on the date of exercise. You receive
capital gain treatment for any gain or loss recognized upon disposition of stock
acquired pursuant to an non-qualified stock option. We are entitled to a tax
deduction in the same amount of ordinary income you recognize in connection with
the exercise of an non-qualified stock option. If you are an employee at the
time of grant, any ordinary income recognized upon exercise of a non-qualified
stock option will constitute wages for which withholding will be required.
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<PAGE> 47
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James F. Riopelle, M.D. 50 Chief Executive Officer and
Chairman of the Board
Michael R. Wasserman, M.D. 40 President and Chief Medical Officer
Raymond C. Delisle 67 Chief Operating Officer and Director
James M. Graham 53 Executive Vice President of Finance,
Treasurer and Secretary
Dennis L. Kuper 53 Chief Financial Officer
Randall L. Wade 44 Executive Vice President of
Development
David G. McKenzie 41 Vice President of Operations
Dennis R. Ahlman 58 Director
Paul J. Bracken 52 Director
Raymond M. Culp, M.D. 61 Director
Douglas W. Kinzley 46 Director
Richard H. Miles 49 Director
</TABLE>
James F. Riopelle, M.D. has served as our Chairman of the Board of
Directors and Chief Executive Officer since September 1993. Dr. Riopelle
previously served as our President from September 1993 to April 1998. Dr.
Riopelle received a B.S. degree and M.D. degree from Michigan State University.
Michael R. Wasserman, M.D. has served as our President and Chief
Medical Officer since April 1998 and has practiced as a Geriatrician at our
MedWise Primary Care Center in Aurora, Colorado since September 1994. Dr.
Wasserman served as our Vice President for Medical Affairs from January 1997 to
April 1998. Dr. Wasserman was our Medical Director at our MedWise Primary Care
Center in Aurora, Colorado from September 1994 to December 1996 and acted as our
Medical Director for our Transitional Care Unit at Aurora Presbyterian Hospital
in Aurora, Colorado from 1994 to 1997. Dr. Wasserman received his B.S. degree
from University of California, Irvine, and his M.D. degree from the University
of Texas, Medical Branch. Dr. Wasserman completed his residency in Internal
Medicine at Cedars-Sinai Medical Center and a Fellowship in Geriatric Medicine
from University of California, Los Angeles.
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<PAGE> 48
Raymond C. Delisle has served as a director since April 1994 and as our
Chief Operating Officer since October 1995. From March 1986 to October 1995, Mr.
Delisle was the President of Delisle Group, a management consulting firm
specializing in human resources and labor relations. Until March 1997, Mr.
Delisle was a director of Citywide Banks of Denver and Lakewood. Mr. Delisle
received a B.S. degree from Fairleigh Dickinson University and J.D. degree from
the University of Denver College of Law.
James M. Graham has served as our Treasurer since August 1994, our
Secretary since March 2000, and our Executive Vice President of Finance since
January 1996. Mr. Graham previously served as our Chief Financial Officer from
July 1994 to January 1996 and as Assistant Secretary from January 1995 to March
2000. Mr. Graham received a B.S. degree from Pennsylvania State University.
Dennis L. Kuper has been our Chief Financial Officer since January
1996. From November 1986 through October 1995, Mr. Kuper served as the Executive
Vice President-Finance and Chief Financial Officer of VICORP Restaurants, Inc.,
a Nasdaq listed operator and franchiser of 400 mid-scale family style
restaurants. Mr. Kuper received a B.S. degree from the University of South
Dakota.
Randall L. Wade has served as our Executive Vice President of
Development since January 1997. From 1991 to January 1997, Mr. Wade worked as a
Regional Manager for Ziegler Leasing, which is a healthcare finance company. Mr.
Wade received a B.S. degree from Central University of Iowa.
David G. McKenzie has been our Vice President of Operations since May
1995. From October 1991 to March 1995, Mr. McKenzie served as the Chief
Financial Officer and General Manager of the Seattle Fish Company, a seafood
distribution company located in Denver, Colorado. Mr. McKenzie received a B.S.
degree from the University of Vermont.
Dennis R. Ahlman has served as a director since April 1994, as a member
of our Compensation Committee since January 1998 and as a member of our Option
Committee since March 2000. From 1986 until his retirement in August 1999, Mr.
Ahlman was Vice President of Administration for the Gates Rubber Company where
he had responsibility for Human Resources, Information Systems, Purchasing and
the Gates Clinic. The Gates Clinic is a Denver-based, multi-specialty medical
clinic used by approximately 1,400 employees, 3,400 retirees, their dependents,
and various outside patients. Mr. Ahlman received a B.S. degree from the
University of Nebraska.
Paul J. Bracken, Ph.D. has served as a director since June 1996. Dr.
Bracken is a tenured Professor of Management at the School of Management at Yale
University and is an expert in the fields of corporate strategy and business use
of new technology. Before joining the Yale faculty in 1983, he was on the senior
staff of the Hudson Institute, where he directed
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<PAGE> 49
the management consulting division. He received a B.S. degree from Columbia
University and a M.S. and Ph.D. from Yale University.
Raymond M. Culp, M.D. has served as a director since April 1994, as a
member of our Compensation Committee since January 1998 and as a member of our
Option Committee since March 2000. Since 1968, Dr. Culp has been in the private
practice of psychiatry. Dr. Culp received a B.A. degree from the University of
Oklahoma and an M.D. degree from Baylor College of Medicine.
Douglas W. Kinzley has served as a director since April 1994. Mr.
Kinzley has been Vice Chairman and a managing principal of MGA Communications,
Inc. since November 1997. From December 1983 to October 1998, Mr. Kinzley was
Chairman of the Board and Chief Executive Officer of Kinzley-Hughes, Inc., a
marketing consulting, advertising, public relations and marketing research firm
specializing in healthcare marketing with offices in Denver and Los Angeles. Mr.
Kinzley received a B.A. degree from the University of North Dakota.
Richard H. Miles has served as a director since December 1997 and as a
member of our Compensation Committee since January 1998. Mr. Miles has served as
President and Chief Operating Officer of Spectrum Healthcare Services, Inc.
since December 1993. Mr. Miles received a B.A. degree from Vanderbilt University
and a M.B.A. degree from Xavier University.
COMPOSITION OF OUR BOARD OF DIRECTORS AND BOARD OF DIRECTORS' COMMITTEES
Our Restated Bylaws provide that the Board of Directors consist of at
least one and no more than twelve directors and our Board of Directors may
change the number by passing a resolution. We currently have seven directors.
Each director serves on the Board of Directors until his respective successor is
elected and qualified at an annual meeting of shareholders.
Our Board of Directors established our Compensation Committee in
January 1998. Our Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all of our executive officers and
establishes and reviews general policies relating to compensation and benefits
of our employees. The members of our Compensation Committee are Raymond M. Culp,
Dennis R. Ahlman and Richard H. Miles. In March 2000, our Board of Directors
established our Option Committee comprised of two non-employee members of the
Board of Directors to administer our stock option plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee makes all compensation decisions. None of
our officers are members of our Compensation Committee. No interlocking
relationship exists between our
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<PAGE> 50
Board of Directors or Compensation Committee and the Board of Directors or
Compensation Committee of any other company, nor has any interlocking
relationship existed in the past.
DIRECTORS' COMPENSATION
We reimburse our directors for all reasonable out-of-pocket expenses
they incur in connection with their attendance at Board of Directors and
Compensation Committee meetings.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth summary
information regarding all cash and non-cash compensation awarded to or earned by
our Chief Executive Officer and our four most highly compensated officers, other
than our Chief Executive Officer, for services rendered during the years ended
December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
LONG TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION
----------------------------------- ----------------- --------------
NUMBER OF
SECURITIES UNDER-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS LYING OPTIONS
- --------------------------- ---- ------------ ------------- -----------------
<S> <C> <C> <C> <C> <C>
James F. Riopelle 1999 $ 175,000 -- -- --
Chief Executive Officer 1998 150,568 -- -- --
1997 127,200 -- -- --
1999 $ 186,162 $ 5,000 50,000 --
Michael R. Wasserman 1998 184,398 29,675 -- $ 44,993
President and Chief Medical
Officer
Raymond C. Delisle 1999 $ 120,000 -- -- --
Chief Operating Officer 1998 116,462 $ 1,500 -- --
1997 120,000 -- --
James M. Graham 1999 $ 113,000 $ 3,075 -- --
Executive Vice President of 1998 108,626 1,000 -- --
Finance, Secretary and 1997 108,000 -- -- --
Treasurer
Randall L. Wade 1999 $ 80,000 $ 101,974 -- --
Executive Vice President of 1998 80,000 30,027 -- --
Development 1997 85,690 27,000 40,000 --
</TABLE>
o Salary includes all personal contributions to our 401(k) plan and
Section 125 benefits plan. We have never made matching contributions to
employee 401(k) plans.
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<PAGE> 51
o Michael R. Wasserman, M.D. became our President and Chief Medical
Officer in April 1998. $44,993 of Dr. Wasserman's "other compensation"
consists of the forgiveness of an amount equal to $44,993 in December
1998 owed by Dr. Wasserman to us pursuant to a loan agreement between
Dr. Wasserman and us.
OPTION GRANTS IN FISCAL YEAR 1999. The following table sets forth
information regarding stock options granted during fiscal year 1999 to our Chief
Executive officer and our other four most highly compensated executive officers,
other than our Chief Executive officer, who were serving as executive officers
at the end of 1999.
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------------------ ----------
PERCENTAGE OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN PRICE GRANT DATE
FISCAL OPTIONS FISCAL YEAR PER EXPIRATION RESALE
NAME YEAR GRANTED (%) SHARE DATE VALUE
---- ------ ---------- ------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James F. Riopelle, M.D 1999 -- -- -- -- --
Chief Executive Officer
Michael R. Wasserman, M.D 1999 50,000 45.5% $ 2.50 01/12/2009 $ 2.50
President and Chief Medical
Officer
Raymond C. Delisle 1999 -- -- -- -- --
Chief Operating Officer
James M. Graham 1999 -- -- -- -- --
Executive Vice President of
Finance, Secretary and
Treasurer
Randall L. Wade 1999 -- -- -- -- --
Senior Vice President and
Executive Vice President of
Development
</TABLE>
- ----------------------------------
In the foregoing table, with respect to the total options granted to
employees in fiscal year 1999, we granted stock options for an aggregate of
110,000 shares.
EMPLOYMENT AGREEMENTS
Effective January 1, 2000, we entered into an employment agreement with
Randall L. Wade under which Mr. Wade agreed to serve as Executive Vice President
of Development. The agreement is for an initial term of three years with
automatic renewals for succeeding one year terms. Mr. Wade is paid a base salary
of $80,000
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<PAGE> 52
per year, plus additional incentive compensation based upon the number of
patients covered under new and existing HMO contracts providing health care and
provides for accelerated vesting of stock options if Mr. Wade meets certain
performance milestones. In addition, Mr. Wade is entitled to bonus compensation
based on profitability of HMO contracts that we entered into during 1998 and
1999.
CERTAIN TRANSACTIONS
During 1997, 1998, from January 1999 to May 1999 and from March 3, 2000
to the date of this prospectus, James F. Riopelle, M.D. signed as a co-borrower
with us on a bank line of credit for $1,800,000 to induce the bank to maintain
the line of credit. Dr. Riopelle has not made withdrawals on the line of credit
and we are currently negotiating, through a special committee of the Board of
Directors comprised of three non-employee directors, the consideration to be
paid to Dr. Riopelle for signing as a co-borrower. Until March 1997, Raymond C.
Delisle served on the Board of Directors of the bank. Raymond C. Delisle is a
member of our Board of Directors and is our Chief Operating Officer. Interest on
borrowings on the line of credit is payable monthly at a rate of 10.75% per
annum.
On February 29, 2000, Dr. Riopelle loaned us $300,000 to prevent an
overdraw on our accounts. On March 1, 2000, we paid Dr. Riopelle the $300,000 in
full. We paid Dr. Riopelle one day's interest at a rate of 10.75% per annum on
the loan.
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<PAGE> 53
PRINCIPAL SHAREHOLDERS
The following tables set forth certain information regarding the
beneficial ownership of our common stock and Series A convertible preferred
stock, as of March 15, 2000 for (i) each person known by us to beneficially own
more than 5% of any class of the shares of our capital stock, (ii) each
executive officer named in the Summary Compensation Table, (iii) each of our
directors, and (iv) all of our directors and executive officers as a group.
Shares not outstanding but deemed beneficially owned by virtue of the right of
an individual or group to acquire them within 60 days are treated as outstanding
only when determining the amount and percentage owned by such individual or
group. Unless otherwise noted, each person or group identified has sole voting
and investment power with respect to the shares of capital stock shown. Unless
otherwise indicated, the address is 333 West Hampden Avenue, Suite 200,
Englewood, Colorado 80110.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF OUTSTANDING
OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES
- -------------------- ------------------ -----------------------
<S> <C> <C>
James F. Riopelle, M.D................ 3,371,000 77.1%
Raymond M. Culp, M.D.................. 40,000 *
Raymond C. Delisle.................... 75,000 1.7%
Douglas W. Kinzley.................... 40,000 *
Dennis R. Ahlman...................... 40,000 *
Paul J. Bracken....................... 0 *
Richard H. Miles...................... 2,329,335 34.8%
12647 Olive Blvd.
Creve Coeur, MO 63141
Michael R. Wasserman, M.D............. 100,000 2.2%
James M. Graham....................... 50,000 1.1%
Randall L. Wade....................... 65,411 *
Spectrum Healthcare Services, Inc..... 2,329,335 34.8%
12647 Olive Boulevard
Creve Coeur, MO 63141
Robert J. Beattie..................... 275,000 6.3%
544 DTC Parkway, Suite 800
Englewood, CO 80111
All executive officers and directors
as a group (12 people)................ 6,184,746 88.2%
</TABLE>
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<PAGE> 54
* Less than one percent.
In the foregoing table the common stock beneficially owned by:
o James F. Riopelle, M.D. does not include 208,000 shares of common stock
owned by his four children and 67,000 shares of common stock owned by
his nieces and nephews. All of such shareholders have granted a proxy
to vote their shares to Robert J. Beattie, who, at the time the proxy
was given, was Dr. Riopelle's brother-in-law. Dr. Riopelle disclaims
beneficial ownership of all of such shares and such shares are not
included in the table above.
o Raymond C. Delisle does not include 12,700 shares of common stock
beneficially owned by his wife, daughter and son. Mr. Delisle has no
voting rights with respect to the 12,700 shares of common stock. The
foregoing table includes 25,000 shares of common stock underlying
options we granted under our stock option plan at an exercise price of
$2.50 per share.
o Paul J. Bracken does not include 25,000 shares of common stock held by
members of Dr. Bracken's family. Dr. Bracken has no voting rights with
respect to those shares.
o Richard H. Miles consists of 2,329,335 shares beneficially owned by
Spectrum Healthcare Services, Inc. Mr. Miles is an executive officer of
Spectrum.
o Michael R. Wasserman, M.D. consists of 100,000 shares of common stock
underlying options we granted under our stock option plan at exercise
prices of $1.00 and $2.50 per share. We do not include 35,000 shares of
common stock underlying options we granted under our stock option plan
at an exercise price of $1.00 that are not exercisable until July 15,
2000.
o James M. Graham consists of 50,000 shares of common stock underlying
options we granted under our stock option plan at an exercise price of
$1.00 per share.
o Randall L. Wade consists of 65,411 shares of common stock underlying
options we granted under our stock option plan at an exercise price of
$2.50 per share. We do not include 9,589 shares of common stock
underlying options we granted under our stock option plan at an
exercise price of $2.50 that are not exercisable within 60 days of the
date of this prospectus.
o Spectrum Healthcare Services, Inc. consists of 906,891 shares of common
stock issuable upon conversion of the 906,891 shares of Series A
convertible preferred stock held by Spectrum Healthcare Services, Inc.,
797,001 shares of common stock issuable upon conversion of 797,001
shares of Series A convertible preferred stock issuable upon
51
<PAGE> 55
exercise of warrants held by Spectrum Healthcare Services, and 625,443
shares of common stock issuable upon conversion of 625,443 shares of
Series A convertible preferred stock that are issuable at the election
of Spectrum Healthcare Services for an investment of $3,000,000 if they
make such election prior to June 22, 2000.
o Robert J. Beattie consists of 208,000 shares of common stock owned by
James F. Riopelle's, children and 67,000 shares of common stock owned
by Dr. Riopelle's nieces and nephews. All of such shareholders have
granted a proxy to vote their shares to Mr. Beattie who, at the time
the proxy was given, was Dr. Riopelle's brother-in-law.
o All executive officers and directors as a group includes Dennis L.
Kuper's 20,000 shares of common stock underlying options we granted
under our stock option plan at an exercise price of $2.50 per share and
David G. McKenzie's 50,000 shares of common stock underlying options we
granted under our stock option plan at an exercise price of $2.50 per
share. We do not include Mr. Kuper's 5,000 shares of common stock
underlying options and granted to him under our stock option plan that
are not exercisable within 60 days of this prospectus.
52
<PAGE> 56
SECURITIES OFFERED BY THE CURRENT SHAREHOLDERS
Our current shareholders may sell up to an aggregate of 6,699,335
shares of common stock. While we are registering all of the shares held by our
current shareholders, including all the shares currently held by our directors
and executive officers, we do not know whether they intend to sell any of their
common stock, but they may sell some, none or all of their shares.
Based on our stock transfer records, we will provide specific
information upon request, regarding the selling shareholders who are not
individually named at a particular point in time.
We are also registering for sale and resale up to 1,060,000 shares of
common stock that may be sold to our employees through our stock option plan.
The following table sets forth, as of March 31, 2000, the number of
shares of common stock owned by our current shareholders, including 906,891
shares of Series A convertible preferred stock, 797,001 shares of Series A
convertible preferred stock underlying warrants and a right to purchase 625,443
shares of Series A convertible preferred stock owned by Spectrum Healthcare
Services, Inc. which shares and underlying shares are convertible into common
stock on a one-for-one basis. We have not individually listed shares underlying
options granted to our shareholders under our stock option plan that have not
been exercised. All directors and executive officers who own shares of common
stock and all shareholders who own 0.5% or more of common stock are individually
identified below.
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER OF
NUMBER OF OWNERSHIP SHARES
NAME OF BENEFICIAL OWNER SHARES OWNED BEFORE OFFERING REGISTERED
------------------------ ------------ --------------- ------------
<S> <C> <C> <C>
James F. Riopelle, M.D............................. 3,371,000 64.2% 3,371,000
Raymond M. Culp, M.D............................... 40,000 * 40,000
Douglas W. Kinzley................................. 40,000 * 40,000
Dennis R. Ahlman................................... 40,000 * 40,000
Raymond C. Delisle................................. 50,000 1.0 50,000
David G. McKenzie.................................. 2,000 * 2,000
Dennis L. Kuper.................................... 2,000 * 2,000
Sam Anouna......................................... 180,000 3.4 180,000
Gregory G. James, IRA.............................. 60,000 1.1 60,000
Benjamin Joseph Riopelle........................... 52,000 * 52,000
John A. Riopelle................................... 40,000 * 40,000
Mark James Riopelle................................ 52,000 * 52,000
Matthew John Riopelle.............................. 52,000 * 52,000
Rebecca Beattie Riopelle........................... 52,000 * 52,000
Marc J. Sorkin and Laurie A. Sorkin................ 25,000 * 25,000
Spectrum Healthcare Services, Inc.................. 2,329,335 34.8 2,329,335
All directors and executive officers as a
group (12 people)................................ 3,545,000 81.1 3,545,000
All shareholders (other than directors and
executive officers) who own 0.5% or more
of common stock as a group (11 people)........... 2,922,335 43.6 2,922,335
All other current shareholders..................... 232,000 5.1 232,000
</TABLE>
53
<PAGE> 57
* Less than 1.0%
In the foregoing table, the shares of common stock registered by the
current shareholders represent the maximum number of shares that they may sell.
Based on the currently available information, these shareholders intend to sell
significantly less than this maximum number of shares. The 2,000 shares owned by
David G. McKenzie are held in a 401(k) account for the benefit of Mr. McKenzie.
54
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following is a summary of the material provisions of our Articles
of Incorporation, as amended, and Restated Bylaws regarding our capital stock.
You may find more detailed information by reading the Articles of Incorporation,
as amended, and the Restated Bylaws, copies of which are filed as exhibits to
the registration statement filed with the Securities and Exchange Commission.
The Articles of Incorporation, as amended, and Restated Bylaws will take effect
prior to the first trade date in the internal market if the Board of Directors
determines to give effect to the internal market at the Board's June 2000
meeting.
We are authorized to issue 30,000,000 shares of capital stock, of which
25,000,000 shares are common stock, par value $.0001 per share, and 5,000,000
shares are preferred stock, par value $.0001 per share. As of December 31, 1999,
4,370,000 shares of common stock were outstanding and 906,891 shares of Series A
convertible preferred stock were outstanding and held of record by one holder,
Spectrum Healthcare Services, Inc.
COMMON STOCK
GENERAL. Holders of common stock are entitled to one vote per share on
all matters submitted to our shareholders. Each share of common stock is equal
in respect of voting rights, liquidation rights and rights to dividends and to
distributions. Shareholders do not and will not have any preferred or preemptive
rights to subscribe for, purchase or receive additional shares of any class of
our capital stock, or any securities convertible into or exchangeable for such
shares.
RESTRICTIONS ON COMMON STOCK. All the shares of common stock presently
outstanding are, and all shares of common stock offered hereby will be, subject
to restrictions set forth in the Restated Bylaws:
1. RIGHT OF REPURCHASE UPON TERMINATION OF EMPLOYMENT OR AFFILIATION.
All shares of common stock are subject to our right of repurchase upon the
termination of the shareholder's employment or affiliation with us. Such right
of repurchase will also be applicable to all shares of common stock which such
person has the right to acquire after his or her termination of employment or
affiliation pursuant to any option or other contractual right to acquire shares
of common stock which was outstanding at the date of such termination of
employment or affiliation. Such right of repurchase will not be applicable to
shares of common stock held by an employee benefit plan or any other retirement
or pension
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<PAGE> 59
plan adopted by us or any of its subsidiaries which pursuant to applicable law
or by its terms does not provide for our right to repurchase shares issued
thereunder upon termination of employment or affiliation.
Our right of repurchase is exercised by mailing a written notice to
such holder within 60 days following termination of employment or affiliation.
If we repurchase the shares, the price will be the price per share in effect on
the date of such termination of employment or affiliation, in the case of shares
owned by the holder at that date and shares issuable to the holder after that
date pursuant to any option or other contractual right to acquire shares of
common stock which were outstanding at that date.
We and any holder of shares may agree to extend the time period of our
right to repurchase such holder's shares or to alter the payment terms.
2. RIGHT OF REPURCHASE UPON INVOLUNTARY TRANSFER. All shares of common
stock are subject to our right of repurchase upon their involuntary transfer,
levy, sequestration, administration by a receiver or a trustee in bankruptcy, or
sale or proposed sale in foreclosure or execution or under any power of sale
contained in a note or loan agreement, or by a decree of dissolution of marriage
(including by settlement agreement), or by operation of law. Our right of
repurchase is exercised by mailing a notice to such holder within six months
following our receipt of notice of such involuntary transfer. If we repurchase
the shares, the price will be the price per share in effect on the date of such
involuntary transfer.
3. RIGHT OF FIRST REFUSAL. If a holder of common stock desires to sell
any of his or her shares to a third party other than in the internal market,
such holder must first give notice to our Secretary including:
o A signed statement indicating that such holder desires to sell his or
her shares of common stock and that he or she has received a bona fide
offer to purchase such shares.
o A statement signed by the intended purchaser containing:
(i) the intended purchaser's full name, address and taxpayer
identification number;
(ii) the number of shares to be purchased;
(iii) the price per share to be paid;
(iv) the other terms under which the purchase is intended to be made;
and
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<PAGE> 60
(v) a representation that the offer, under the terms specified, is bona
fide.
o If the purchase price is payable in cash, in whole or in part, a copy
of a certified check, cashier's check or money order payable to such
holder from the purchaser in the amount of the purchase price to be
paid in cash.
We then have the right, exercisable within 14 days, to purchase all of
the shares specified in the notice at the offer price and upon the same terms as
set forth in the notice. In the event we do not exercise such right, the holder
may sell the shares specified in the notice within 30 days thereafter to the
person specified in the notice at the price and upon the terms and conditions
set forth therein. The holder may not sell such shares to any other person or at
any different price or on any different terms without first re-offering the
shares to us.
If circumstances occur which would permit us to exercise our right of
repurchase upon termination of employment or affiliation and our right of first
refusal, then we may, in our sole discretion, elect which of these rights we
will exercise.
4. OTHER TRANSFERS. Except for sales in the internal market or pursuant
to the repurchase right or right of first refusal procedure described above, no
holder of common stock may sell, assign, pledge, transfer or otherwise dispose
of or encumber any shares of common stock without our prior written approval.
Any attempt to do so without such prior approval will be null and void.
PREFERRED STOCK
In December 1997, we designated 3,000,000 Series A convertible
preferred stock, of which 906,891 shares have been issued. Each share of Series
A preferred stock is convertible into one share of our common stock at the
option of the holder of the preferred stock. The rate of conversion is subject
to adjustment if we change our capitalization.
Holders of the Series A preferred stock have the right to vote on
matters coming before our shareholders, with each share of Series A preferred
stock having a number of votes equal to the number of shares of common stock
into which it is then convertible. The Series A preferred stockholders do not
vote as a separate group.
Upon any liquidation, dissolution or winding up of GeriMed of America,
Inc., whether voluntary or involuntary, the holders of the Series A preferred
stock would be entitled to be paid $3.308 prior to any distributions to holders
of common stock.
We may not, without the consent of the holders of a majority of the
shares of Series A preferred stock:
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<PAGE> 61
o issue any preferred stock ranking above or equal with the Series A
preferred stock
o amend, alter or repeal our Articles of Incorporation or Bylaws in any
manner which adversely affects any of the powers, preferences or rights
set forth in the designation of the Series A preferred stock
o declare or pay any dividend or make any distribution with respect to
securities ranking lower than the Series A preferred stock
The Board of Directors has the authority, without further shareholder
approval, to issue up to 4,093,109 additional shares of preferred stock from
time to time, 2,000,000 of which may be issued in one or more new series, to
establish the number of shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof. The issuance
of preferred stock may have the effect of delaying or preventing a change in
control. The issuance of preferred stock could decrease the amount of earnings
and assets available for distribution to the holders of common stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the common stock. In certain circumstances, such issuances could have the
effect of decreasing the value of the common stock. As of the date of this
prospectus, we currently have no plans to issue any additional shares of
preferred stock, except as described below.
CERTAIN SHAREHOLDER RIGHTS
On December 22, 1997, in connection with our sale of Series A
convertible preferred stock, we issued to Spectrum Healthcare Services, Inc.
certain additional rights related to the purchase of our securities and certain
corporate actions.
WARRANTS. We issued Spectrum Health Services, Inc. a warrant to
purchase up to 797,001 shares of Series A convertible preferred stock at an
exercise price of $0.0001 per share, depending on the level of our earnings
before interest and income taxes in 1998 and 1999. Our earnings before interest
and income taxes means our net income, for any fiscal year, as set forth on our
audited consolidated statement of income for the fiscal year, plus all income
and franchise tax expense we incur during that fiscal year plus all interest
expense we incur during that period and disregarding all extraordinary gains and
losses outside of our ordinary course of business.
Based on our earnings before interest and income taxes for 1998 and
1999, Spectrum has the right to purchase up to 797,001 shares of Series A
convertible preferred stock, underlying the warrant. Spectrum must exercise all
of its shares of Series A convertible preferred stock by 5:00 p.m., December 31,
2003 or the warrant will expire.
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<PAGE> 62
ADDITIONAL INVESTMENT. In addition to the warrant, Spectrum Healthcare
Services, Inc. has the right to purchase 625,443 shares of our Series A
convertible preferred stock at a price of $4.80 per share. This right to
purchase our Series A convertible preferred stock must be exercised on or before
June 22, 2000 and Spectrum must purchase all 625,443 shares.
RIGHTS OF FIRST REFUSAL. Spectrum Health Services, Inc. has certain
rights of first refusal if we propose to issue any shares other than those
reserved for issuance under our stock option plan. If we propose to issue any
stock or rights to acquire stock at a price of less than $3.308 per share,
Spectrum has the right for 30 days after receipt of notice to purchase all or
its pro rata portion (on a fully diluted basis assuming the conversion of all
outstanding preferred stock, and the exercise of all options or warrants having
a strike price less than the offering price) of such offered securities. This
right does not apply to shares sold under our stock option plan.
If we propose to issue stock or rights to acquire stock at a price
greater than $3.308 per share, Spectrum has the right for 30 days after receipt
of notice, to purchase that portion of the shares offered necessary to maintain
Spectrum's percentage interest in our common equity, on a fully-diluted basis.
The price and terms of Spectrum's right to purchase are those which we propose
to offer the sale of shares.
VETO RIGHTS. Until we close a public offering of our common stock with
an aggregate offering price of at least $10,000,000 or Spectrum Healthcare
Services, Inc. owns less than 5% of our outstanding common stock (assuming
conversion of their preferred stock and exercise of their warrant), we cannot
take any of the following corporate actions without the prior written consent of
Spectrum:
o merge, consolidate with or otherwise acquire substantially all of the
assets or securities of any partnership, corporation, firm or other
business enterprise if the acquisition price of such assets or
securities exceeds $1,000,000, nor sell, lease or otherwise dispose of
our assets having a value in excess of $1,000,000;
o other than in the ordinary course of business or consistent with our
past practice, make any investment in excess of $500,000 in the
securities of any partnership, corporation, firm, or other business
enterprise;
o other than in the ordinary course of business consistent with our past
practice, guarantee or otherwise become liable for the obligations or
liabilities of any partnership, corporation, firm or other business
enterprise;
o declare or pay dividends upon any class of our stock;
o redeem, retire, repurchase or otherwise acquire, directly or
indirectly, any of our stock of any class, except for repurchases from
our employees, excluding James F. Riopelle;
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<PAGE> 63
o cease engaging principally in the business of providing health care for
the senior population;
o amend any provision of our Articles of Incorporation or Bylaws; or
o consummate any other transaction, directly or indirectly, through any
subsidiaries or affiliates or otherwise, that is principally designed
to circumvent the covenants contained in our agreement with Spectrum.
After December 22, 2002, Spectrum's veto rights described above will
terminate unless the number of shares of our common stock it then owns (assuming
conversion and exercise of all our securities then held by Spectrum), plus any
shares Spectrum declines to purchase under its rights of first refusal described
above, equal at least 51% of the total number of our shares of common stock
which are then outstanding (on a fully-diluted basis assuming all options,
warrants and other rights have been exercised and all convertible securities
converted).
LIMITATION OF LIABILITY AND INDEMNIFICATION
Under the Colorado Business Corporation Act, a corporation may provide
for the limitation of liability of directors and indemnification of directors
and officers under some circumstances. Our Articles of Incorporation provide
that directors are not personally liable to the corporation or its shareholders
for monetary damages for conduct as a director, except for any act or omission
for which the elimination of liability is not permitted under the Act. Section
7-108-402 of the Colorado Business Corporation Act sets forth the following
actions for which limitation of liability is not permitted, including:
o any breach of a director's duty of loyalty to the corporation or its
shareholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
o any unlawful distributions to shareholders; or
o any transaction from which the director received an improper or illegal
personal benefit.
The Restated Bylaws allow us to indemnify any person who is or was a
party, or is threatened to be made a party, to any civil, administrative, or
criminal proceeding by reason of the fact that the person is or was our director
or officer or any of our subsidiaries, or is or was serving at our request as a
director, officer, partner, agent, or employee of another corporation or entity.
The indemnification may include expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by that
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<PAGE> 64
person. Under Sections 7-109-102 and 7-109-107 of the Colorado Business
Corporation Act, indemnification is available if:
o the person acted in good faith;
o the person reasonably believed the conduct was in the corporation's
best interests, or at least was not opposed to its best interests; and
o in the case of a criminal proceeding, the person had no reasonable
cause to believe the conduct was unlawful.
In addition, a person who is wholly successful, on the merits or
otherwise, in the defense of a proceeding in which the person was a party
because the person was a director, is entitled to indemnification for expenses
actually and reasonably incurred by the person in connection with the
proceeding.
COMMISSION POSITION ON INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to our
directors, officers and controlling persons pursuant to provisions described
above, or otherwise, we have 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 is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ANTI-TAKEOVER PROVISIONS
Our Articles of Incorporation, as amended, and Restated Bylaws contain
provisions that could make the acquisition of us through a tender offer, proxy
contest, or merger difficult for a potential suitor opposed by the Board of
Directors. These provisions are:
o The restriction on the sale of common stock outside of the internal
market;
o Our right to repurchase shares of common stock upon the holder's
termination of employment with us;
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<PAGE> 65
o Our right of first refusal on shares of common stock, except for shares
sold in the internal market;
o Our right to refuse to allow the transfer of shares of common stock to
proposed transferees, except for shares sold in the internal market or
pursuant to the right of first refusal; and
o Our ability to issue preferred stock without shareholder approval.
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<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding up to
4,370,000 shares of common stock. All of these shares are included for sale in
the offering and will be freely tradable in the internal market without
restriction or further registration under the Securities Act.
As of December 31, 1999, 622,500 options to purchase shares of our
common stock were outstanding. A total of 437,500 shares of common stock are
currently available for future grants of options.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Faegre & Benson LLP, Denver, Colorado.
EXPERTS
The financial statements included in this prospectus and the related
financial statement schedule included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act, with respect to the common stock
offered hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement, certain items of which are contained in exhibits to the registration
statement as permitted by the rules and regulations of the Commission. For
further information with respect to us and the common stock offered hereby,
reference is made to the registration statement, including the exhibits thereto,
and the financial statements and notes and schedules filed as a part thereof.
Statements made in this prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the
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<PAGE> 67
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The registration statement, including the exhibits thereto, and the
financial statements and notes and schedules filed as a part thereof, as well as
such reports and other information filed with the Commission, may be read and
copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Information on the operation of the Public Reference Room may be
obtained by calling the Commission at 1-800-SEC-0330. The Commission maintains a
Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission.
As a result of the offering, we will become subject to the information
and reporting requirements of the Exchange Act, and will file periodic reports,
proxy statements and other information with the Commission. We intend to furnish
to our shareholders annual reports containing audited financial statements and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
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<PAGE> 68
INDEX TO
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report...............................................F-2
Balance Sheets.............................................................F-3
Statements of Operations...................................................F-4
Statements of Stockholders' Equity.........................................F-5
Statements of Cash Flows...................................................F-6
Notes to Financial Statements..............................................F-7
</TABLE>
F-1
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of GeriMed of America, Inc.:
We have audited the accompanying balance sheets of GeriMed of America, Inc. as
of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity (deficiency) and cash flows for each of the three years in
the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States of America. 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, such financial statements present fairly, in all material
respects, the financial position of GeriMed of America, Inc. as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Denver, Colorado
March 14, 2000
F-2
<PAGE> 70
GERIMED OF AMERICA, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 97,557 $ 1,113,437
Accounts receivable, net of allowance for doubtful accounts:
1999, $165,000; 1998, $435,000 (Note 5) 1,489,026 2,513,763
Contractual settlements receivable 1,134,843 --
Other receivables 592,433 358,299
Prepaid expenses 108,579 64,682
----------- -----------
Total current assets 3,422,438 4,050,181
RESTRICTED CASH 633,918
PROPERTY, net (Notes 3 and 4) 738,965 494,013
GOODWILL, net of accumulated amortization (Note 3):
1999, $76,756; 1998, $17,437 307,468 202,563
----------- -----------
TOTAL $ 4,468,871 $ 5,380,675
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,267,514 $ 2,485,169
Claims and contractual settlements payable (Note 2) 2,949,956 505,793
Deferred revenue 124,822 393,371
----------- -----------
Total current liabilities 5,342,292 3,384,333
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (DEFICIENCY) (Note 9):
Series A convertible preferred stock, $0.0001 par value;
5,000,000 shares authorized; 906,891 shares issued and outstanding;
liquidation value, $3,000,000 91 91
Common stock, $0.0001 par value; 25,000,000 shares authorized;
shares issued and outstanding; 1999, 4,370,000; 1998, 4,355,000 437 436
Additional paid-in-capital 4,344,295 4,321,796
Accumulated deficit (5,218,244) (2,293,981)
Directors' unearned compensation -- (32,000)
----------- -----------
Total stockholders' equity (deficiency) (873,421) 1,996,342
----------- -----------
TOTAL $ 4,468,871 $ 5,380,675
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 71
GERIMED OF AMERICA, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Medical services $ 34,443,851 $ 12,946,408 $ 5,082,149
Management services 5,482,065 10,996,772 10,858,568
------------ ------------ ------------
Total revenues 39,925,916 23,943,180 15,940,717
------------ ------------ ------------
COSTS AND EXPENSES:
Company operated centers and purchased
medical services 36,064,577 13,709,669 6,165,926
Clinics managed for others 3,503,808 6,731,497 7,289,238
General and administrative 2,991,335 2,988,925 2,821,738
Depreciation and amortization 311,712 202,480 146,290
------------ ------------ ------------
Total expenses 42,871,432 23,632,571 16,423,192
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (2,945,516) 310,609 (482,475)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 42,183 57,784 15,893
Interest expense (20,930) (3,961) (234,302)
------------ ------------ ------------
Total other income (expense) 21,253 53,823 (218,409)
------------ ------------ ------------
NET INCOME (LOSS) (2,924,263) 364,432 (700,884)
DEEMED DISTRIBUTION
ON SERIES A CONVERTIBLE
PREFERRED STOCK (Note 9) (1,413,012) (1,223,467) 0
------------ ------------ ------------
NET (LOSS) ALLOCABLE TO
COMMON STOCKHOLDERS $ (4,337,275) $ (859,035) (700,884)
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE
-- BASIC AND DILUTED $ (.99) $ (.20) $ (0.16)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING -- BASIC AND DILUTED 4,364,167 4,347,500 4,340,000
============ ============ ============
</TABLE>
See notes to financial statements
F-4
<PAGE> 72
GERIMED OF AMERICA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Series A Convertible Additional
Preferred Stock Common Stock Paid-In
----------------------- -----------------------
Shares Amount Shares Amount Capital
---------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 4,340,000 $ 434 $ 1,463,896
Issuance of Series A Convertible preferred stock 906,891 $ 91 2,842,901
Recognition of compensation expense
Net loss
---------- ----------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1997 906,891 91 4,340,000 434 4,306,797
Issuance of common stock 15,000 2 14,999
Recognition of compensation expense
Net income
BALANCE, DECEMBER 31, 1998 906,891 91 4,355,000 436 4,321,796
---------- ----------- ---------- --------- -----------
Issuance of common stock 15,000 1 22,499
Recognition of compensation expense
Net income
---------- ----------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1999 906,891 $ 91 4,370,000 $ 437 $ 4,344,295
========== =========== ========== ========= ===========
<CAPTION>
Total
Directors' Stockholders'
Accumulated Unearned Equity
Deficit Compensation (Deficiency)
----------- ------------ ------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ (1,957,529) $ (96,000) $ (589,199)
Issuance of Series A Convertible preferred stock 2,842,992
Recognition of compensation expense 32,000 32,000
Net loss (700,884) (700,884)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 (2,658,413) (64,000) 1,584,909
Issuance of common stock 15,001
Recognition of compensation expense 32,000 32,000
Net income 364,432 364,432
------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 (2,293,981) (32,000) 1,996,342
Issuance of common stock 22,500
Recognition of compensation expense 32,000 32,000
Net income (2,924,263) (2,924,263)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 $ (5,218,244) $ 0 $ (873,421)
============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 73
GERIMED OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,924,263) $ 364,432 $ (700,884)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 311,712 202,480 146,290
(Gain) loss on disposition of property 8,806 (4,344) 8,184
Noncash compensation expense 32,000 73,314 32,000
Changes in operating assets and liabilities:
Accounts receivable, net 1,024,737 (261,555) (337,742)
Contractual settlements receivable (1,134,843)
Other receivables (234,134) (157,489) 66,468
Prepaid expenses (43,897) (3,899) 142,414
Accounts payable and accrued expenses (217,655) 531,496 791,834
Claims and contractual settlements payable 2,444,163 505,793
Deferred revenue (268,549) (124,867) 3,006
------------- ------------- -------------
Net cash (used in) provided by operating activities (1,001,923) 1,125,361 151,570
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property (507,151) (192,661) (531,681)
Sale of property 1,000 146,333
Acquisition of clinics (164,224) (250,000)
Release (purchase) of certificates of deposit as collateral
for letter of credit 633,918 (633,918)
------------- ------------- -------------
Net cash used in investing activities (36,457) (930,246) (531,681)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series A convertible
preferred stock, net of issuance cost 2,842,992
Borrowings under bank lines of credit 4,364,490 3,575,000
Repayment of bank borrowings (4,364,490) (100) (5,815,069)
Sale of common stock 22,500 15,001 486,934
------------- ------------- -------------
Net cash provided by financing activities 22,500 14,901 1,089,857
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH (1,015,880) 210,016 709,746
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,113,437 903,421 193,675
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 97,557 $ 1,113,437 $ 903,421
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for interest $ 14,349 $ 3,961 $ 234,302
============= ============= =============
Non-cash deemed distribution to Series A convertible
preferred stockholder $ (1,413,012) $ (1,223,467)
============= =============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 74
GERIMED OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITIES - GeriMed of America, Inc., a
Colorado Corporation, (the Company) is a medical management organization
specializing in providing health care services for patients eligible to
participate in the federal Medicare program who are 65 years of age and
older. The Company's primary business focus is on providing comprehensive
health care services for Medicare beneficiaries under global risk
contracts with health maintenance organizations (HMO). The foundation of
the Company's healthcare delivery system is the MedWise Center (Center)
which uses an interdisciplinary team led by a Geriatrician to provide
comprehensive and cost effective primary care services to patients. The
Company operates in two business segments, medical services and management
services (see Note 11). All of the Company's operations are in the United
States.
SIGNIFICANT CUSTOMERS - The medical services segment had revenues from
significant customers as follows (expressed in percentages of total
revenue):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
HMO A 57% 23% 0%
HMO B 10 0 0
</TABLE>
The management services segment had revenues from significant customers as
follows (expressed in percentages of total revenue):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Hospital Group A 4% 30% 44%
Hospital Group B 0 8 22
</TABLE>
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America 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 materially from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers highly liquid
investments and investments purchased with original maturities of three
months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of
accounts receivable from HMOs and hospitals. Concentrations of credit risk
with respect to accounts receivable are limited due to the large number of
individual payors comprising the Company's accounts receivable.
Accordingly, the Company does not believe any significant concentrations
of credit risk exist as of December 31, 1999.
PROPERTY - Property includes office furniture and equipment and leasehold
improvements, which are recorded at cost. Depreciation of office furniture
and equipment and leasehold improvements is provided using the
straight-line method over estimated useful lives which range from three to
five years.
F-7
<PAGE> 75
GOODWILL - Goodwill consists of the excess of the purchase price over the
fair value of the net assets of clinics acquired in 1998. Goodwill is
amortized using the straight-line method over the estimated period of
future benefit of five years.
VALUATION OF LONG-LIVED ASSETS - The Company reviews long-lived assets,
including intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Assets are considered to be impaired if the estimated
undiscounted future cash flows from use or disposal of the asset is less
than its carrying value. If an asset is impaired, it will be written down
to estimated fair value.
REVENUE AND EXPENSE RECOGNITION - Medical services are performed on a
fee-for-service basis and on a prepaid basis under capitated risk
contracts with HMOs. Fee-for-service revenue is reported on an accrual
basis, net of estimated allowances. Under the prepaid contracts with HMOs,
the Company receives, a fixed monthly amount per enrollee which is
deferred and recognized as revenue during the month in which the members
are entitled to healthcare services.
Primary care services are provided by physicians directly affiliated with
the Company. Specialty care and inpatient services are provided by
specialty physicians, hospitals and skilled nursing facilities with which
the Company contracts directly or through contracts with HMOs. The cost of
medical care is accrued in the period it is provided, based in part on
estimates for specialty and inpatient care costs that have been incurred
but not yet reported. The estimates are developed by the HMOs based on
historical claims data, current membership statistics and other
information such as shared risk pool incentives, as applicable.
Loss contracts reserves and the related expense are recognized when it is
probable that expected future health care costs under existing contracts
will exceed anticipated future premiums and stop loss insurance recoveries
considered over the remaining lives of the contracts. The methods for
making such estimates and for establishing the resulting reserves are
periodically reviewed and updated, and any resulting adjustments are
reflected in current operations.
Estimates of medical care and loss contract reserves are subject to the
effects of changes in the regulatory environment and economic conditions.
Given the inherent variability of such estimates, the actual liability
could differ significantly from the amounts provided. While the ultimate
outcome of loss contracts and the related expenses are dependent on future
developments, management is of the opinion that the reserves for loss
contracts are adequate to cover such claims and expenses.
The financial statements for the year ended December 31, 1999 reflect a
charge of $1,060,000 for future estimated medical services costs to be
paid under existing contracts in excess of anticipated future revenues and
stop loss insurance recoveries. This reserve is included in claims and
contractual settlements payable and the charge is included in the cost of
company operated centers and purchased medical services expense. There
were no reserves recorded for the years ended December 31, 1998 and 1997.
Revenues from management services provided to hospitals and from medical
services provided to patients are recognized as the related services are
performed. Management service revenues billed in advance are deferred
until the related services are completed.
STOP-LOSS INSURANCE - The Company purchases stop-loss insurance to limit
its exposure under its capitated contracts. Premiums are reported as
medical service cost and recoveries are reported as reductions of medical
service cost.
F-8
<PAGE> 76
INCOME TAXES - Income taxes are provided based on the liability method of
accounting. Under this method, deferred tax assets and liabilities are
recognized based on differences between financial statement and tax bases
of assets and liabilities using presently enacted tax rates. A valuation
allowance is provided for deferred tax assets if their realizability is
not more likely than not.
EQUITY INSTRUMENTS - The Company accounts for stock based compensation to
directors, officers and employees using the intrinsic value method. No
compensation cost is recognized for stock options if the exercise price is
equal to estimated fair value of the underlying common stock at the date
of grant. Equity instruments issued to non-employees are valued at
estimated fair value. The intrinsic value of warrants to purchase
convertible preferred stock at a nominal exercise price issued in
connection with the Company's Series A convertible preferred stock is
recognized as a distribution to the preferred stockholder and other equity
instruments. The board of directors estimates fair value of the Company's
common stock and other equity instruments by considering the Company's
performance as well as general market factors, economic conditions and by
consulting with an investment banker.
EARNINGS (LOSS) PER COMMON SHARE - Basic and diluted earnings (loss) per
common share is computed by dividing net income (loss) allocable to common
shareholders by the weighted average number of common shares outstanding.
Diluted earnings per share does not reflect the potential exercise of
warrants and options or the potential conversion of preferred stock
because the effect is antidilutive. The potentially dilutive securities
that are not included in the calculation of diluted loss per common share
are 1,380,000, 1,049,000 and 275,000 for 1999, 1998 and 1997,
respectively.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1998
and 1997 financial statements to conform with the 1999 presentation.
2. FINANCIAL CONDITION
At December 31, 1999 the Company had a stockholders' deficiency of
$873,421 and a working capital deficit of $1,919,854; for the year then
ended, the Company had a net loss of $2,924,263 and used $1,001,923 of
cash in operations. The Company's medical services segment, excluding a
contract entered into in June 1999 had an aggregate medical loss ratio of
98.6%. The medical loss ratio is calculated by dividing company operated
centers and purchased medical services expense by medical services
revenue. The loss contract accrual relates to a contract entered into in
June 1999, which has been managed by the Company to result in generally
decreasing monthly deficits through December 1999. The Company is not
obligated to accept new members under this contract and does not intend to
accept new members under this contract until contract profitability is
achieved. Claims and contractual settlements payable include $1,889,956
owed to HMOs under risk contracts, and an accrual of $1,060,000 for a loss
contract. Management has an operating plan for 2000 designed to control
costs and return to profitability, and expects to be able to generate or
obtain the necessary capital to fund operations.
Beginning in 1998 the Company's focus began to change from management
services contracts to capitated medical services contracts. This
transition required that the Company incur substantial start up costs
associated with new medical services contracts. Losses typically are
incurred during the early months of new contracts with a goal of achieving
profitable operations after the Company's medical management systems and
procedure have had time to become effective. Losses that are not offset
with profits are paid at future settlement dates established in each risk
contract. Risk contract related losses incurred during 1999 that generated
the liabilities referred to above will require settlement late in 2000 if
the Company cannot reduce or eliminate the deficits by profitably managing
the health care costs of the related membership.
The Company has a $1,800,000 line of credit available through June 1,
2000. As of March 14, 2000, the Company had $850,000 in borrowings
outstanding on the line of credit. The line of credit is supported by the
Company's Chief Executive Officer and majority stockholder (CEO), who is
co-borrower on the line of credit. The CEO has committed to continue to
personally support this borrowing arrangement, and is currently
negotiating with the bank for an extension of the line of credit beyond
its expiration date. There can be no assurance that the line will be
renewed, or if not renewed, that replacement financing will be available.
If the line of credit is not renewed, the CEO has committed to personally
fund operating deficits, if any.
3. ACQUISITION OF PRIMARY CARE CLINICS
As of August 1, 1998, the Company acquired the assets of four primary care
clinics in Orlando, Florida. The acquisition was accounted for using the
purchase method of accounting and accordingly, the assets have been
recorded at their fair value at the date of acquisition. The accompanying
financial statements include the operating results of the clinics since
August 1, 1998. Under terms of the purchase agreement, the Company paid
$250,000 in cash. The purchase price exceeded the $30,000 fair value of
acquired furniture and equipment by $220,000, which was recorded as
goodwill. Based on the 1999 operating results of the clinics, the purchase
agreement provided for additional contingent consideration of $164,224
which was paid and recorded as additional goodwill during 1999.
F-9
<PAGE> 77
4. PROPERTY
Property consisted of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Office furniture and equipment $ 1,174,104 $ 897,283
Leasehold improvements 222,959 181,808
Accumulated depreciation and amortization (658,098) (585,078)
------------- -------------
Property, net $ 738,965 $ 494,013
============= =============
</TABLE>
5. LINE OF CREDIT
The Company has available a bank line of credit of $1,800,000 available
through June 1, 2000. Interest is payable monthly at the bank's prime rate
plus 2%. The line of credit is secured by the Company's accounts
receivable and the majority stockholder of the Company as a co-borrower.
As of December 31, 1999 and 1998, no advances were outstanding under the
line of credit. As of March 14, 2000, $850,000 in advances were
outstanding under the line of credit.
6. INCOME TAXES
Deferred income taxes consisted of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss (NOL) carryforwards $ 1,490,600 $ 341,600
Compensation accruals 44,200 38,100
Allowance for bad debts 61,500 162,300
Depreciation and amortization 41,500 23,500
----------- -----------
1,637,800 565,500
Less valuation allowance on deferred tax assets (1,637,400) (542,400)
----------- -----------
Net deferred tax asset 400 23,100
----------- -----------
Deferred tax liabilities:
Directors' unearned compensation 11,900
Other 400 11,200
----------- -----------
Total deferred tax liabilities 400 23,100
----------- -----------
Net deferred taxes $ 0 $ 0
=========== ===========
</TABLE>
The Company has available, for federal income tax purposes, NOL
carryforwards of approximately $3,996,000 which expire in varying amounts
through 2019. A valuation allowance has been recognized to offset the
deferred tax assets due to the uncertainty of realizing the benefit of the
NOL carryforwards and deductible temporary differences. The amount of the
net deferred tax asset considered realizable could change if the
realization of net deferred tax assets is determined to be more likely
than not in the future. The change in the valuation allowance of
$1,095,000 was primarily due to the increase in the valuation allowance to
offset the increase in NOL carryforwards.
F-10
<PAGE> 78
The Company did not record an income tax benefit for the years ended
December 31, 1999 and 1997, due to an increase in the valuation allowance
to offset the increase in NOL carryforwards. The Company did not provide
an income tax provision for the year ended December 31, 1998 due to the
utilization of NOL carryforwards. Therefore, the effective tax rates do
not approximate the expected rates.
7. STOP-LOSS INSURANCE
The Company purchases stop-loss insurance to limit its exposure under HMO
contracts. Under the terms of the insurance policies, the insurer will
reimburse the Company 90% of the cost of each enrollee's annual health
care cost at Medicare allowable rates, in excess of deductibles ranging
from $15,000 to $20,000 for professional services and $50,000 to $75,000
for hospital services. The policies include an annual maximum of
$1,000,000 and a lifetime maximum of $2,000,000. Stop-loss insurance
premiums of $361,761, $91,254 and $326 are included in purchased medical
service expenses in 1999, 1998 and 1997, respectively. Recoveries of
$262,749 were recorded in 1999 as a reduction to purchased medical
services. There were no recoveries in 1998 or 1997.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS - The Company leases its primary office
facilities and certain of its center facilities under non-cancelable
operating leases. The leases have expiration dates ranging from 2000 to
2006, and typically contain renewal options. All of the leases contain
rent escalations based on increased operating costs. Rent expense incurred
by the Company for the years ended December 31, 1999, 1998 and 1997
totaled $1,505,406, $333,978 and $244,318, respectively. Minimum future
rent payments are as follows:
<TABLE>
<S> <C>
2000 $ 1,086,200
2001 995,654
2002 714,640
2003 633,091
2004 472,823
Thereafter 221,159
</TABLE>
LEASE CONTINGENCIES - On September 30, 1994, the Company entered into an
agreement with OrNda HealthCorp to provide financing for facilities and
equipment associated with the development of various MedWise Centers for
its subsidiary hospitals. Under the terms of the agreement, the Company is
required to execute the primary facility lease for the space for the
Centers and related leasehold improvements. The facility is then subleased
to an OrNda subsidiary hospital. The sublease permits the pass through of
all costs associated with the primary lease and leasehold improvements,
including the cost of capital, and must be structured in a manner which
will permit the hospital to treat the sublease as an operating lease.
Further, the Company was required to lease or finance the equipment
required to operate the Center for a period of five years. The equipment
was then subleased to the subsidiary hospital for a three-year term which
also qualified as an operating lease. The equipment leases were terminated
in 1999 when the equipment leases were bought out by the Company. The
facility lease is guaranteed by OrNda HealthCorp.
As of December 31, 1999, leases of five facilities and lease financing of
related leasehold improvements had been completed under the agreement. The
facility leases have initial rental and sublease periods of five years
with two option periods of five years each. Each of the facility leases
provides for an increase in rents based on increases in the operating
costs of the buildings and increases
F-11
<PAGE> 79
in the Consumer Price Index. The leasehold improvements leases have rental
periods of less than five years and the sublease periods coincide with the
lease. The sublease receipts are expected to offset the Company's
commitment under the lease agreements. The remaining future minimum lease
payments are $436,270 in 2000.
401(k) PLAN - The Company has a 401(k) plan (the Plan) covering all
employees. Under the Plan, all employees are eligible regardless of age or
length of service and may elect to contribute up to 15% of their
compensation (as defined). The Company may match participant contributions
by a percentage determined at its discretion. No contribution expense
related to the Plan was incurred in 1999, 1998 or 1997.
LETTER OF CREDIT AND PERFORMANCE BONDS -The Company's contracts with HMOs
typically require the Company to provide a letter of credit or a payment
bond when the Company has full risk for enrollees' health care. At
December 31, 1999, the Company had a $200,000 letter of credit and
$1,248,000 in payment bonds outstanding.
9. STOCKHOLDERS' EQUITY
On December 22, 1997 the Company entered into a Securities Purchase
Agreement (the Agreement) with an institutional investor whereby the
Company sold 906,891 shares of Series A convertible preferred stock and a
contingent stock purchase warrant for $3,000,100. The contingent warrant
is exercisable for up to an additional 797,001 shares of Series A
convertible preferred stock at a purchase price of $0.0001 per share based
on the level of the Company's earnings before interest and income taxes in
1998 and 1999. The Agreement also gives the investor the option to
purchase an additional $3,000,000 of Series A convertible preferred stock
at $4.80 per share through June 22, 2000. The investor also has the right
and option to purchase up to 3,255,000 shares of the Company's common
stock beginning July 1, 2000 and semi-annually thereafter through January
1, 2003 at a price based on the Company's actual and projected earnings at
the time of exercise. The investor's initial investment, additional
investment rights and options allow the investor to achieve at least 51%
ownership of the Company. If the Company offers additional stock at a
price below the investor's initial investment price, the investor has a
right of first refusal. The Series A convertible preferred stock has no
stated dividend, is not redeemable and has preference on liquidation of
the Company of $3.308 per share. Each share is convertible into one share
of common stock and the holder is entitled to one vote for each share of
common stock into which each share is convertible.
The contingencies related to warrants for 427,150 and 369,851 additional
shares of series A convertible preferred stock were satisfied on December
31, 1999 and 1998, respectively, pursuant to the terms of the Agreement.
These warrants were "in-the-money" on such dates. Based on the accounting
prescribed by EITF Issue No. 98-5, and the estimated intrinsic value of
the warrants of $3.308 per share, the Company recorded a deemed
distribution on the preferred stock of $1,413,012 and $1,223,467 in 1999
and 1998, respectively. These distributions were charged to additional
paid in capital with a simultaneous credit to additional paid in capital
for the intrinsic value of the warrants.
In April 1994, the Company granted 160,000 shares of common stock to the
outside directors of the Company for future services. The estimated fair
value of the shares awarded was $160,000 and represented unearned
compensation. Restrictions placed upon the stock award, relating to the
disposition or transfer for a five year period, lapse at the annual rate
of 20% of shares awarded, commencing on the first anniversary date of the
grant. Unearned compensation is amortized to expense using the
straight-line method over the five year period as earned. The unamortized
balance is reported as a reduction of stockholders' equity. During the
years ended December 31, 1999, 1998 and 1997, the Company recognized
annual compensation expense of $32,000.
STOCK OPTION PLAN - The Company has reserved 1,100,000 shares of its
common stock for issuance to directors, officers and employees under a
stock option plan (the Plan). Options are granted under the Plan at
exercise prices not less than the fair market value of the Company's
common stock at the date of grant. The options vest over various time
periods and are exercisable upon vesting. Unexercised options expire on
the tenth anniversary of the date of the grant.
F-12
<PAGE> 80
As discussed in Note 1, the Company accounts for stock options under the
Plan using the intrinsic value method. Accordingly, no compensation
expense has been recognized. Had compensation expense been determined
based on the estimated fair value at the grant dates of awards under the
Plan, the Company's net income (loss) would have been changed to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net (loss) allocable
to common shareholders:
As reported $ (4,337,275) $ (859,035) $ (700,884)
Pro forma (4,372,229) (899,736) (732,937)
Earnings Per Common Share:
Basic and diluted
- as reported (0.99) (0.20) (0.16)
Basic and diluted
- pro forma (1.00) (0.21) (0.17)
</TABLE>
The weighted average fair value per share of the stock options granted
during 1999, 1998 and 1997 was $0.12, $0.55 and $0.51, respectively. The
fair value of each stock option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used for grants in 1999, 1998 and 1997: risk-free interest
rate of 5.5% in 1999, 5.0% in 1998 and 5.4% in 1997; expected dividend
yield of 0%; volatility of 0%; and expected life of five years.
The following is a summary of activity under the Plan:
<TABLE>
<CAPTION>
Weighted-
Exercise Number Average
Price Per of Exercise
Share Shares Price
----------- ---------- ------------
<S> <C> <C> <C>
Options outstanding as of January 1, 1997 $1.00-2.50 900,050 $ 2.03
Granted 2.50-7.50 168,000 2.95
Canceled or forfeited 2.50-7.50 (264,000) 2.71
----------
Options outstanding as of December 31, 1997 1.00-2.50 804,050 2.00
Granted 2.50 30,500 2.50
Exercised 1.00 (15,000) 1.00
Canceled or forfeited 1.00-2.50 (82,550) 1.61
----------
Options outstanding as of December 31, 1998 1.00-2.50 737,000 2.08
----------
Granted 2.50 110,000 2.50
Exercised 1.00-2.50 (15,000) 1.50
Canceled or forfeited 1.00-2.50 (209,500) 2.21
Options outstanding as of December 31, 1999 622,500 2.13
----------
Total options exercisable as of December 31, 1999 451,200 2.10
----------
</TABLE>
F-13
<PAGE> 81
The following is a summary of stock options outstanding under the Plan as
of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Number Remaining Exercise Number Exercise
Price Outstanding Contractual Life Price Exercisable Price
--------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.00 155,000 4.5 years $ 1.00 120,000 $ 1.00
2.50 467,500 6.9 years 2.50 331,200 2.50
-------- --------
622,500 2.13 451,200 2.10
-------- --------
</TABLE>
10. RELATED-PARTY TRANSACTIONS
During 1999, 1998 and 1997, a company owned by a director of the Company
provided advertising, public relations and marketing services to the
Company totaling $3,917, $15,453 and $58,904, respectively.
The Company's Board of Directors voted to forgive $41,314 of notes
receivable and $3,679 of accrued interest due from the Company's President
in consideration of a reduction in his salary.
F-14
<PAGE> 82
11. SEGMENT REPORTING
The Company's reportable segments are business units that offer different
services. The Company has two reportable segments, medical services and
management services. The medical services segment provides fee-for-service
primary care services and contracts to provide comprehensive health care
services to elderly HMO members based on a per member per month fixed fee
arrangement. The management services segment provides development and
management services to primary care outpatient clinics for elderly
patients.
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Medical services $ 34,443,851 $ 12,946,408 $ 5,082,149
Management services 5,482,065 10,996,772 10,858,568
------------ ------------ ------------
Total revenue 39,925,916 23,943,180 15,940,717
------------ ------------ ------------
Operating profit (loss):
Medical services (1,620,726) (763,261) (1,083,777)
Management services 1,978,257 4,265,275 3,569,330
------------ ------------ ------------
Total operating profit (loss) 357,531 3,502,014 2,485,553
------------ ------------ ------------
Identifiable fixed assets:
Medical services 549,303 361,195 427,322
Management services 0 0 0
Corporate and other 189,662 132,818 163,462
------------ ------------ ------------
Total identifiable assets 738,965 494,013 590,784
------------ ------------ ------------
Reconciliation of net income (loss):
Operating profit (loss) $ 357,531 $ 3,502,014 $ 2,485,553
Less:
General and administrative expenses 2,991,335 2,988,925 2,821,738
Depreciation and amortization 311,712 202,480 146,290
Interest income (expense) 21,253 53,823 (218,409)
------------ ------------ ------------
Net income (loss) $ (2,924,263) $ 364,432 $ (700,884)
============ ============ ============
</TABLE>
* * * * *
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable by us in connection with the sale of the
common stock offered hereby are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ........ $ 5,121
Blue Sky fees and expenses ................................. 15,000
Legal fees and expenses .................................... 135,000
Accounting fees and expenses ............................... 50,000
Printing and engraving expenses ............................ 20,000
Miscellaneous .............................................. 24,879
--------
Total .................................................... $250,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Restated Bylaws require the Registrant to indemnify
all of its present and former officers and directors, or any person who may have
served at the Registrant's request as an officer or a director of another
corporation in which the Registrant owns shares of capital stock or of which the
Registrant is a creditor, and the personal representatives of all such persons,
against expenses actually and necessarily incurred in connection with the
defense of any legal proceeding in which any such person was made a party by
reason of having served in such capacity, unless such person is adjudged to be
liable for negligence or misconduct in the performance of any duty owed to the
Registrant.
The Registrant's Articles of Incorporation, as amended, provide that no
director of the Registrant shall be liable to the Registrant or any of its
shareholders for damages caused by a breach of a fiduciary duty by such director
except for the breach of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of the law,
acts as specified in the Colorado Business Corporation Act, or any transaction
from which such director received an improper personal benefit.
Section 7-109-102 of the Colorado Business Corporation Act authorizes
the indemnification against reasonable expenses of current and former directors
made party to a proceeding if the director conducted himself in good faith, in
the case of conduct in his official capacity with the corporation, the director
reasonably believed that his conduct was in the best interests of the
corporation, in the case of a criminal proceeding, the director had no
reasonable cause to believe that his conduct was unlawful, and in all other
cases, the director
II-1
<PAGE> 84
reasonably believed that his conduct was at least not opposed to the
corporation's best interest. A corporation may not indemnify a director in
connection with a proceeding (1) in which a director was adjudged liable to the
corporation or, (2) charging that the director derived an improper personal
benefit in which the director was adjudged liable. Section 7-109-107 provides
that a corporation may indemnify an officer to the same extent that it may
indemnify a director.
The above discussion of the Registrant's Restated Bylaws, Articles of
Incorporation and the Colorado Business Corporation Act is only a summary and is
qualified in its entirety by the full text of each of the foregoing.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 22, 1997 we sold 906,891 shares of Series A convertible
preferred stock and a stock purchase warrant to Spectrum Healthcare Services,
Inc. for $3,000,100 in cash pursuant to a Securities Purchase Agreement. The
stock purchase warrant is exercisable for up to 797,001 shares of Series A
convertible preferred stock at a purchase price of $0.0001 per share. Under the
Securities Purchase Agreement, we also granted Spectrum a right to purchase
625,443 shares of our Series A convertible preferred stock for $4.80 per share
if Spectrum exercises such right to purchase the shares on or before June 22,
2000. The Series A convertible preferred stock is convertible into one share of
common stock and has a preference over the common stock if we liquidate our
assets equal to $3.308 per share. We did not pay any underwriting commissions or
discounts with respect to the sales of unregistered securities described above.
The issuance of Series A convertible preferred stock and the warrant were exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
as a transaction by the issuer not involving a public offering. We relied upon
the exemption from registration provided under Section 4(2) of the Securities
Act of 1933 because (1) the transaction did not involve public solicitation, (2)
the securities were sold to a sophisticated investor and (3) the offers and
sales of the securities were made to a limited number of persons.
In the fiscal years 1997, 1998 and 1999, we granted stock options to
our employees to purchase an aggregate of 168,000, 30,500, and 110,000 shares of
our common stock, respectively, under our stock option plan at an exercise price
of $2.50. These stock options were exempt from registration under the Securities
Act of 1933 pursuant to Rule 701 because they involved the issuance of
securities to employees in accordance with our stock option plan.
II-2
<PAGE> 85
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits. The following is a list of exhibits to this Registration
Statement:
Exhibit
Number Description
3.1 Form of Articles of Incorporation of Registrant, as amended
3.2 Proposed Form of Restated Bylaws of Registrant
4.1 Securities Purchase Agreement dated December 22, 1997 between
GeriMed of America, Inc. and Spectrum Healthcare Services, Inc.
4.2 Shareholders Agreement of GeriMed of America, Inc.
4.3 Warrant to Purchase 797,001 shares of Series A Convertible
Preferred Stock
4.4 GeriMed of America, Inc. Shareholders Agreement
5.1 Opinion of Faegre & Benson LLP with respect to legality of
securities being registered
10.1 Stock Option Plan
10.2 Business Loan Agreement dated March 3, 2000
23.1 Consent and Report on Schedule of Deloitte & Touche LLP
23.2 Consent of Faegre & Benson LLP (included in Exhibit 5.1)
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
99.1 Form of Internal Market Rules
II-3
<PAGE> 86
(b) Financial Statement Schedules.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ----------- ---------- ---------- ---------- ------------- ----------
Year ended December 31, 1999
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 435,000 $ 553,201 -- $ 823,201 $ 165,000
Loss contracts reserve -- 1,060,000 -- -- 1,060,000
Year ended December 31, 1998
Allowance for doubtful accounts 85,008 435,941 -- 85,949 435,000
Year ended December 31, 1997
Allowance for doubtful accounts 167,301 169,313 -- 251,606 85,008
</TABLE>
(1) Deductions represent write-offs of uncollectible accounts.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been included in the
prospectus, are not required under the related instructions, are inapplicable
and therefore have been omitted, or the information required by the applicable
schedule is included in the notes to the consolidated financial statements.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously enclosed in the registration statement or
any material change to such information in the registration statement;
II-4
<PAGE> 87
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Act
and is, therefore, unenforceable. In the event that any 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 Act and will
be governed by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act of
1933, 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.
For the purpose of determining any liability under the Securities Act
of 1933, 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 the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 88
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 and County of
Denver, State of Colorado, on the 31st day of March, 2000.
GERIMED OF AMERICA, INC.
By: /s/ James F. Riopelle
--------------------------------------------
James F. Riopelle, M.D.
Chairman of the Board and Chief Executive
Officer
In accordance with 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 stated. Each person whose signature appears below
does hereby make, constitute and appoint each of James F. Riopelle and James M.
Graham as such person's true and lawful attorney-in-fact and agent, with full
power of substitution, resubstitution and revocation to execute, deliver and
file with the Securities and Exchange Commission, for and on such person's
behalf, and in any and all capacities, a Registration Statement on Form S-1, any
and all amendments (including post-effective amendments) thereto and any
abbreviated registration statement in connection with this Registration
Statement pursuant to Rule 462(b) under the Securities Act of 1933, with all
exhibits thereto and other documents in connection therewith, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or such person's substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James F. Riopelle, M.D. Chairman of the Board, March 31, 2000
- ------------------------------------------ Chief Executive Officer
James F. Riopelle, M.D. (Principal Executive Officer)
/s/ Raymond C. Delisle Director March 31, 2000
- ------------------------------------------
Raymond C. Delisle
/s/ Raymond M. Culp, M.D. Director March 31, 2000
- ------------------------------------------
Raymond M. Culp, M.D.
/s/ Douglas W. Kinzley Director March 31, 2000
- ------------------------------------------
Douglas W. Kinzley
/s/ Dennis R. Ahlman Director March 31, 2000
- ------------------------------------------
Dennis R. Ahlman
/s/ Paul J. Bracken Director March 31, 2000
- ------------------------------------------
Paul J. Bracken
- ------------------------------------------ Director March ___, 2000
Richard H. Miles
/s/ James M. Graham Executive Vice President of March 31, 2000
- ------------------------------------------ Finance, Secretary and Treasurer
James M. Graham (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
II-6
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
3.1 Form of Articles of Incorporation of Registrant, as amended
3.2 Proposed Form of Restated Bylaws of Registrant
4.1 Securities Purchase Agreement dated December 22, 1997 between
GeriMed of America, Inc. and Spectrum Healthcare Services, Inc.
4.2 Shareholders Agreement of GeriMed of America, Inc.
4.3 Warrant to Purchase 797,001 shares of Series A Convertible
Preferred Stock
4.4 GeriMed of America, Inc. Shareholders Agreement
5.1 Opinion of Faegre & Benson LLP with respect to legality of
securities being registered
10.1 Stock Option Plan
10.2 Business Loan Agreement dated March 3, 2000
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Faegre & Benson LLP (included in Exhibit 5.1)
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
99.1 Form of Internal Market Rules
</TABLE>
II-7
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
GMA II, INC.
The undersigned, being a natural person of the age of eighteen
(18) years or more and desiring to form a corporation under the laws of the
State of Colorado, does hereby adopt these Articles of Incorporation.
ARTICLE I
The name of the corporation shall be GMA II, Inc.
ARTICLE II
CAPITAL
The authorized capital of this corporation shall consist of
1,000,000 shares of common stock, with a par value of $.01 per share. From time
to time such shares may be issued by the corporation for such consideration
expressed in dollars, in money paid, property received , or labor done, as may
be fixed by the Board of Directors. All of such stock, when issued, shall be
fully paid and nonassessable f or any purpose.
ARTICLE III
PREEMPTIVE RIGHTS
A shareholder of the corporation shall not be entitled to a
preemptive right to purchase, subscribe for, or otherwise acquire any unissued
or treasury shares of stock of the corporation, or any options or warrants to
purchase, subscribe for or otherwise acquire any such unissued or treasury
shares, or any shares, bonds, notes, debentures, or other securities convertible
into or carrying options or warrants or privileges to purchase, subscribe for or
otherwise acquire any such unissued or treasury shares.
ARTICLE IV
CUMULATIVE VOTING
The shareholders shall not be entitled to cumulative voting
for any purpose.
<PAGE> 2
ARTICLE V
REGISTERED OFFICE AND AGENT
The address of the initial registered of f ice of the
corporation shall be 1 Fox Hill Road, Englewood, Colorado 80110, and the initial
registered agent at such address shall be James F. Riopelle.
ARTICLE VI
INITIAL BOARD OF DIRECTORS
The number of directors shall be fixed from time to time by
the bylaws of the corporation. The number of directors constituting the initial
Board of Directors shall be one (1). The name and address of the person who
shall serve as director until the first annual meeting of shareholders or until
his successor is elected and qualified is as follows:
Name Address
James F. Riopelle 1 Fox Hill Road
Englewood, Colorado 80110
ARTICLE VII
INDEMNIFICATION
(A) The corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director or officer of the corporation
or is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, penalties, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in the best interests of the corporation (in the
case of conduct in his official capacity with the corporation) or in a manner he
reasonably believed to be at least not opposed to the corporation's best
interests (in all cases other than in the case of conduct in his official
capacity with the corporation), and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
or conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the person did not meet the standard of conduct
set forth in this paragraph (A) of Article VII.
<PAGE> 3
(B) The corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he met the standard of conduct set forth in
paragraph (A) of this Article VII.
(C) Notwithstanding the foregoing provisions of paragraphs
(A) and (B) of this Article VII, the corporation may not indemnify a director or
officer in connection with a proceeding by or in the right of the corporation in
which the director or officer was adjudged liable to the corporation or in
connection with any proceeding charging improper personal benefit to the
director or officer, whether or not involving action in his official capacity,
in which he was adjudged liable on the basis that personal benefit was
improperly received by him.
(D) To the extent that a director or officer of a corporation
has been successful on the merits in defense of any action, suit, or proceeding
referred to in (A) or (B) of this Article VII or in defense of any claim, issue,
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(E) Nothing in this Article VII shall limit or deny a
director or officer of the corporation from applying to a court of competent
jurisdiction for mandatory indemnification as provided by the Colorado
Corporation Code, as amended, as from time to time in effect.
(F) Any indemnification under paragraphs (A) or (B) of this
Article VII (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs (A) or (B) above. Such
determination shall be made by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to such action, suit, or
proceeding, or, if such quorum is not obtainable or, even if obtainable, if a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the shareholders.
(G) Expenses (including attorneys' fees) incurred in
defending a civil or criminal action, suit, or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount unless it is ultimately determined that he is
entitled to be indemnified by the corporation as authorized in this Article VII
and such
<PAGE> 4
director or officer furnishes the corporation a written affirmation of his good
faith belief that he has met the standard of conduct required herein.
(H) The indemnification provided by this Article VII shall
not be deemed exclusive of any other rights to which those indemnified herein or
other persons may be entitled under the Colorado Corporation Code, any bylaw,
agreement, vote of shareholders or disinterested directors, or otherwise, and
any procedure provided for by any of the foregoing, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of heirs, executors, and administrators
of such a person.
(I) The corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer of the corporation or
who is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust, or other enterprise
or any other person against any liability asserted against him and incurred by
him in any such capacity or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such liability
under provisions of this Article VII.
(J) Notwithstanding the above provisions, a director shall
have no personal liability to the corporation or to its shareholders for
monetary damages for breach of fiduciary duty as a director; except that this
provision shall not eliminate the liability of a director to the corporation or
to its shareholders for monetary damages for: Any breach of the director's duty
of loyalty to the corporation or to its shareholders; acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; acts specified in section 7-5-114 of the Colorado Corporation Code; or any
transaction from which the director derived an improper personal benefit.
ARTICLE VIII
TRANSACTIONS WITH INTERESTED DIRECTORS
No contract or transaction between the corporation and one
(1) or more of its directors or any other corporation, partnership, association
or other organization in which one (1) or more of its directors are directors or
officers or are financially interested shall be void or voidable solely because
of such relationship or interest, or solely because such director or officer is
present at or participates in the meeting of the Board of Directors or a
committee thereof which authorizes, approves, or ratifies the contract or
transaction, or solely because his or their votes are counted for such purpose
if:
(A) The material facts as to such relationship or interest and
the contract or transaction are disclosed or known to the Board of Directors or
committee, which in good faith authorizes, approves, or ratifies the contract or
transaction by the affirmative vote or
<PAGE> 5
consent of a majority of disinterested directors, even though the disinterested
directors are less than a quorum; or
(B) The material facts as to such relationship or interest and
the contract or transaction are disclosed or known to the shareholders entitled
to vote thereon and the contract or transaction is specifically authorized,
approved, or ratified in good faith by vote or consent of the shareholders; or
(C) 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
or shareholders.
Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
ARTICLE IX
MAJORITY VOTE OF SHAREHOLDERS
At all meetings of shareholders, a majority of shares entitled
to vote at such meeting represented in person or by proxy, shall constitute a
quorum, and at any meeting at which a quorum is present the affirmative vote of
a majority of the shares represented at such meeting and entitled to vote at the
meeting shall be the act of the shareholders.'
ARTICLE X
INCORPORATOR
The name and address of the incorporator is as follows:
Joy C. Lloyd
Otten, Johnson, Robinson,
Neff & Ragonetti, P.C.
Suite 1600
950 Seventeenth Street
Denver, Colorado 80202
<PAGE> 6
IN WITNESS WHEREOF, the incorporator has signed and verified
these Articles of Incorporation on September 9th 1993.
/s/ Joy C. Lloyd
--------------------------------------
Joy C. Lloyd, Incorporator
<PAGE> 7
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
GMA II, INC.,
WHICH NAME IS BEING CHANGED TO
GERIMED OF AMERICA, INC.
Pursuant to the provisions of the Colorado Corporation Code,
GMA II, Inc., a Colorado corporation, adopts the following Articles of Amendment
to its Articles of Incorporation:
FIRST: The name of the corporation is GMA II, Inc.
SECOND: The following amendments were adopted on December 29,
1993, by the unanimous vote of the sole shareholder of GMA II, Inc. The number
of shares voted for the amendment was sufficient for approval.
THIRD: The Articles of Incorporation of GMA II, Inc. are
amended as follows:
A. Article I is deleted in its entirety and
the following language is inserted in lieu thereof:
ARTICLE I
The name of the corporation shall be GeriMed of America, Inc.
B. Article II entitled "Capital" is deleted
in its entirety and the following language is inserted in lieu thereof:
ARTICLE II
CAPITAL
The total number of shares of capital stock which the
corporation has authority to issue is 10,000,000 shares, all
of which shall be classified as common stock, with a par value
of $.0001 per share (hereinafter referred to as "Common
Stock"). From time to time such shares may be issued by the
corporation for such consideration expressed in dollars, in
money paid, property received, or labor done, as may be fixed
by the Board of Directors. All of such stock, when issued,
shall be fully paid and nonassessable for any purpose.
The Common Stock shall be divided into two classes, of which
8,500,000 shares of the authorized Common Stock shall be
classified and designated as "Voting Common Stock" and
1,500,000 shares of the authorized Common Stock shall be
classified and designated as "Class A Common Stock."
Each share of Voting Common Stock shall have one vote on all
matters submitted to the shareholders of the corporation. Each
share of Class A Common Stock shall have no right to vote on
any matters submitted to the shareholders of the corporation,
except as otherwise required by law. Except as provided above
with respect to voting powers, the Class A Common Stock and
the Voting Common Stock of the corporation shall be identical
in all respects.
<PAGE> 8
FOURTH: The manner and basis of implementing the
recapitalization effected by these Articles of Amendment shall be as follows:
Upon filing of these Articles of Amendment with the Colorado Secretary of State,
each of the 1,000 shares of common stock of the corporation outstanding on such
date shall automatically, without any action on the part of the holder thereof,
be deemed and shall become 4,000,000 shares of Voting Common Stock of the
corporation.
FIFTH: These Articles of Amendment increase the stated capital
of the corporation from $10.00 to $400.00.
IN WITNESS WHEREOF, these Articles of Amendment to the
Articles of Incorporation of GMA II, Inc. are executed this 29th of December,
1993.
GMA II, INC., a Colorado corporation
By: /s/ James F. Riopelle
------------------------------------------
James F. Riopelle, President
By: /s/ Karen L Barsch
------------------------------------------
Karen L. Barsch, Secretary
<PAGE> 9
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
GERIMED OF AMERICA, INC.
Pursuant to Section 7-110-103 of the Colorado Business
Corporation Act, as amended (the Act), the Articles of Incorporation of GeriMed
of America, Inc., a Colorado corporation (the "Corporation"), shall be amended
as set forth herein.
WHEREAS, the shareholders of the Corporation entitled to vote
on an amendment to the Articles of Incorporation of the Corporation by unanimous
written consent pursuant to Section 7-107-104 of the Act and the Bylaws of the
Corporation, approved and adopted, by sufficient vote, these Articles of
Amendment to the Articles of Incorporation of GeriMed of America, Inc. in
accordance with Sections 7-110-103(5) and 7-110-104 of the Act effective on
December 4, 1997.
THEREFORE: Article II of the Articles of Incorporation of
GeriMed of America, Inc. is amended to read as follows:
ARTICLE II
CAPITAL
The total number of shares of all classes of capital stock
which the corporation has authority to issue is 30,000,000
shares divided into 25,000,000 shares, which shall be
classified as common stock, with a par value of $.0001 per
share (hereinafter referred to as "Common Stock"), and
5,000,000 shares, which shall be classified as preferred
stock, with a par value of $.0001 per share (hereinafter
referred to as "Preferred Stock"). From time to time such
shares may be issued by the corporation for such consideration
expressed in dollars, in money paid, property received, or
labor done, as may be fixed by the Board of Directors. All of
such stock, when issued, shall be fully paid and nonassessable
for any purpose.
Common Stock. Each holder of Common Stock shall have one vote
for each share of Common Stock standing in his name on the
books of the corporation and entitled to vote. The holders of
Common Stock shall have unlimited voting rights and shall
constitute the sole voting group of the corporation, except to
the extent any additional voting group or groups may hereafter
be established in accordance with the Colorado Business
Corporation Act. Subject to the prior rights of holders of
Preferred Stock of the corporation then issued and
outstanding, if any, the holders of Common Stock shall be
entitled to receive the net assets of the corporation upon
dissolution.
Preferred Stock. The 5,000,000 shares of Preferred Stock may
be divided into and issued in one or more series as may be
established and designated, from time to time, without
shareholder approval, by resolution of the Board of Directors
pursuant to the then applicable Colorado law. In establishing
any particular series of Preferred Stock, the Board of
Directors shall give a distinctive designation to
<PAGE> 10
the series so as to distinguish it from any and all other
series of Preferred Stock, and shall designate the number of
shares in such series and, to the extent allowed by the then
applicable Colorado law, determine and set forth in
resolutions adopted by the Board of Directors the preferences,
limitations, and relative rights thereof. Any particular
series of Preferred Stock may be senior, equal, or junior to
any other series, but all shares of any particular series
shall be identical in all respects with all other shares of
such series. Prior to the issuance of any shares of any
particular series of Preferred Stock, a statement of
designation for such series, setting forth the resolution of
the Board of Directors establishing such series, shall be made
and filed in compliance with the then applicable requirements
of Colorado law. The number of authorized shares of any
particular series of Preferred Stock may thereafter be
increased or decreased, but not below the number of shares of
such particular series then outstanding, by resolution of the
Board of Directors and the filing of a statement complying
with such requirements. Unless otherwise provided in the
resolution of the Board of Directors establishing any
particular series of Preferred Stock, shares representing any
decrease in the authorized shares of a particular series and
shares issued and thereafter acquired by the corporation
through purchase, redemption, conversion, or otherwise, shall
revert to the status of authorized but unissued shares of
Preferred Stock, undesignated as to series.
THEREFORE, the manner and basis of implementing the
recapitalization effected by these Articles of Amendment to the Articles of
Incorporation of GeriMed of America, Inc., shall be as follows: Upon filing
these Articles of Amendment to the Articles of Incorporation of GeriMed of
America, Inc. with the Colorado Secretary of State, each share of Class A Common
Stock of the Corporation outstanding on such date shall automatically, without
any action on the part of the holder thereof, be deemed and shall become, one
share of Common Stock of the Corporation; and each share of Voting Common Stock
outstanding on such date shall automatically, without action on the part of the
holder thereof, be deemed and shall become, one share of Common Stock of the
Corporation.
<PAGE> 11
IN WITNESS WHEREOF, these Articles of Amendment to the
Articles of Incorporation of GeriMed of America, Inc. are executed this 22nd day
of December, 1997.
GERIMED OF AMERICA, INC., a Colorado corporation
By: /s/ James F. Riopelle
---------------------------------------------
James F. Riopelle, President
<PAGE> 12
CERTIFICATE OF DESIGNATIONS, PREFERENCES, LIMITATIONS
AND RELATIVE RIGHTS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
GERIMED OF AMERICA, INC.
Pursuant to Section 7-106-102 of the Colorado Business Corporation Act
GERIMED OF AMERICA, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the provisions of the Colorado
Business Corporation Act, certifies as follows:
FIRST: The Articles of Incorporation of the Corporation
authorizes the issuance of 5,000,000 shares of Preferred Stock, par value
$0.0001 per share (the "Preferred Stock"), and, further, authorizes the Board of
Directors of the Corporation, by resolution or resolutions, at any time and from
time to time, to divide and establish any or all of the unissued shares of
Preferred Stock not then allocated to any series of Preferred Stock into one or
more series and, without limiting the generality of the foregoing, to fix and
determine the designation of each such share, the number of shares which shall
constitute such series and certain preferences, limitations and relative rights
of the shares of each series so established.
SECOND: By unanimous written consent of the Board of Directors
of the Corporation dated December 22, 1997, the following resolution was adopted
setting forth the designations, preferences, limitations and relative rights of
a certain series of said Preferred Stock:
RESOLVED pursuant to Section 7-106-102 of the Colorado
Business Corporation Act, the Board of Directors designates Three Million
(3,000.000) shares of the Preferred Stock as Series A Convertible Preferred
- -Stock- (the "Series A Preferred Stock"). The designations, powers, preferences
and rights. and the qualifications. limitations or restrictions thereof, in
respect of the Series A Preferred Stock shall be as follows:
1. Definitions.
As used herein, the following terms shall have the respective
meanings ascribed to them:
"BCA" shall mean the Colorado Business Corporation Act, as
amended.
"Board" shall mean the Board of Directors of the Corporation.
"Business Day" shall mean any day which is not a Saturday or a
Sunday or a day on which banks are permitted to close in Denver, Colorado. If
any action otherwise required
<PAGE> 13
hereunder is scheduled for a day other than a Business Day. then such action may
be taken on the next successive Business Day.
"Common Stock" shall mean the common stock of the Corporation,
par value $0.000 1 per share.
"Corporation" shall mean GeriMed of America, Inc., a Colorado
corporation.
"Junior Securitv" shall mean any equity security of any kind
which the Corporation shall at any time issue or be authorized to issue other
than the Series A Preferred Stock.
"Person" shall mean any individual, partnership, limited
partnership, corporation, trust, joint venture unincorporated organization and a
government or any department or agency thereof
"Preferred Stock" shall mean the Preferred Stock, par value
$0.0001 per share, authorized to be issued by the Corporation pursuant to its
Articles of Incorporation.
"Stated Value" of any share of Series A Preferred Stock shall
mean $3.308.
2. Preference on Liquidation . Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of the Series A Preferred stock shall be entitled, before any
distribution or payment is made upon any Junior Securities of the Corporation,
to be paid out of the assets of the Corporation available for distribution to
its shareholders (whether from capital, surplus or earnings) an amount in cash
equal to the Stated Value of each share of Series A Preferred Stock outstanding,
and the holders of the Series A Preferred Stock shall not be entitled to any
farther payment. If upon such liquidation. dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets of the Corporation to
be distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit payment to the holders of Series A Preferred Stock of the
amount which they are entitled to be paid as aforesaid. then the entire
remaining assets of the Corporation shall be distributed to the holders of the
Series A Preferred Stock ratably based upon the aggregate Stated Value of the
shares of Series A Preferred Stock held by them. Upon any such liquidation,
dissolution or winding up of the Corporation, after the holders of the Series A
Preferred Stock shall have been paid in full the amounts to which they shall be
entitled, the remaining assets of the Corporation may be distributed to the
holders of Junior Securities of the Corporation. Written notice of such
liquidation. dissolution or winding. up, stating a payment date, the amount of
the payment and the place where the amounts distributable shall be payable,
shall be mailed by the Corporation by certified or registered mail, return
receipt requested, not less than thirty (30) days prior to the payment date
stated therein, to each record holder of any share of Series A Preferred Stock
at the address of such record holder shown on the Corporation! s records.
Neither the consolidation or merger of the Corporation into or with any other
corporation or corporations, nor the sale, exchange or transfer by the
Corporation of less than substantially all of its assets, nor any reduction of
the capital of the Corporation. shall of itself be deemed to be a liquidation,
<PAGE> 14
dissolution or winding up of the Corporation within the meaning of any of the
provisions of this paragraph 2.
3. Status of Shares. Shares of Series A Preferred Stock
redeemed, purchased or otherwise acquired for value by the Corporation. shall.
after such acquisition, have the status of authorized and unissued shares of
Preferred Stock and may be reissued by the Corporation at any time as shares of
any series of Preferred Stock.
4. Convertibility Rights.
(a) Conversion by Holder. Each share of Series A Preferred
Stock shall be convertible, at any time at the option of the holder thereof,
into one (1) share of Common Stock of the Corporation. taking into account any
appropriate adjustments under paragraph 4(b) below. Such right of conversion
shall be exercisable by such holder's delivery of written notice of conversion
to the Corporation specifying the number of shares of Series A Preferred Stock
to be converted, and such holder's compliance with the other terms of conversion
set forth in paragraph 4(b) below.
(b) Mechanics of Conversion. Concurrently with a holder's
notice of conversion of Series A Preferred Stock, such holder shall (i)
surrender his or her certificates representing the aggregate number of shares of
Series A Preferred Stock being converted by such holder. duly endorsed and with
signatures guaranteed, at the principal office of the Corporation in the State
of Colorado (or at such other place - the Corporation reasonably designates),
and (ii) pay any transfer tax if the shares of Common Stock are to be issued in
any name other than the name of the holder of the Series A Preferred Stock being
converted. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock (or his or her
nominee) one or more certificates for the number of shares of Common Stock to
which such holder is entitled. Such conversion shall be deemed effective
immediately prior to the close of business on the date of the surrender of the
last of the certificates representing the Series A Preferred Stock being
converted, and the person(s) entitled to receive the shares of Common Stock
issuable up such conversation shall be treated for all purposes as the record
holder(s) of such shares of Common Stock on such date.
(c) Adjustments for Changes in Capitalization. In the event of
any increase or decrease in the number of the issued and outstanding shares of
the Corporation's Common Stock by reason of a stock dividend, stock split-
reverse stock split or consolidation or combination of shares and the like at
any time or from time to time after the date hereof such that the holders of
Common Stock shall have had an adjustment made, -without payment therefor, in
the number of shares of Common Stock owned by them or, on or after the record
date fixed for the determination of eligible shareholders, shall have become
entitled or required to have had an adjustment made in the number of shares of
Common Stock owned by them, without payment therefor, there shall be a
corresponding adjustment as to the number of shares of Common Stock receivable
upon conversion of each share of Series A Preferred Stock with the result that
the holder' s proportionate interest in the Common Stock shall be maintained as
before the occurrence of such event. If the Corporation shall effect a plan of
recapitalization, reclassification, reorganization or other like capital
transaction or shall merge or consolidate with or into another corporation or
convey all or substantially all of its assets to another corporation at any time
or from time to time on or after the date hereof, then in each such case the
holder, upon the conversion of Series A Preferred Stock at any time after the
consummation of such recapitalization,
<PAGE> 15
reclassification, reorganization or other like capital transaction or of such
merger, consolidation or conveyance, shall be entitled to receive (in lieu of
the securities or other property to which such holder would have been entitled
to receive upon conversion prior to such consummation), the securities or other
property to which such holder would have been entitled to have received upon
consummation of the subject transaction if the holder hereof had converted the
Series A Preferred Stock immediately prior to such consummation, but subject to
further adjustment pursuant to the immediately preceding sentence.
(d) Reservation of Shares. At all times while the Series A
Preferred Stock remains outstanding, the Corporation shall take or cause to be
taken all actions appropriate to ensure that the Corporation at all times has
reserved sufficient authorized and unissued shares of Common Stock (or other
equity securities) to enable the Corporation to fulfill its obligations under
this paragraph 4 in the event of conversion of Series A Preferred Stock.
(e) Liquidation Value. Upon the conversion of any share of
Series A Preferred Stock, the holder thereof shall forfeit his right to receive
the Stated Value of such share, and the Corporation thereafter shall not be
required to pay at any time, nor shall the holder of such converted share of
Series A Preferred Stock have any claim to, the Stated Value oil such share.
(f) No Dividends. Holders of shares of Series A Preferred
Stock shall not be entitled to receive dividents with respect to such shares.
5. Restrictions.
(a) So long as any Series A Preferred Stock shall be
outstanding, the Corporation shall not, except with the written consent of the
holders of not less than a majority of the then outstanding shares of Series A
Preferred Stock, create any class or series of stock ranking as to payment of
dividends or as to liquidation preference, having a priority over or on a parity
with the Series A Preferred Stock.
(b) So long as any Series A Preferred Stock shall remain
Outstanding. the Corporation shall not, except with the written consent of the
holders of not less than a majority of the then outstanding shares of Series A
Preferred Stock, amend, alter or repeal the Corporations Articles of
Incorporation (or any certificate amendatory or supplementary thereto) or
by-laws in a manner adversely affecting any of the powers, preferences and
rights set forth herein.
(c) So long as any Series A Preferred Stock shall remain
outstanding, no dividend shall be declared or paid, nor shall any other
distribution (including but not limited to a distribution in redemption) be
made, upon any Junior Securities by the Corporation, except pursuant to the
written consent of the holders of not less than a majority of all then
outstanding shares of Series A Preferred Stock.
<PAGE> 16
6. Voting Rights.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to vote on matters Coming before the shareholders of the corporation,
with each share of Series A Preferred Stock having a number of votes from time
to time equal to the number of shares of Common Stock into which such share then
is convertible (I.e., initially each share of Series A Preferred Stock shall be
entitled to one (1) vote), Voting by holders of Series A Preferred Stock shall
be together with the holders of the Common Stock, and the holders of Series A
Preferred Stock shall have no right to vote as a class except to the extent a
class vote is required under the BCA.
(b) No vote or consent of the holders of the Series A
Preferred Stock shall be required for the authorization (including an increase
in the authorized number of shares of any Junior Securities) or issuance of any
Junior Securities of the Corporation; provided, however, that the Corporation
shall not issue any Junior Securities which have class voting rights beyond
those required by law, except upon the prior written consent of the holders of a
majority of the then outstanding shares of Series A Preferred Stock.
7. Closing of Books. The Corporation will not close its books
against the transfer of any share of Series A Preferred Stock.
8. Registration of Transfer. The Corporation shall keep at its
principal office in the State of Colorado (or at such other place as the
Corporation reasonably designates) a register for the registration of shares of
Series A Preferred Stock. Upon the surrender of any certificate representing
shares of Series A Preferred Stock at such place, the Corporation shall, at the
request of the registered holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Shares of Series A Preferred Stock represented by the surrendered
certificate (and the Corporation forthwith shall cancel such surrendered
certificate subject to the requirements of applicable securities laws. Each such
new certificate shall be registered in such name and shall represent such number
of shares of Series A Preferred Stock as shall be requested by the holder of the
surrendered certificate and shall be substantially identical in form to the
surrendered certificate. The issuance of new certificates shall be made without
charge to the holders of the surrendered certificates or any issuance tax in
respect thereof or other cost incurred by the Corporation in connection with
such issuance; provided that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery Of any certificate in a name other than that of the holder of the
surrendered certificate.
9. Replacement.
(a) Upon receipt of evidence reasonably satisfactory to the
Corporation of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of Series A Preferred Stock and,
in the case of any such loss, theft or destruction, upon receipt of indemnity
and/or a bond reasonably satisfactory to the Corporation, or, in the case of any
such mutilation, upon surrender of such certificate, the Corporation shall (at
its
<PAGE> 17
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the number of shares of Series A Preferred Stock
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, on which
dividends shall be calculated cumulatively on a daily basis from the date to
which dividends have been fully paid on such lost stolen, destroyed or mutilated
certificate at the rate and in the manner applicable to such certificate.
(b) The term "outstanding" when used herein with
reference to shares of Series A Preferred Stock as of any particular time shall
not include any such shares represented by any certificate in lieu of which a
new certificate has been executed and delivered by the Corporation in accordance
with paragraph 8 or this paragraph 9, but shall include only those shares
represented by such new certificate.
10. Amendment and Waiver. No amendment, modification or waiver
of any provision hereof shall extend to or affect any obligation not expressly
amended, modified or waived or impair any right consequent thereon. No course of
dealing, and no failure to exercise or delay in exercising any right, remedy,
power or privilege granted hereby shall operate as a waiver, amendment or
modification of any provision hereof.
<PAGE> 18
IN WITNESS WHEREOF, GeriMed of America, Inc. has caused this
Certificate to be signed by its President this 22nd day of December, 1997.
GERIMED OF AMERICA, INC.
By: /s/ James F. Riopelle
-----------------------------------------
James F. Riopelle, President
<PAGE> 1
EXHIBIT 3.2
RESTATED
BYLAWS
OF
GERIMED OF AMERICA, INC.,
A COLORADO CORPORATION
ARTICLE 1
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of GeriMed, Inc., a
Colorado corporation (the "Corporation"), shall be designated from time to time
by the Corporation and may be within or outside of Colorado.
SECTION 1.2 OTHER OFFICES. The Corporation may have such other offices,
either within or outside Colorado, as the Board of Directors of the Corporation
(the "Board") may designate or as the business of the Corporation may require
from time to time.
SECTION 1.3 REGISTERED OFFICE. The registered office of the Corporation
required by the Colorado Business Corporation Act (the "Act") to be maintained
in Colorado may be, but need not be, identical with the principal office, and
the address of the registered office may be changed from time to time by the
Board.
ARTICLE 2
SHAREHOLDERS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the shareholders
shall be held during the month of March of each year on a date and at a time
fixed by the Board (or by the president in the absence of action by the Board),
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the election of directors is not
held on the day fixed as provided herein for any annual meeting of the
shareholders, or any adjournment thereof, the Board shall cause the election to
be held at a special meeting of the shareholders as soon thereafter as may be
convenient.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of the shareholders may
be called for any purpose by the president or by the Board. The president shall
call a special meeting of the shareholders if the Corporation receives one or
more written demands for the meeting, stating the purpose or purposes for which
it is to be held, signed and dated by holders of shares representing at least
10% of all the votes entitled to be cast on any issue proposed to be considered
at the meeting.
SECTION 2.3 PLACE OF MEETING. The Board may designate any place, either
within or outside Colorado, as the place for any annual meeting or any special
meeting called by the Board. A waiver of notice signed by all shareholders
entitled to vote at a meeting may designate any place, either within or outside
Colorado, as the place for such meeting. If no
<PAGE> 2
designation is made, or if a special meeting is called other than by the Board,
the place of meeting shall be the principal office of the Corporation.
SECTION 2.4 NOTICE OF MEETING. Written notice stating the place, date,
and hour of the meeting shall be given not less than 10 nor more than 60 days
before the date of the meeting, except (i) if the number of authorized shares is
to be increased, at least 30 days' notice shall be given, or (ii) if any other
longer notice period is required by the Act, notice shall be given in compliance
with the Act. Notice of a special meeting shall include a description of the
purpose or purposes of the meeting. Notice of an annual meeting need not include
a description of the purpose or purposes of the meeting, except the purpose or
purposes shall be stated with respect to (i) an amendment to the articles of
incorporation of the Corporation, (ii) a merger or share exchange in which the
Corporation is a party, and with respect to a share exchange, in which the
Corporation's shares will be acquired, (iii) a sale, lease, exchange or other
disposition, other than in the usual and regular course of business, of all or
substantially all of the property of the Corporation or of another entity which
this Corporation controls, in each case with or without the goodwill, (iv) a
dissolution of the Corporation, or (v) any other purpose for which a statement
of purpose is required by the Act. Notice shall be given personally or by mail,
private carrier, telegraph, teletype, electronically transmitted facsimile or
other form of wire or wireless communication by or at the direction of the
president, the secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be given and effective when deposited in the United States
mail, addressed to the shareholder at his address as it appears in the
Corporation's current record of shareholders, with postage prepaid. If notice is
given other than by mail, the notice is given and effective on the date received
by the shareholder.
If requested by the person or persons lawfully calling such meeting,
the secretary shall give notice thereof at corporate expense. No notice need be
sent to any shareholder if three successive notices mailed to the last known
address of such shareholder have been returned as undeliverable until such time
as another address for such shareholder is made known to the Corporation by such
shareholder. In order to be entitled to receive notice of any meeting, a
shareholder shall advise the Corporation in writing of any change in such
shareholder's mailing address as shown on the Corporation's books and records.
When a meeting is adjourned to another date, time or place, notice need
not be given of the new date, time or place if the new date, time or place of
such meeting is announced before adjournment of the meeting at which the
adjournment is taken. At the adjourned meeting the Corporation may transact any
business which may have been transacted at the original meeting. If the
adjournment is for more than 120 days, or if a new record date is fixed for the
adjourned meeting, a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting as of the new record date.
A shareholder may waive notice of a meeting before, at or after the
time and date of the meeting by a writing signed by such shareholder. Such
waiver shall be delivered to the Corporation for filing with the corporate
records. Further, by attending a meeting either in person or by proxy, a
shareholder waives objection to lack of notice or defective notice of the
meeting unless the shareholder objects at the beginning of the meeting to
holding the meeting or transacting business at the meeting because of lack of
notice or defective notice. By attending
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<PAGE> 3
the meeting, the shareholder also waives any objection to consideration at the
meeting of a particular matter not within the purpose or purposes described in
the meeting notice unless the shareholder objects to considering the matter when
it is presented.
SECTION 2.5 FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to (i) notice of or vote at any meeting of shareholders or
any adjournment thereof, (ii) receive distributions or share dividends, or (iii)
demand a special meeting, or to make a determination of shareholders for any
other purpose, the Board may fix a future date as the record date for any such
determination of shareholders, such date in any case to be not more than 70
days, and, in case of a meeting of shareholders, not less than 10 days, prior to
the date on which the particular action requiring such determination of
shareholders is to be taken. If no record date is fixed by the Board, the record
date shall be the date on which notice of the meeting is mailed to shareholders,
or the date on which the resolution of the Board providing for a distribution or
share dividend is adopted, as the case may be. When a determination of
shareholders entitled to vote at any meeting of shareholders is made as provided
in this Section 2.5, such determination shall apply to any adjournment thereof
unless the Board fixes a new record date, which it must do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting.
Notwithstanding the above, the record date for determining the
shareholders entitled to take action without a meeting or entitled to be given
notice of action so taken shall be the date a writing upon which the action is
taken is first received by the Corporation. The record date for determining
shareholders entitled to demand a special meeting shall be the date of the
earliest of any of the demands pursuant to which the meeting is called.
SECTION 2.6 VOTING LISTS. The secretary shall make, at the earlier of
10 days before each meeting of shareholders or two business days after notice of
the meeting has been given, a complete list of the shareholders entitled to be
given notice of such meeting or any adjournment thereof. The list shall be
arranged by voting groups and within each voting group by class or series of
shares, shall be in alphabetical order within each class or series, and shall
show the address of and the number of shares of each class or series held by
each shareholder. For the period beginning the earlier of 10 days prior to the
meeting or two business days after notice of the meeting is given and continuing
through the meeting and any adjournment thereof, this list shall be kept on file
at the principal office of the Corporation, or at a place (which shall be
identified in the notice) in the city where the meeting will be held. Such list
shall be available for inspection on written demand by any shareholder
(including for the purpose of this Section 2.6 any holder of voting trust
certificates) or his agent or attorney during regular business hours and during
the period available for inspection. The original stock transfer books shall be
prima facie evidence as to the shareholders entitled to examine such list or to
vote at any meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during regular
business hours and during the period it is available for inspection, provided
(i) the shareholder has been a shareholder for at least three months immediately
preceding the demand or holds at least 5% of all outstanding shares of any class
of shares as of the date of the demand, (ii) the demand is made in good faith
and for a purpose reasonably related to the demanding shareholder's interest as
a shareholder, (iii) the shareholder described with reasonable particularity the
purpose and the
3
<PAGE> 4
records the shareholder desires to inspect, (iv) the records are directly
connected with the described purpose, and (v) the shareholder pays a reasonable
charge covering the costs of labor and material for such copies, not to exceed
the estimated cost of production and reproduction.
SECTION 2.7 RECOGNITION PROCEDURE FOR BENEFICIAL OWNERS. The Board may
adopt by resolution a procedure whereby a shareholder of the Corporation may
certify in writing to the Corporation that all or a portion of the shares
registered in the name of such shareholder are held for the account of a
specified person or persons. The resolution may set forth (i) the types of
nominees to which it applies, (ii) the rights or privileges that the Corporation
will recognize in a beneficial owner, which may include rights and privileges
other than voting, (iii) the form of certification and the information to be
contained therein, (iv) if the certification is with respect to a record date,
the time within which the certification must be received by the Corporation, (v)
the period for which the nominee's use of the procedure is effective, and (vi)
such other provisions with respect to the procedure as the Board deems necessary
or desirable. Upon receipt by the Corporation of a certificate complying with
the procedure established by the Board, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the registered holders of the number of shares specified in
place of the shareholder making the certification.
SECTION 2.8 QUORUM AND MANNER OF ACTING. A majority of the votes
entitled to be cast on a matter by a voting group shall constitute a quorum of
that voting group for action on the matter. If less than a majority of such
votes are represented at a meeting, a majority of the votes so represented may
adjourn the meeting from time to time without further notice, for a period not
to exceed 120 days for any one adjournment. If a quorum is present at such
adjourned meeting, any business may be transacted which might have been
transacted at the meeting as originally noticed. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, unless the meeting is adjourned and a new record date is set for the
adjourned meeting.
If a quorum exists, action on a matter other than the election of
directors by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group opposing
the action, unless the vote of a greater number or voting by classes is required
by the Act or the articles of incorporation.
SECTION 2.9 PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy by signing an appointment form or similar writing, either
personally or by his duly authorized attorney-in-fact. A shareholder may also
appoint a proxy by transmitting or authorizing the transmission of a telegram,
teletype, or other electronic transmission providing a written statement of the
appointment to the proxy or other person duly authorized by the proxy to receive
appointments as agent for the proxy, or to the Corporation. The transmitted
appointment shall set forth or be transmitted with written evidence from which
it can be determined that the shareholder transmitted or authorized the
transmission of the appointment. The proxy appointment form or similar writing
shall be filed with the secretary of the Corporation before or at the time of
the meeting. The appointment of a proxy is effective when received by the
Corporation and is valid for 11 months unless a different period is expressly
provided in the appointment form or similar writing.
4
<PAGE> 5
Any complete copy, including an electronically transmitted facsimile,
of an appointment of a proxy may be substituted for or used in lieu of the
original appointment for any purpose for which the original appointment could be
used.
Revocation of a proxy does not affect the right of the Corporation to
accept the proxy's authority unless (i) the Corporation had notice that the
appointment was coupled with an interest and notice that such interest is
extinguished is received by the secretary or other officer or agent authorized
to tabulate votes before the proxy exercises his authority under the
appointment, or (ii) other notice of the revocation of the appointment is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. Other notice of
revocation may, in the discretion of the Corporation, be deemed to include the
appearance at a shareholders' meeting of the shareholder who granted the proxy
and his voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
The Corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder (including a shareholder who is a successor to the shareholder who
granted the proxy) either personally or by his attorney-in-fact, notwithstanding
that the revocation may be a breach of an obligation of the shareholder to
another person not to revoke the appointment.
Subject to Section 2.11 and any express limitation on the proxy's
authority appearing on the appointment form, the Corporation is entitled to
accept the proxy's vote or other action as that of the shareholder making the
appointment.
SECTION 2.10 VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote, except in the election of directors, and
each fractional share shall be entitled to a corresponding fractional vote on
each matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the articles of incorporation as permitted by the Act. Cumulative
voting shall not be permitted in the election of directors or for any other
purpose. In the election of directors, each record holder of stock shall be
entitled to vote with respect to each position to be filled pursuant to such
election.
At each election of directors, that number of candidates equaling the
number of directors to be elected, having the highest number of votes cast in
favor of their election, shall be elected to the Board.
SECTION 2.11 CORPORATION'S ACCEPTANCE OF VOTES. If the name signed on a
vote, consent, waiver, proxy appointment, or proxy appointment revocation
corresponds to the name of a shareholder, the Corporation, if acting in good
faith, is entitled to accept the vote, consent, waiver, proxy appointment or
proxy appointment revocation and give it effect as the act of the shareholder.
If the name signed on a vote, consent, waiver, proxy appointment or proxy
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<PAGE> 6
appointment revocation does not correspond to the name of a shareholder, the
Corporation, if acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, proxy appointment or proxy appointment revocation and to
give it effect as the act of the shareholder if:
(i) the shareholder is an entity and the name signed
purports to be that of an officer or agent of the entity;
(ii) the name signed purports to be that of an
administrator, executor, guardian or conservator representing the
shareholder and, if the Corporation requests, evidence of
fiduciary status acceptable to the Corporation has been presented
with respect to the vote, consent, waiver, proxy appointment or
proxy appointment revocation;
(iii) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation
requests, evidence of this status acceptable to the Corporation
has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation;
(iv) the name signed purports to be that of a pledgee,
beneficial owner or attorney-in-fact of the shareholder and, if
the Corporation requests, evidence acceptable to the Corporation
of the signatory authority to sign for the shareholder has been
presented with respect to the vote, consent, waiver, proxy
appointment or proxy appointment revocation;
(v) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at
least one of the co-tenants or fiduciaries, and the person
signing appears to be acting on behalf of all the co-tenants or
fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy
appointment or proxy appointment revocation is otherwise proper
under rules established by the Corporation that are not
inconsistent with this Section 2.11.
The Corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary or other officer or
agent authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
Neither the Corporation nor its officers nor any agent who accepts or
rejects a vote, consent, waiver, proxy appointment or proxy appointment
revocation in good faith and in accordance with the standards of this Section
2.11 shall be liable for the consequences of such acceptance or rejection.
SECTION 2.12 INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a written consent (or counterparts thereof) that sets forth the
action so taken is signed by all of the shareholders entitled to vote with
respect to the subject matter thereof and received by the
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<PAGE> 7
Corporation. Such consent shall have the same force and effect as a unanimous
vote of the shareholders and may be stated as such in any document. Action taken
under this Section 2.12 is effective as of the date the last writing necessary
to effect the action is received by the Corporation, unless all of the writings
specify a different effective date, in which case such specified date shall be
the effective date for such action. If any shareholder revokes his consent as
provided for herein prior to what would otherwise be the effective date, the
action proposed in the consent shall be invalid. The record date for determining
shareholders entitled to take action without a meeting is the date the
Corporation first receives a writing upon which the action is taken.
Any shareholder who has signed a writing describing and consenting to
action taken pursuant to this Section 2.12 may revoke such consent by a writing
signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the Corporation before the effectiveness of the action.
SECTION 2.13 MEETINGS BY TELECOMMUNICATION. Any or all of the
shareholders may participate in an annual or special shareholders' meeting by,
or the meeting may be conducted through the use of, any means of communication
by which all persons participating in the meeting may hear each other during the
meeting. A shareholder participating in a meeting by this means is deemed to be
present in person at the meeting.
ARTICLE 3
BOARD OF DIRECTORS
SECTION 3.1 GENERAL POWERS. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation shall
be managed under the direction of the Board, except as otherwise provided in the
Act or the articles of incorporation.
SECTION 3.2 NUMBER, QUALIFICATIONS AND TENURE. The number of directors
of the Corporation shall be fixed from time to time by the Board, within a range
of no less than one or more than twelve. A director shall be a natural person
who is eighteen years of age or older. A director need not be a resident of
Colorado or a shareholder of the Corporation.
Directors shall be elected at each annual meeting of shareholders. Each
director shall hold office until the next annual meeting of shareholders
following his election and thereafter until his successor shall have been
elected and qualified. Directors shall be removed in the manner provided by the
Act.
SECTION 3.3 VACANCIES. Any director may resign at any time by giving
written notice to the Corporation. Such resignation shall take effect at the
time the notice is received by the Corporation unless the notice specifies a
later effective date. Unless otherwise specified in the notice of resignation,
the Corporation's acceptance of such resignation shall not be necessary to make
it effective. Any vacancy on the Board may be filled by the affirmative vote of
a majority of the shareholders or the Board. If the directors remaining in
office constitute fewer than a quorum of the Board, the directors may fill the
vacancy by the affirmative vote of a
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majority of all the directors remaining in office. If elected by the directors,
the director shall hold office until the next annual shareholders' meeting at
which directors are elected. If elected by the shareholders, the director shall
hold office for the unexpired term of his predecessor in office; except that, if
the director's predecessor was elected by the directors to fill a vacancy, the
director elected by the shareholders shall hold office for the unexpired term of
the last predecessor elected by the shareholders.
SECTION 3.4 REGULAR MEETINGS. A regular meeting of the Board shall be
held without notice immediately after and at the same place as the annual
meeting of shareholders. The Board may provide by resolution the time and place,
either within or outside the State of Colorado, for the holding of additional
regular meetings without other notice.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of the Board may be
called by or at the request of the president or any director. The person or
persons authorized to call special meetings of the Board may fix any place,
either within or outside the State of Colorado, as the place for holding any
special meeting of the Board called by them, provided that no meeting shall be
called outside the State of Colorado unless a majority of the Board has so
authorized.
SECTION 3.6 NOTICE. Notice of any special meeting of the Board shall be
given at least two days prior to the meeting by written notice either personally
delivered or mailed to each director at his business address, or by notice
transmitted by telegraph, telex, electronically transmitted facsimile or other
form of wire or wireless communication. If mailed, such notice shall be deemed
to be given and to be effective on the earlier of (i) three days after such
notice is deposited in the United States mail, properly addressed, with postage
prepaid, or (ii) the date shown on the return receipt, if mailed by registered
or certified mail return receipt requested. If notice is given by telex,
electronically transmitted facsimile or other similar form of wire or wireless
communication, such notice shall be deemed to be given and to be effective when
sent, and with respect to a telegram, notice shall be deemed to be given and to
be effective when the telegram is delivered to the telegraph company. If a
director has designated in writing one or more reasonable addresses or facsimile
numbers for delivery of notice to him, notice sent by mail, telegram, telex,
electronically transmitted facsimile or other form of wire or wireless
communication shall not be deemed to have been given or to be effective unless
sent to such addresses or facsimile numbers, as the case may be.
A director may waive notice of a meeting before, at or after the time
and date of the meeting by a writing signed by such director. Such waiver shall
be delivered to the Corporation for filing with the corporate records. Further,
a director's attendance at or participation in a meeting waives any required
notice to him of the meeting, unless at the beginning of the meeting, or
promptly upon his later arrival, the director objects to holding the meeting or
transacting business at the meeting because of lack of notice or defective
notice and does not thereafter vote for or assent to any action taken at the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in the notice or
waiver of notice of such meeting.
SECTION 3.7 QUORUM. A majority of the number of directors fixed by the
Board pursuant to Section 3.2, or, if no number is fixed, a majority of the
number in office
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immediately before the meeting begins, shall constitute a quorum for the
transaction of business at any meeting of the Board. If less than such majority
is present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice, for a period not to exceed 60
days at any one adjournment.
SECTION 3.8 MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board.
SECTION 3.9 COMPENSATION. By resolution of the Board, any director may
be paid any one or more of the following: his expenses, if any, of attendance at
meetings, a fixed sum for attendance at each meeting, a stated salary as
director, or such other compensation as the Corporation and the director may
reasonably agree upon. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
SECTION 3.10 PRESUMPTION OF ASSENT. A director of the Corporation who
is present at a meeting of the Board or committee of the Board at which action
on any corporate matter is taken shall be presumed to have assented to the
action taken unless (i) the director objects at the beginning of the meeting, or
promptly upon his arrival, to holding the meeting or transacting business at the
meeting and does not thereafter vote for or assent to any action taken at the
meeting, (ii) the director contemporaneously requests that his dissent or
abstention as to any specific action to be taken be entered in the minutes of
the meeting; or (iii) the director causes written notice of his dissent or
abstention as to any specific action to be received by the presiding officer of
the meeting before its adjournment or by the Corporation promptly after the
adjournment of the meeting. A director may dissent to a specific action at a
meeting, while assenting to others. The right to dissent to a specific action
taken at a meeting of the Board or a committee of the Board shall not be
available to a director who voted in favor of such action.
SECTION 3.11 COMMITTEES. By resolution adopted by a majority of all the
directors in office when the action is taken, the Board may designate from among
its members an executive committee and one or more other committees, and appoint
one or more members of the Board to serve on them. To the extent provided in the
resolution, each committee shall have all the authority of the Board, except
that no committee shall have the authority to (i) authorize distributions, (ii)
approve or propose to shareholders actions or proposals required by the Act to
be approved by shareholders; (iii) fill vacancies on the Board or any committee
thereof; (iv) amend the articles of incorporation; (v) adopt, amend or repeal
these bylaws; (vi) approve a plan of merger not requiring shareholder approval;
(vii) authorize or approve the reacquisition of shares unless pursuant to a
formula or method prescribed by the Board, or (viii) authorize or approve the
issuance or sale of shares, or contract for the sale of shares or determine the
designations and relative rights, preferences and limitations of a class or
series of shares, except that the Board may authorize a committee or officer to
do so within limits specifically prescribed by the Board. The committee shall
then have full power within the limits set by the Board to adopt any final
resolution setting forth all preferences, limitations, and relative rights of
such class or series and to authorize an amendment of the articles of
incorporation stating the preferences, limitations and relative rights of a
class or series for filing with the Secretary of State under the Act.
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Sections 3.4, 3.5, 3.6, 3.7, 3.8 and 3.12, which govern meetings,
notice, waiver of notice, quorum, voting requirements and action without a
meeting of the Board, shall apply to committees and their members appointed
under this Section 3.11.
Neither the designation of any such committee, the delegation of
authority to such committee, nor any action by such committee pursuant to its
authority shall alone constitute compliance by any member of the Board or a
member of the committee in question with his responsibility to conform to the
standard of care set forth in Section 3.14 of these bylaws.
SECTION 3.12 INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at a meeting of the Board or any committee designated by
the Board may be taken without a meeting if a written consent (or counterparts
thereof) that sets forth the action so taken is signed by all of the directors
entitled to vote with respect to the action taken. Such consent shall have the
same force and effect as a unanimous vote of the directors or committee members
and may be stated as such in any document. Unless the consent specifies a
different effective date, action taken under this Section 3.12 is effective at
the time the last director signs a writing describing the action taken, unless,
before such time, any director has revoked his consent by a writing signed by
the director and received by the president or the secretary of the Corporation.
SECTION 3.13 MEETINGS BY TELECOMMUNICATION. The Board may permit any
director (or any member of a committee designated by the Board) to participate
in a regular or special meeting of the Board or a committee thereof through the
use of any means of communication by which all directors participating in the
meeting can hear each other during the meeting. A director participating in a
meeting in this manner is deemed to be present in person at the meeting.
SECTION 3.14 STANDARD OF CARE. A director shall perform his duties as a
director, including without limitation his duties as a member of any committee
of the Board, in good faith, in a manner he reasonably believes to be in the
best interests of the Corporation, and with the care an ordinarily prudent
person in a like position would exercise under similar circumstances. In
performing his duties, a director shall be entitled to rely on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by the persons herein
designated. However, he shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause such reliance
to be unwarranted. A director shall not be liable to the Corporation or its
shareholders for any action he takes or omits to take as a director if, in
connection with such action or omission, he performs his duties in compliance
with this Section 3.14.
The designated persons on whom a director is entitled to rely are (i)
one or more officers or employees of the Corporation whom the director
reasonably believes to be reliable and competent in the matters presented, (ii)
legal counsel, public accountant, or other person as to matters which the
director reasonably believes to be within such person's professional or expert
competence, or (iii) a committee of the Board on which the director does not
serve if the director reasonably believes the committee merits confidence.
SECTION 3.15 CONFLICTING INTEREST TRANSACTIONS. As used in this Section
3.15, "conflicting interest transaction" means any of the following: (i) a loan
or other assistance by the
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Corporation to a director of the Corporation or to an entity in which a director
of the Corporation is a director or officer or has a financial interest; (ii) a
guaranty by the Corporation of an obligation of a director of the Corporation or
of an obligation of an entity in which a director of the Corporation is a
director or officer or has a financial interest; or (iii) a contract or
transaction between the Corporation and a director of the Corporation or between
the Corporation and an entity in which a director of the Corporation is a
director or officer or has a financial interest. No conflicting interest
transaction shall be void or voidable, enjoined, or set aside, or give rise to
an award of damages or other sanctions in a proceeding by a shareholder or by or
in the right of the Corporation, solely because the conflicting interest
transaction involves a director of the Corporation or an entity in which a
director of the Corporation is a director or officer or has a financial
interest, or solely because the director is present at or participates in the
meeting of the Board or of the committee of the Board which authorizes, approves
or ratifies a conflicting interest transaction, or solely because the director's
vote is counted for such purpose if: (i) the material facts as to the director's
relationship or interest and as to the conflicting interest transaction are
disclosed or are known to the Board or the committee, and the Board or committee
in good faith authorizes, approves or ratifies the conflicting interest
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors are less than a quorum; or
(ii) the material facts as to the director's relationship or interest and as to
the conflicting interest transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the conflicting interest transaction
is specifically authorized, approved or ratified in good faith by a vote of the
shareholders; or (iii) a conflicting interest transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by the Board,
the committee, or the shareholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board or of
a committee which authorizes, approves or ratifies the conflicting interest
transaction.
SECTION 3.16 LOANS AND GUARANTIES FOR THE BENEFIT OF DIRECTORS. Neither
the Board nor any committee thereof shall authorize a loan by the Corporation to
a director of the Corporation or to an entity in which a director of the
Corporation is a director or officer or has a financial interest, or a guaranty
by the Corporation of an obligation of a director of the Corporation or of an
obligation of an entity in which a director of the Corporation is a director or
officer or has a financial interest, until at least 10 days after written notice
of the proposed authorization of the loan or guaranty has been given to the
shareholders who would be entitled to vote thereon if the issue of the loan or
guaranty were submitted to a vote of the shareholders. The requirements of this
Section 3.16 are in addition to, and not in substitution for, the provisions of
Section 3.15.
ARTICLE 4
OFFICERS AND AGENTS
SECTION 4.1 GENERAL. The officers of the Corporation shall be a
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be a natural person 18 years of age or older. The Board or an officer
or officers authorized by the Board may appoint such other officers, assistant
officers, committees and agents, including a chief executive officer, chief
operating officer, chairman of the Board, assistant secretaries and assistant
treasurers, as they may consider necessary. The Board or the officer or officers
authorized by the Board shall from time to time determine the procedure for the
appointment of officers, their term of office,
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their authority and duties and their compensation. One person may hold more than
one office. In all cases where the duties of any officer, agent or employee are
not prescribed by these bylaws or by the Board, such officer, agent or employee
shall follow the orders and instructions of the president of the Corporation.
SECTION 4.2 APPOINTMENT AND TERM OF OFFICE. The officers of the
Corporation shall be appointed by the Board at each annual meeting of the Board
held after each annual meeting of the shareholders. If the appointment of
officers is not made at such meeting or if an officer or officers are to be
appointed by another officer or officers of the Corporation, such appointments
shall be made as soon thereafter as may be convenient. Each officer shall hold
office until the first of the following occurs: his successor shall have been
duly appointed and qualified, his death, his resignation, or his removal in the
manner provided in Section 4.3.
SECTION 4.3 RESIGNATION AND REMOVAL. An officer may resign at any time
by giving written notice of resignation to the Corporation. The resignation is
effective when the notice is received by the Corporation unless the notice
specifies a later effective date.
Any officer or agent may be removed as an officer or agent at any time,
with or without cause, by the Board or an officer or officers authorized by the
Board. Such removal does not affect the contract rights, if any, of the
Corporation or of the person so removed. The appointment of an officer or agent
shall not in itself create contract rights.
SECTION 4.4 VACANCIES. A vacancy in any office, however occurring, may
be filled by the Board, or by the officer or officers authorized by the Board,
for the unexpired portion of the officer's term. If an officer resigns and his
resignation is made effective at a later date, the Board, or officer or officers
authorized by the Board, may permit the officer to remain in office until the
effective date and may fill the pending vacancy before the effective date if the
Board or officer or officers authorized by the Board provide that the successor
shall not take office until the effective date. In the alternative, the Board,
or officer or officers authorized by the Board, may remove the officer at any
time before the effective date and may fill the resulting vacancy.
SECTION 4.5 PRESIDENT. Subject to the direction and supervision of the
Board, the president shall have general and active control of its affairs and
business and general supervision of its officers, agents and employees. Unless
otherwise directed by the Board, the president shall attend in person or by
substitute appointed by him, or shall execute on behalf of the Corporation
written instruments appointing a proxy or proxies to represent the Corporation,
at all meetings of the shareholders of any other Corporation in which the
Corporation holds any stock. On behalf of the Corporation, the president may in
person or by substitute or by proxy execute written waivers of notice and
consents with respect to any such meetings. At all such meetings and otherwise,
the president, in person or by substitute or proxy, may vote the stock held by
the Corporation, execute written consents and other instruments with respect to
such stock, and exercise any and all rights and powers incident to the ownership
of said stock, subject to the instructions, if any of the Board. The president
shall have custody of the treasurer's bond, if any.
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SECTION 4.6 VICE PRESIDENTS. The vice presidents shall assist the
president and shall perform such duties as may be assigned to them by the chief
executive officer, and the president or by the Board. In the absence of the
chief executive officer, and the president, the vice president, if any (or, if
more than one, the vice presidents in the order designated by the Board, or if
the Board makes no such designation, then the vice president designated by the
president, or if neither the Board nor the president makes any such designation,
the senior vice president as determined by first election to that office), shall
have the powers and perform the duties of the president.
SECTION 4.7 SECRETARY. The secretary shall (i) prepare and maintain as
permanent records the minutes of the proceedings of the shareholders and the
Board, a record of all actions taken by the shareholders or the Board without a
meeting, a record of all actions taken by a committee of the Board, and a record
of all waivers of notice of meetings of shareholders and of the Board or any
committee thereof, (ii) cause all notices to be duly given in accordance with
the provisions of these bylaws and as required by law, (iii) serve as custodian
of the corporate records and of the seal of the Corporation and affix the seal
to all documents when authorized by the Board, (iv) keep at the Corporation's
registered office or principal place of business a record containing the names
and addresses of all shareholders in a form that permits preparation of a list
of shareholders arranged by voting group and by class or series of shares within
each voting group, that is alphabetical within each class or series and that
shows the address of, and the number of shares of each class or series held by,
each shareholder, unless such a record shall be kept at the office of the
Corporation's transfer agent or registrar, (v) maintain at the Corporation's
principal office the originals or copies of the Corporation's articles of
incorporation, bylaws, minutes of all shareholders' meetings and records of all
action taken by shareholders without a meeting for the past three years, all
written communications within the past three years to shareholders as a group or
to the holders of any class or series of shares as a group, a list of the names
and business addresses of the current directors and officers, a copy of the
Corporation's most recent corporate report filed with the Secretary of State,
and financial statements showing in reasonable detail the Corporation's assets
and liabilities and results of operations for the last three years, (vi) have
general charge of the stock transfer books of the Corporation, unless the
Corporation has a transfer agent, (vii) authenticate records of the Corporation,
and (viii) in general, perform all duties incident to the office of secretary
and such other duties as from time to time may be assigned to him by the
president or by the Board. Assistant secretaries, if any, shall have the same
duties and powers, subject to supervision by the secretary. The directors and/or
shareholders may, however, respectively designate a person other than the
secretary or assistant secretary to keep the minutes of their respective
meetings.
Any books, records, or minutes of the Corporation may be in written
form or in any form capable of being converted into written form within a
reasonable time.
SECTION 4.8 TREASURER. The treasurer shall be the principal financial
officer of the Corporation, shall have the care and custody of all funds,
securities, evidences of indebtedness and other personal property of the
Corporation and shall deposit the same in accordance with the instructions of
the Board. He shall receive and give receipts and acquittances for money paid in
on account of the Corporation, and shall pay out of the Corporation's funds on
hand all bills, payrolls and other just debts of the Corporation of whatever
nature upon maturity. He shall perform all other duties incident to the office
of the
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treasurer and, upon request of the Board, shall make such reports to it as may
be required at any time. He shall, if required by the Board, give the
Corporation a bond in such sums and with such sureties as shall be satisfactory
to the Board, conditioned upon the faithful performance of his duties and for
the restoration to the Corporation of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation. He shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the chief executive
officer, or the president. The assistant treasurers, if any, shall have the same
powers and duties, subject to the supervision of the treasurer.
The treasurer shall also be the principal accounting officer of the
Corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Act, prepare and file all local, state and federal tax returns,
prescribe and maintain an adequate system of internal audit and prepare and
furnish to the president and the Board statements of account showing the
financial position of the Corporation and the results of its operations.
ARTICLE 5
STOCK
SECTION 5.1 CERTIFICATES. The Board shall be authorized to issue any of
its classes of shares with or without certificates. The fact that the shares are
not represented by certificates shall have no effect on the rights and
obligations of shareholders. If the shares are represented by certificates, such
shares shall be represented by consecutively numbered certificates signed,
either manually or by facsimile, in the name of the Corporation by one or more
persons designated by the Board. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, such certificate may
nonetheless be issued by the Corporation with the same effect as if he were such
officer at the date of its issue. Certificates of stock shall be in such form
and shall contain such information consistent with law as shall be prescribed by
the Board. If shares are not represented by certificates, within a reasonable
time following the issue or transfer of such shares, the Corporation shall send
the shareholder a complete written statement of all of the information required
to be provided to holders of uncertificated shares by the Act.
SECTION 5.2 CONSIDERATION FOR SHARES. Certificated or uncertificated
shares shall not be issued until the shares represented thereby are fully paid.
The Board may authorize the issuance of shares for consideration consisting of
any tangible or intangible property or benefit to the Corporation, including
cash, promissory notes, services performed or other securities of the
Corporation. Future services shall not constitute payment or partial payment for
shares of the Corporation. The promissory note of a subscriber or an affiliate
of a subscriber shall not constitute payment or partial payment for shares of
the Corporation unless the promissory note is negotiable and is secured by
collateral, other than the shares being purchased, having a fair market value at
least equal to the principal amount of the promissory note. For purposes of this
Section 5.2, "promissory note" means a negotiable instrument on which there is
an obligation to pay independent of collateral and does not include a
non-recourse note.
SECTION 5.3 LOST CERTIFICATES. In case of the alleged loss, destruction
or mutilation of a stock certificate, the Board may direct the issuance of a new
certificate in lieu
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thereof upon such terms and conditions in conformity with law as the Board may
prescribe. The Board may in its discretion require an affidavit of lost
certificate and/or a bond in such form and amount and with such surety as it may
determine before issuing a new certificate.
SECTION 5.4 TRANSFER OF SHARES. Upon surrender to the Corporation or to
a transfer agent of the Corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and receipt of such documentary stamps as may be required by law and
evidence of compliance with all applicable securities laws and other
restrictions, the Corporation shall issue a new certificate to the person
entitled thereto, and cancel the old certificate. Every such transfer of stock
shall be entered on the stock books of the Corporation which shall be kept at
its principal office or by the person and the place designated by the Board.
Except as otherwise expressly provided in Section 2.7 and Section 2.11,
and except for the assertion of dissenters' rights to the extent provided in
Article 113 of the Act, the Corporation shall be entitled to treat the
registered holder of any shares of the Corporation as the owner thereof for all
purposes, and the Corporation shall not be bound to recognize any equitable or
other claim to, or interest in, such shares or rights deriving from such shares
on the part of any person other than the registered holder, including without
limitation any purchaser, assignee or transferee of such shares or rights
deriving from such shares, unless and until such other person becomes the
registered holder of such shares, whether or not the Corporation shall have
either actual or constructive notice of the claimed interest of such other
person.
SECTION 5.5 TRANSFER AGENT, REGISTRARS AND PAYING AGENTS. The Board may
at its discretion appoint one or more transfer agents, registrars and agents for
making payment upon any class of stock, bond, debenture or other security of the
Corporation. They shall have such rights and duties and shall be entitled to
such compensation as may be agreed.
ARTICLE 6
SPECIAL PROVISIONS RELATIVE TO STOCK
SECTION 6.1. OWNERSHIP POLICY. The purpose of this Article is to define
the policy of the Corporation to maintain ownership of its stock by compatible
persons actively contributing to its success. This policy is based on the belief
that stock ownership by competent, loyal, contributing employees and directors
of the Corporation and its affiliates will be of continuing benefit to the
Corporation.
SECTION 6.2. CORPORATION'S RIGHT TO REPURCHASE UPON TERMINATION OF
AFFILIATION. As used in this Article, "Stock" shall mean the Common Stock and
any class or series of Preferred Stock issued or to be issued by the
Corporation. All shares of Stock held of record by a person who is an employee
or director of the Corporation or any of its affiliates, shall be subject to the
Corporation's right to repurchase all of such shares in the event that such
holder's affiliation with the Corporation as an employee or director is
terminated for any reason. Such right of repurchase upon termination of
affiliation shall also be applicable to all shares of Stock which such person
has the right to acquire subsequent to termination of affiliation pursuant to
any option or other contractual right to acquire shares of Stock which was
outstanding at the date of such termination of affiliation. An authorized leave
of absence approved by the
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Corporation shall not constitute a termination of affiliation for purposes of
this Section 6.2; provided, however, that the issuance of a formal personnel
action notice by the Corporation's human resources department advising an
employee that the leave of absence is terminated shall constitute a termination
of affiliation for purposes of this Section 6.2. If the Corporation repurchases
the shares, the price shall be the Formula Price (as hereinafter defined) per
share on the date of such termination of affiliation. If the Corporation does
not exercise its right to purchase all of such Stock, the holder thereof shall
be fully subject to the provisions of this Article and any sale or other
transfer by such holder may only be made in compliance with the provisions
herein.
SECTION 6.3. CORPORATION'S RIGHT TO REPURCHASE UPON INVOLUNTARY
TRANSFER. If any of the Stock shall be involuntarily transferred by being levied
upon, sequestered, administered by a receiver or a trustee in bankruptcy, or
sold or proposed to be sold in foreclosure or execution or under any power of
sale contained in a note or loan agreement, or by operation of law, the
Corporation shall have the right, for a period of six months after receipt of
written notification of such involuntary transfer by the transferee of such
Stock, to purchase all or any part of such Stock for cash at the Formula Price
in effect on the date of the transfer. A transfer of Stock pursuant to a decree
of dissolution of marriage, whether or not such decree incorporates a property
settlement agreement, shall be deemed an involuntary transfer subject to the
provisions of this Section 6.3. If the Corporation exercises such right to
purchase all or any part of such Stock, the Corporation shall pay for the
purchased Stock in the manner provided for in Section 6.4. If the Corporation
does not exercise its right to purchase all of such Stock, the holder thereof
shall continue to be fully subject to the provisions of this Article and any
sale or other transfer by such holder may only be made in compliance with the
provisions herein.
SECTION 6.4. EXERCISE AND PAYMENT TERMS. The Corporation's right of
repurchase shall be exercised by mailing written notice to the applicable holder
of the Stock at his address of record on the Corporation's stock record books
within 60 days following receipt of notice by the Corporation of the event
triggering the Corporation's right to repurchase the Stock, which notice shall
request delivery of certificates representing the shares of Stock, duly endorsed
in blank or to the Corporation, free and clear of all liens, claims, charges,
and encumbrances of any kind whatsoever. The Corporation shall, if it exercises
its right to repurchase shares of Stock as provided in Section 6.2 or 6.3 of
this Article, pay for such shares within 90 days after the date of receipt of
notice by the Corporation of the event triggering the Corporation's right to
purchase such Stock, and if such triggering event is a termination of
affiliation, such 90-day period shall commence on the date of termination of
affiliation and shall not be extended by accrued vacation, sick days or similar
accrual. The Corporation, or its assignee, shall pay for any Stock purchased by
the Corporation under Sections 6.2 or 6.3 of this Article, at its election, by
either (i) a single cash payment equal to the Formula Price or (ii) a cash
payment of 20% of the Formula Price and simultaneous execution by the
Corporation, or its assignee, of a promissory note payable to the order of the
seller for 80% of the Formula Price, payable in five equal annual payments of
principal, plus accrued interest on the unpaid balance at a rate equal to the
prime rate published in the Western Edition of the Wall Street Journal on the
date of the triggering event. If the Corporation is unable to make such payment
directly to such holder, then the Corporation may satisfy its obligation to make
such payment by depositing the purchase price within such 90-day period in an
account for the benefit of such holder and such shares of Stock
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shall thereby be deemed to have been transferred to the Corporation and no
longer outstanding, with all rights of such holder with regard to such shares
terminated. The Corporation and any holder of Stock may by contract mutually
agree to extend the time period of the Corporation's right to repurchase such
holder's Stock, and to alter payment terms from those contained in this Section
6.4.
SECTION 6.5. CORPORATION'S RIGHT OF FIRST REFUSAL. If at any time a
holder of Stock desires to sell any of such shares (other than through a limited
market maintained by the Corporation, if any), such holder shall first give
notice to the Secretary of the Corporation containing:
(1) A statement signed by such holder notifying the
Corporation that such holder desires to sell shares of Stock and
has received a bona fide offer to purchase such shares.
(2) A statement signed by the intended purchaser containing:
a) the intended purchaser's full name, address and
taxpayer identification number;
b) the number of shares to be purchased;
c) the price per share to be paid;
d) other terms under which the purchase is intended to
be made; and
e) a representation that the offer, under the terms
specified, is bona fide.
(3) If the purchase price is payable in cash, in whole or in
part, a copy of a certified check, cashier's check or money order
payable to such holder from the purchaser in the aggregate amount
of the purchase price which is to be paid in cash.
The Corporation shall thereupon have an option exercisable within 14
days of receipt of such notice by the Secretary to purchase all, but not less
than all, of the shares specified in the notice at the offer price and upon the
same terms as set forth in the notice, accompanied by payment of the purchase
price; provided, however, that if the offer price is payable, in whole or in
part, other than in cash, the Corporation shall pay the equivalent value of any
noncash consideration as mutually agreed upon between the holder and the
Corporation. Such option shall be exercised by the Corporation by mailing
written notice to such holder at his address of record on the Corporation's
stock record books. In the event the Corporation does not exercise such option,
such holder may sell the shares specified in the notice within 30 days after
expiration of the Corporation's 14-day exercise period, to the person, at the
price and upon the terms and conditions set forth in the notice given to the
Corporation. The holder may not sell
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such shares to any other person, or at any different price, or on any different
terms without first re-offering such shares to the Corporation. All shares sold
pursuant to this Section 6.5 shall continue to be subject to this Article 6,
further transfers of the shares can be made only in accordance with this Article
6, and each purchaser shall be bound by the terms of this Article 6.
SECTION 6.6. ELECTION OF RIGHTS BY CORPORATION. If circumstances shall
occur which would ordinarily permit the Corporation to exercise its rights under
either Section 6.2, 6.3 or 6.5 of this Article at a time when the Corporation's
rights under another subparagraph have become and remain exercisable, the
Corporation, in its sole discretion, may elect which of such rights it shall
exercise. The Corporation may designate one or more nominees to purchase any
shares of Stock which it has the right to purchase pursuant to Sections 6.2, 6.3
or 6.5 of this Article, in lieu of purchasing such shares itself.
SECTION 6.7. OTHER TRANSFERS. Except for sales in a limited market
maintained by the Corporation, if any, and as provided in Sections 6.2, 6.3 or
6.5 of this Article, no holder of shares of Stock may sell, assign, pledge,
transfer or otherwise dispose of or encumber any shares of Stock without the
prior written approval of the Corporation, and any attempt to so sell, assign,
pledge, transfer or otherwise dispose of or encumber such shares without such
prior approval shall be null and void. If any transfer of Stock is (1) not a
sale by an employee or director of the Corporation or (2) by a person who
acquired such Stock other than by purchase, directly or indirectly, from an
employee or director of the Corporation, then the Corporation is expressly
authorized to condition its approval of such transfer upon the transferee's
agreement to hold such Stock subject to this Article upon the termination of
affiliation of the employee or director. All shares transferred with the
Corporation's prior written approval pursuant to this Section 6.7 shall continue
to be subject to this Article 6, further transfers of the shares can be made
only in accordance with this Article 6, and each transferee shall be bound by
the terms of this Article 6.
SECTION 6.8. DEFINITION OF FORMULA PRICE. As used in this Article,
"Formula Price" shall mean the price determined pursuant to the formula or
methodology adopted by the Board for the purpose of determining the fair market
value of the Corporation's Stock, as such formula may be modified from time to
time by the Board.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 SEAL. The corporate seal of the Corporation shall be
circular in form and shall contain the name of the Corporation and the words,
"Seal, Colorado."
SECTION 7.2 FISCAL YEAR. The fiscal year of the Corporation shall be as
established by the Board.
SECTION 7.3 AMENDMENTS. The Board shall have power, to the maximum
extent permitted by the Act, to make, amend and repeal these bylaws at any
regular or special meeting of the Board, unless the shareholders, in making,
amending or repealing a particular bylaw, expressly provide that the directors
may not amend or repeal such bylaw. The
18
<PAGE> 19
shareholders also shall have the power to make, amend or repeal these bylaws at
any annual meeting or at any special meeting called for that purpose.
SECTION 7.4 GENDER. The masculine gender is used in these bylaws as a
matter of convenience only and shall be interpreted to include the feminine and
neuter genders as the circumstances indicate.
SECTION 7.5 CONFLICTS. In the event of any irreconcilable conflict
between these bylaws and either the Corporation's articles of incorporation or
applicable law, the latter shall control.
SECTION 7.6 DEFINITIONS. Except as otherwise specifically provided in
these bylaws, all terms used in these bylaws shall have the same definition as
in the Act.
19
<PAGE> 1
EXHIBIT 4.1
GERIMED OF AMERICA, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
the 22nd day of December, 1997, by and among GERIMED OF AMERICA, INC., a
Colorado corporation (the "Company"), and SPECTRUM HEALTHCARE SERVICES, INC., a
Delaware corporation ("Investor").
RECITALS:
A. The Company and Investor deem it advisable for Investor to purchase
and the Company to sell to Investor the Preferred Shares and Warrant (each as
defined below), all upon the terms and subject to the conditions herein
provided.
B. The Company and Investor are entering into this Agreement for the
purpose of setting forth the terms on which the Investor is willing to purchase
the Preferred Shares and Warrant.
NOW, THEREFORE, in consideration of the mutual promises and other
consideration hereinafter set forth, the adequacy and receipt of which is hereby
acknowledged by the parties hereto, the parties agree as follows:
1. SALE AND PURCHASE OF SECURITIES.
1.1 Sale and Purchase of Securities. The Company agrees to issue and
sell to the Investor, and, subject to all of the terms and conditions hereof and
in reliance on the representations and warranties set forth herein, the Investor
agrees to purchase from the Company, (a) nine hundred six thousand eight hundred
ninety-one (906,891) shares of series A Convertible Preferred Stock, par value
$0.0001 per share, of the Company (the "Preferred Shares"), and (b) a Warrant
substantially in the form of Exhibit A hereto (the "Warrant").
1.2. Purchase Price.. The purchase price for the Preferred Shares shall
be for the Preferred Shares shall be Three Million Dollars ($3,000,000) and the
purchase price for the Warrant shall be One Hundred Dollars ($100.00), which
prices the parties agree are the fair market value thereof on the Closing Date
and will be treated and reported as such by the parties hereto for U.S. federal,
state and local tax purposes. The aggregate purchase price payable by the
Investor hereunder is Three Million One Hundred Dollars ($3,000,100) (the
"Purchase Price").
1.3 Closing.
(a) The closing of the purchase and sale of the Preferred Shares
and Warrant (the "Closing") will take place at the Offices of Thompson Coburn,
One Mercantile Center, Suite 3300, St. Louis, Missouri, on December _, 1997, or
at such other place and date as the Company and the Investor may agree (the
"Closing Date").
(b) At the Closing, the Company will deliver to the Investor the
Preferred Shares and the Warrant to be issued to Investor against payment by
Investor of the Purchase Price therefor by wire transfer. The Preferred Shares
and the Warrants to will be issued to the Investor on or before the Closing Date
and registered in the Investor's name in the Company's records.
1.4 Additions Investment. The Investor shall have the right and option,
hereby granted by the Company. to invest an additional. Three Million Dollars
($3,000,000) in the Company (the "Additional Investment"), such right and option
to be exercisable by written,! notice delivered by the Investor to the Company
(the "Investment Notice") no later than the date which is the last day of the
30th full calendar month after the Closing. In exchange for the Additional
Investment the Investor shall. receive from the Company, and the Company
<PAGE> 2
shall issue to the Investor, the number of shares of Series A Convertible
Preferred Stock determined by the following formula:
$3.0 million
------------
$3.308 x (1 .0 + Premium)
The term "Premium" shall be the number set forth in the following table (with
months being full calendar months after the month in which Closing occurs) for
the period in which the Investment Notice is delivered:
<TABLE>
<CAPTION>
If the Investment
Notice is delivered: The Premium is:
-------------------- ---------------
<S> <C>
On or before 12 months after Closing 0.15
After 12, but on or before 18 months after Closing 0.25
After 18, but on or before 24 months after Closing 0.35
After 24. but on or before 30 months after Closing 0.45
</TABLE>
The closing of the Additional Investment shall occur at the Company's principal
office on the business day designated by the Investor that is within forty-five
(45) days after delivery of the Investment Notice. At such closing, (i) the
Company will issue and deliver to the Investor the shares of Series A
Convertible Preferred Stock to which it is entitled under this Section 1.4,
against payment by the Investor of the Additional Investment by wire transfer,
and (ii) the Company shall deliver to the Investor a certificate of its chief
executive officer to the effect that the representations and warranties in
Section 2 below are true and correct. If the Company is unable to deliver such
certificate, then the Investor shall have the right to withdraw the investment
Notice.
1.5 Future Capital Requirements
(a) If, within twelve (12) months after the Closing. the Board of
Directors determines that the Company requires additional capital of $3,000,000
or less for any corporate purpose, then the Company may offer shares of common
stock to its existing shareholders (including the Investor), on a pro rata basis
based on the relative holdings of the shareholders of the common stock of the
Company (assuming all Preferred Shares have been converted), for a period of not
more than sixty (60) days, at a price per share not less than (i) $3.308, if
such offering is commenced within six (6) months after the Closing Date, or (ii)
$3.804, if such offering is commenced after the date which is six (6) months
after the Closing Date. Such offeree shareholders may assign their right to
acquire shares of common stock with the consent of the Company, which may be
withheld in the Company's sole discretion.
(b) After the expiration of twelve months from the Closing, if the
Company proposes to issue any shares of common stock (or options, warrants or
other rights or convertible securities exercisable for or convertible into
common stock) of the Company in a bona fide transaction that is otherwise
permissible under this Agreement and in which the offering price is less than
$3.308 per common share (adjusted equitably for stock splits, reverse stock
splits, subdivisions, reclassifications and similar capital transactions), the
Company shall notify the Investor at least thirty (30) days prior to such
proposed issuance, setting forth in reasonable detail the proposed terms and
conditions of such offering, including without limitation the identity of the
proposed recipient. The investor shall have the right, hereby granted by the
Company, to purchase all or its pro rata portion (on a fully diluted basis
assuming the conversion of all outstanding Preferred Shares, exercise and
conversion of the Warrant and the Warrant Shares, to the extent the Warrant is
then exercisable, and exercise or options having a strike price less than or
equal to the offering price) of such offered securities for cash at the price
specified in the Company's notice. The Investor may exercise such right by
delivery of written notice to the Company within thirty (30) days after the.
Company's delivery of the notice, and the closing of a purchase by the Investor
shall occur within thirty (30) days after such notice of exercise on the
business day specified by the Investor. The notice and purchase opportunity
provisions of this subsection 1.5(b) shall not apply to issuances of shares
pursuant to the exercise of options granted under the option plan described in
Schedule 2.4(b). If the Investor elects to purchase only its pro rata portion of
such offered securities, the Company may sell the remaining securities at the
same price at any time within 180 days after the Investor's delivery of its
notice, without re-offering them to Investor.
<PAGE> 3
(c) If the Company proposes to issue any shares of common stock (or
options. warrants or other rights or convertible securities exercisable for or
convertible into common stock) of the Company in a transaction that is otherwise
permissible under this Agreement and that is not covered by subsection 1.5(a) or
(b) above, the Company shall notify the Investor of such proposed issuance in
writing at least thirty (30) days prior to such proposed issuance, setting forth
in reasonable detail the proposed terms and conditions thereof, including
without limitation the identity of the proposed recipient (the "Issuance
Notice"). The Investor shall have the right, hereby granted by the Company, to
purchase a portion of such offered securities sufficient to enable the Investor
to maintain its percentage interest in the common equity of the Company (on a
fully diluted basis assuming the conversion of all outstanding Preferred Shares
and exercise and conversion of the Warrant and the Warrant Shares, to the extent
the Warrant is then exercisable) immediately prior to such issuance. Such right
of purchase shall be at the same price, on the same terms and at the same time
as the securities are to be issued to the proposed recipient (except that
noncash consideration to be paid by the proposed recipient shall be valued at
its fair market value cash equivalent for purposes of the price per share to be
paid by the Investor). The Investor may exercise its right in this subsection
(c) by delivery of written notice to the Company within thirty (30) days after
delivery of the Issuance Notice. The notice and purchase opportunity provisions
of this subsection 1.5(c) shall not apply to issuances of shares pursuant to the
exercise of options granted under the option plan described in Schedule 2.4(b)
(d) For purposes of Section 7.9(f) below, any shares offered to the
Investor under subsection 1.5(a), (b) or (c) which are not purchased by the
Investor shall be "Declined Shares."
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the investor as follows:
2.1 Organization and Standing: Charter and By-Laws The Company and the
Subsidiary described in Section 2.3 are duly incorporated, validly existing and
in good standing under the laws of the State of Colorado. The Company and
Subsidiary each has full corporate power and authority to own its properties and
carry on its business as it is currently being conducted by the Company and as
is currently proposed to be conducted by the Company. The Company and Subsidiary
each is duly licensed or qualified to transact business as a foreign corporation
and is in good standing in all other jurisdictions in which the nature of the
business transacted by it or the character of the properties owned or leased by
it requires such licensing or qualification, except where the failure to be so
qualified will not have a material adverse effect on the Company or Subsidiary,
as applicable. The Company has furnished the Investor with true, correct and
complete copies of its Articles of Incorporation, as amended (the "Articles"),
and By-Laws, as presently in effect (the "By-Laws").
2.2 Corporate Power and Authority. The Company has full corporate power
and authority to enter into this Agreement and the transactions contemplated
hereby, issue the Preferred Shares, the Warrants, the shares of Series A
Convertible Preferred Stock issuable upon exercise of the Warrant (the "Warrant
Shares") and the shares of common stock of the Company issuable upon conversion
of the Preferred Shares and Warrant Shares, and to carry out and perform its
obligations under the terms of this Agreement.
2.3 Subsidiaries. The Company has no subsidiaries and does not own of
record or beneficially any capital stock, assets comprising the business of or
equity interest or investment in any corporation, association or business
entity, except for its wholly owned subsidiary Geriatric Rehab Service, Corp., a
Colorado corporation (the "Subsidiary").
2.4 Capitalization.
(a) The authorized capital stock of the Company consists solely of
(i) 5,000,000 shares of preferred stock, par value $0.0001 per share, of which
3,000,000 shares have been designated Series A Convertible Preferred Stock with
the characteristics set forth in Exhibit B and none of which are outstanding,
and (ii) 25,000,000 shares of common stock, $0.0001 par value per share, of
which 4,340,000 are issued and outstanding as of the date hereof All such issued
and outstanding shares are duly authorized and validly issued, fully paid and
nonassessable and owned of record and beneficially by the shareholders and in
the amounts set forth in Schedule 2.4(a) and have
<PAGE> 4
been offered, issued, sold and delivered by the Company in compliance with
applicable federal and state securities laws.
(b) Except as specified in the Articles, this Agreement, the
Shareholders Agreement described in Section 5.6 or the option plan described in
Schedule 2.4(b) there are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon the Company
or, to the Company's knowledge, any shareholder for the purchase or acquisition
of any shares of the Company's capital stock. To the best of the Company's
knowledge, no shareholder has granted options or other rights to purchase any
shares of common stock from such shareholder other than as set forth in Schedule
2.4(b). The Company holds no shares of its capital stock in its treasury.
2.5 Financial Information. The audited consolidated financial
statements of the Company as of and for the fiscal year ended December 3 1, 1996
and the unaudited consolidated financial statements of the Company as of and for
the ten month period ended October 31, 1997, all of which are included in
Schedule 2.5. present fairly the consolidated financial position and results of
operations of the Company and Subsidiary at the dates and for the periods. to
which they relate, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods indicated, and
show all material liabilities, absolute or contingent, of the Company .1 and
Subsidiary required to be recorded thereon in accordance with generally accepted
accounting principles as at the respective dates thereof
2.6 Outstanding Debt. The Company has no outstanding indebtedness for
borrowed money except as set forth in Schedule 2.6, and is not a guarantor
contingently liable for any material indebtedness of any other party. Except as
set forth in Schedule 2.6. there exists no default by the Company under the
provisions of any instrument evidencing any indebtedness or of any agreement
relating thereto nor has any event occurred that, with notice or passage of time
or both, would constitute such a default by the Company.
2.7 Absence of Undisclosed Liabilities. To the Company's knowledge,
except as set forth on Schedule 2.7, the Company and Subsidiary have no
liabilities (fixed, accrued, contingent or otherwise, including any tax
liabilities due) which are not fully reflected or provided for on the most
recent balance sheet referred to in Section 2.5. except liabilities incurred in
the ordinary course of business since the date of such balance sheet, none of
which individually or in the aggregate has been or is materially adverse to the
condition, financial or otherwise, of the Company, the Subsidiary or their
assets, properties or business.
2.8 Absence of Certain Changes. Except to the extent described in
Schedule 2.1, since October 31, 1997 there has not been:
(a) to the Company's knowledge, any material adverse change in the
condition, financial or otherwise, of the Company or Subsidiary or their assets,
liabilities, properties or business;
(b) any damage, destruction or loss of any of the tangible assets
of the Company or subsidiary (whether or not covered by insurance) materially
adversely affecting the condition, financial or otherwise, of the Company or
Subsidiary or their assets, liabilities, properties or business;
(c) any declaration, setting aside or payment of any dividend or
other distribution in respect of any of the Company's capital stock or any
direct or indirect redemption, purchase or other acquisition of any such stock
by the Company;
(d) any increase in the compensation payable or to become payable
by the Company or Subsidiary to any of its directors, officers, agents,
consultants or any of its employees whose total compensation after such increase
was in excess of One Hundred Thousand Dollars ($100,000) per annum, or any
bonus, percentage compensation, service award or other like benefit having a
value in excess of twenty-five Thousand Dollars ($25,000) granted, made or
accrued to the credit of any such director, officer, agent, consultant or
employee, or any welfare, pension, retirement or similar payment or arrangement
made or agreed to by the Company or Subsidiary for the benefit of any such
director, officer, agent, consultant or employee;
<PAGE> 5
(e) any change in any method of accounting or accounting practice
of the Company or Subsidiary;
(f) any notes or accounts receivable or portions thereof written
off by the Company or Subsidiary as uncollectible (except for write-offs in the
ordinary course of business and consistent with past practice);
(g) any issuance or sale by the Company of any stock, bonds or
other corporate securities of which the Company is the issuer, or the grant,
issuance or change of any stock options, warrants or other rights to purchase
securities;
(h) any discharge or satisfaction by the Company or Subsidiary of
any lien or encumbrance or payment or satisfaction of any material obligation or
liability (whether absolute, accrued, contingent or otherwise and whether due or
to become due) other than current liabilities shown on the most recent balance
sheet referred to in paragraph 2.5 and current liabilities incurred since the
date of such balance sheet, in the ordinary course of business and consistent
with past practice;
(i) any sale, assignment, transfer, mortgage, pledge or encumbrance
of any material portion of the assets (real, personal or mixed., tangible or
intangible) of the Company or Subsidiary, cancellation of any material debts or
claims or waiver of any rights of substantial value, except, in each case, in
the ordinary course of business and consistent with past practice;
(j) any capital expenditure, or commitment to make any capital
expenditure, by the Company or Subsidiary for additions to property, plant or
equipment, individually or in the aggregate in excess of twenty-five Thousand
Dollars ($25,000);
(k) any change to a contract or arrangement by or to which the
Company or Subsidiary or any of its assets is bound or subject which the Company
reasonably anticipates will have a material adverse effect on the Company or
Subsidiary or its business; or
(1) to the Company's knowledge, any other event or condition of any
character, materially adversely affecting the condition. financial or otherwise,
of the Company or Subsidiary or their assets, liabilities, properties or
business.
2.9 Contracts. Except as set forth in Schedule 2.9. neither the Company
nor the Subsidiary is a party to or bound by any written or oral contracts,
obligations, agreements, plans, arrangements, commitments, or the like (absolute
or contingent) of any material nature, including the following, to the extent
material:
(a) Employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing rights
to purchase securities of the Company, agreements among shareholders and the
Company and, to the best knowledge of the Company, agreements among shareholders
of the Company relating to any of the Company's capital stock or rights with
respect thereto;
(b) Loan or other agreements, notes, indentures or other
instruments relating to or evidencing indebtedness for borrowed money or
mortgaging, pledging or granting or creating a lien or security interest or
other encumbrance on any of the Company's or Subsidiary's property or any
agreement or instrument evidencing any guaranty by the Company or Subsidiary of
payment or performance by any other person,
(c) Agreements with physician independent contractors or groups
thereof;
(d) Agreements with hospitals, clinics, pharmacies and other
nonphysician providers of health cue services;
<PAGE> 6
(e) Agreements with any labor union or collective bargaining
organization or other labor agreements;
(f) Any indenture or agreement relating to the sale or repurchase
of any securities of the Company (other than this Agreement);
(g) Any. joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which the Company or Subsidiary is
a parry;
(h) Agreements limiting the freedom of the Company or Subsidiary to
compete in any line of business or in any geographic area or with any person;
(i) Agreements (other than this Agreement) providing for
disposition of the business, assets or shares of the Company, agreements of
merger or consolidation to which the Company or Subsidiary is a party or letters
of intent with respect to the foregoing; and
(j) Letters of intent or agreements with respect to the acquisition
of .he business, assets, or shares of any other business.
The Company and Subsidiary each has complied in all material respects with the
provisions of all said contracts, obligations, agreements, plans, arrangements
and commitments to which it is a party, and is not in material default
thereunder. Neither the Company nor the Subsidiary has any present expectation
or intention of not fully performing all its material obligations under each
such contract, obligation or agreement, and the Company has no knowledge of any
breach or anticipated breach by the other party to any material contract or
commitment to which the Company or Subsidiary is a party.
2.10 Shareholders, Directors and Officers: Indebtedness; Competitors
Set forth on Schedule 2.10 is a correct and complete list or description of all
material indebtedness of the Company and Subsidiary to its officers, directors
or shareholders or any of their respective relatives and of all indebtedness of
such persons to the Company or Subsidiary, excluding travel and business expense
advances made in the ordinary course of business. Except as set forth in
Schedule 2.10 to the best of the Company's knowledge, none of the officers.
directors. employees or consultants of or to the Company or Subsidiary, or their
respective spouses or relatives, (a) owns directly or indirectly, individually
or collectively, a material interest in an. y entity which is a competitor,
customer or supplier of the Company or Subsidiary, or (b) has any existing
contractual relationship with the Company or Subsidiary that is not clearly
disclosed elsewhere in this Agreement.
2.11 Litigation and Bankruptcy Proceedings.
(a) Except as set forth in Schedule 2. 11 (a) there is neither
pending nor. to the Company's knowledge, threatened any action, suit, proceeding
or claim, nor any basis therefor, whether or not purportedly on behalf of the
Company or Subsidiary, to which the Company or Subsidiary is or may be named as
a party or its property or assets is or may be subject. The Company has no
knowledge of any unasserted claim, the assertion of which is likely and which,
if asserted, will seek damages, an injunction or other legal, equitable,
monetary or non-monetary relief which claims. individually or collectively with
other such unasserted claims, if granted would have a material adverse effect on
the condition, financial or otherwise, or operations of the Company or
Subsidiary.
(b) Neither the Company nor the Subsidiary has admitted in writing
its inability to pay its debts as they become due, filed or consented to the
filing against it of a petition in bankruptcy or a petition to take advantage of
any insolvency act, made an assignment for the benefit of creditors, consented
to the appointment of a receiver for itself or for the whole or any substantial
part of its property or assets or had a petition in bankruptcy filed against it,
been adjudicated a bankrupt, or filed a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws or any other law
or statute of the United States of America or any other jurisdiction.
<PAGE> 7
2.12 Title to Properties: Liens and Encumbrances The Company and
Subsidiary each has a valid ownership interest in all of its property and
assets, free from all mortgages, pledges, liens, security interests, conditional
sale agreements, encumbrances or charges, except as listed on Schedule 2.12
hereto. The Company and Subsidiary do not have any ownership interest in red
property except as listed on Schedule 2.12 hereto, To the Company's knowledge,
neither the Company nor the Subsidiary is in violation of any law, regulation or
ordinance (including laws, regulations or ordinances relating to building,
zoning, environmental, city planning, land use or similar matters) relating to
its property or assets which violation would have a material adverse effect on
the business of the Company or Subsidiary. All personal property and assets
material to the business.. operations or financial condition of each of the
Company and Subsidiary, and all buildings, structures and fixtures used by it in
the conduct of its business, are in good operating condition and repair relative
to their years of service.
2.13 Franchises, Licenses. Trademarks, Patents and Other Rights. Except
as set forth on Schedule 2.13 the Company and Subsidiary each has all
franchises, permits, licenses and other similar authority necessary for the
conduct of its business as conducted by it, the lack of which could materially
and adversely affect the operations or condition, financial or otherwise, of the
Company or Subsidiary. Neither the Company nor the Subsidiary is in default in
any material respect under any of such franchises, permits, licenses or other
similar authority. Set forth on Schedule 2.13 to the Company's knowledge are all
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights,, and copyrights owned or used by the Company or Subsidiary (the
"Intellectual Property Rights"), and all such Intellectual Property Rights are
valid and in good standing and adequate and sufficient to permit the Company or
Subsidiary to conduct its business as conducted by it without conflict with or
infringement upon any valid rights of others. No patents, patent rights,
trademarks, trademark rights, trade names, trade name rights or copyrights
(other than those set forth on Schedule 2.13) are required by the Company or
Subsidiary in connection with the conduct of its business as presently conducted
by it. Except as set forth in Schedule 2,13, the Company is not aware of and has
not received any notice of infringement upon or conflict with the asserted
proprietary rights of others. Except as set forth on Schedule 2.13, to the
Company's knowledge, all Intellectual Property Rights owned or used by the
Company or Subsidiary are owned by it free of any adverse claims, rights or
encumbrances as to their exclusive rights thereto, and each of them has used
reasonable efforts to protect its rights to continued secrecy thereof. Except as
set forth on Schedule 2.13. there exist no options, licenses or agreements of
any kind concerning or relating to the Intellectual Property Rights and to which
the Company or Subsidiary is bound.
2.14 Issuance Taxes. All taxes imposed upon The Company by law as a
result of the issuance, sale and delivery of the Preferred Shares and Warrant
will be fully paid, and all laws imposing such taxes will be fully complied
with, on or prior to the Closing Date.
2.15 Offering Neither the Company nor anyone authorized to act on its
behalf has taken any action that will cause the issuance, sale and delivery of
the Preferred Shares, Warrant, the Warrant Shares issuable upon exercise of the
Warrant or the common stock issuable upon conversion of the Preferred Shares and
Warrant Shares as contemplated by this Agreement (assuming the truth and
accuracy of the representations and warranties of the Investor set forth in
paragraph 4 hereof), to constitute a violation of the 1933 Act (as defined
below) or any applicable state securities laws.
2.16 Compliance. The Company is not in violation of any term of the
Articles or its By-Laws as amended. The Company is not in violation of any term
of any law, judgment, decree, order, rule or regulation to which the Company is
subject and a violation of which would have a material adverse effect on the
condition, financial or otherwise, or operations of the Company.
2.17 Employees. Set forth on Schedule 2,17 is a list of all employment
agreements of the Company or Subsidiary with full-time employees not terminable
at will without continuing obligation to the Company. Except as set forth on
Schedule 2.17, to the Company's knowledge, no full-time employee of the Company
has any affiliation with or obligation to any other employer. The Company is not
aware that any officer or key employee of the Company or Subsidiary intends to
terminate his or her employment, nor does the Company have a present intention
to terminate the employment of any officer or key employee. To the best of the
Company's knowledge, no employee of the Company or Subsidiary is in violation of
any term of any employment contract, patent disclosure agreement,
non-competition agreement or any other contract or agreement or any restrictive
covenant relating to the relationship of any such employee to the Company or any
former employer because of the
<PAGE> 8
nature of the business conducted or contemplated to be conducted by the Company
or the use of trade secrets or proprietary information of others. There is
neither pending nor, to the Company's knowledge, threatened, any action, suit,
proceeding or claim, or to its knowledge, any basis therefor, with respect to
any contract, agreement, covenant or obligation referred to in this Section
2.17.
2.18 Registration Rights. Except as provided for in this Agreement, the
company is not under any obligation to register any currently outstanding
securities under the 1933 Act.
2.19 Investments in Other Persons. Except as set forth on the most
recent balance sheet referred to in Section 2.5, the Company and Subsidiary have
not made any loan or advance to any person or entity that is outstanding on the
date of this Agreement, nor is the Company or Subsidiary obligated or committed
to make any such loan or advance, except for advances to employees in the
ordinary course of business, consistent with past practice.
2.20 Books and Record. The books of account, stock record books, minute
books, bank accounts and other corporate records of the Company and Subsidiary
are true, correct and complete in all material respects and have been maintained
in accordance with sound business practices.
2.21 ERISA. Except as set forth on Schedule 2.21. the Company and
Subsidiary do not maintain any employee pension benefit plan as defined in
section 3(2)(A) of Title I of the Employee Retirement Income Security Act of
1974, as amended. The Company is in compliance in all material respects with all
its obligations pursuant to such plans.
2.22 Use of Proceeds. The Company will use the proceeds from the sale
of the Preferred Shares and Warrant for the purpose of repaying existing
indebtedness, and for general corporate purposes.
2.23 Company Information Listed on Schedule 2.13 is a list of (a) the
name of each of the Company's and Subsidiary's directors as of the date of this
Agreement, and (b) the name and title of each of the Company's and Subsidiary's
officers as of the, date of this Agreement.
2.24 Authorization; No Conflicts All corporate action on the part of
the Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this Agreement, the
Preferred Shares and the Warrant, and, subject to the exercise of the Warrant in
accordance with its terms, the issuance of the Warrant Shares, has been taken.
This Agreement is the valid and binding obligation of the Company, enforceable
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to general principles of
equity. The execution, delivery and performance by the Company of this Agreement
and compliance herewith and the issuance of Preferred Shares, Warrant and
Warrant Shares (and the common stock issuable upon conversion of the Preferred
Shares and Warrant Shares) will not, assuming the truth and accuracy of the
Investor's representations and warranties set forth in paragraph 4 hereof result
in any violation of and will not conflict with, or result in a breach of or any
violation of and will not conflict with, or result in any breach of any of the
terms of, or constitute a default under, any provision of federal or state law
to which the Company is subject, the Company's Articles of Incorporation or
By-Laws, or any mortgage, indenture, agreement instrument, judgment, decree,
order, rule or regulation or other restriction to which the Company is a party
or by which it is bound or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. The Warrant Shares (and the common stock issuable
upon conversion of the Preferred Shares and Warrant Shares) have been duly and
validly reserved and are not subject to any preemptive rights or rights of first
refusal and, upon issuance in accordance with this Agreement will be validly
issued, fully paid and nonassessable.
2.25 Taxes. The Company and Subsidiary each has filed within the time
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns and reports required to be filed with the
United States Internal Revenue Service, with the State of Colorado and with all
other jurisdictions where such filing is required by law. The Company and
Subsidiary each has paid or, and as to the extent required by generally accepted
accounting principles, made adequate provision in the most recent balance sheet
referred to in Section 2.5 for the payment of, all taxes, interest, penalties,
assessments or deficiencies shown to be due or claimed
<PAGE> 9
to be due on or in respect of such tax returns and reports. The Company knows of
(a) no other tax returns or reports which are required to be filed which have
not been so filed and (b) no unpaid assessment for additional tax for any fiscal
period or any basis therefor. The Company's tax returns have not been audited by
the United States Internal Revenue Service nor by any state taxing authority.
2.26 Insurance. The Company maintains indemnity insurance for its
directors and officers and maintains other insurance covering the Company's and
Subsidiary's business and personnel risks which is customary in its industry and
which the Company believes is commercially reasonable given the risks involved
in the business conducted by the Company and Subsidiary.
2.27 Environmental and Safety Laws. Neither the Company nor the
Subsidiary is in violation of any applicable statute, law or regulation relating
to the environment or occupational health and safety, which violations, either
singly or in the aggregate, would have a material adverse effect en the
Company's or Subsidiary's business, and no material expenditures am required in
order to comply with any such statute, law or regulation.
2.28 Disclosure. Neither this Agreement, nor any certificate or
statement furnished to the Investor by the Company pursuant to this Agreement,
when considered as a whole, contains any untrue statement of a material fact,
and none of this Agreement, such certificates or statements omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading, in the light of the circumstances under which they were
made.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company that the Investor
is duly organized and in good standing under the laws of the State of Delaware
and that all corporate action on the part of the Investor necessary for the
authorization, execution, delivery and performance of all its obligations under
this Agreement has been taken. This Agreement constitutes a valid and legally
binding obligation of the Investor enforceable in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
tile relief of debtors and to general principles of equity. The execution,
delivery and performance by the Investor of this Agreement and compliance
herewith will not conflict with, or result in any breach of any of the terms of,
or constitute a default under, any provision of federal or state law to which
the Investor is subject, the Investor's Certificate of Incorporation or By-Laws,
or any mortgage, indenture, agreement, instrument, judgment decree, order, rule
or regulation or other restriction to which the Investor is a party or by which
it is bound. To the Investor's knowledge, the Investor does not own, directly or
indirectly, a material interest in any entity which is a competitor, customer or
supplier of the Company.
4. FEDERAL AND OTHER SECURITIES LAWS.
4.1 Investment Representations
(a) This Agreement is made with the Investor in reliance upon the
Investor's representation to the Company, which by its acceptance hereof the
Investor hereby confirms, that the Preferred Shares and Warrant acquired
hereunder, and the Warrant Shares issuable upon exercise of the Warrant (all
such securities are referred to as the "Securities" for purposes of this
paragraph 4) will be acquired by Investor for investment for its own account,
not as a nominee or agent, and not with a view to the sale or distribution of
any part thereof, and that it has no present intention of selling, granting
participation in, or otherwise distributing the same. By executing this
Agreement, the Investor further represents that it has no contract, undertaking,
agreement or arrangement with any person to sell, transfer, or grant
participations to such person or to any third person, with respect to any of the
Securities.
(b) The Investor understands that the Securities are not registered
under the Securities Act of 1933, as amended (the "1933 Act") on the ground that
the sale provided for in this Agreement and the issuance of Securities hereunder
should be exempt from registration under the 1933 Act and that the Company's
reliance on such exemption is predicated on the Investor's representations set
forth herein. The Investor realizes that the basis for the exemption may not be
present if notwithstanding such representations, Investor has in mind merely
<PAGE> 10
acquiring the Securities for a fixed or determinable period in the future, or
for a market rise or for sale if the market does not rise. The Investor confirms
it has no such intention.
(c) The Investor represents that it is an "accredited investor"
within the meaning of Rule 501 under the 1933 Act and that it is experienced in
evaluating and investing in companies such as the Company. is able to fend for
itself in the transactions contemplated by this Agreement, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment and has the ability to bear the economic
risks of its investment.
(d) The Investor understands that the Securities may not be sold,
transferred or otherwise disposed of without registration under the 1933 Act or
an exemption therefrom, and that in the absence of an effective registration
statement covering the Securities or an available exemption from registration
under the 1933 Act, the Securities must be held indefinitely. The Investor
represents that, in die absence of an effective registration statement covering
the Securities it will sell, transfer or otherwise dispose of the Securities
only in a manner consistent with its representations set forth herein and then
only in accordance with the provisions of paragraph 4.1(e) hereof.
(e) The Investor agrees that in no event will it make a transfer or
disposition of any of the Securities (other than in accordance with the terms of
exercise of the Warrant or pursuant to an effective registration statement under
the 1933 Act), unless and until Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the disposition and assurance that the proposed
disposition is in compliance with all applicable laws and (ii) if reasonably
requested by the Company, Investor shall have furnished to the Company an
opinion of counsel or other evidence reasonably satisfactory to the Company to
the effect that such transfer may be made without registration under the 1933
Act.
4.2 Legends Stop Transfer
(a) All certificates for the Securities may bear the following or a
substantially similar legend.
"These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated
in the absence of an effective registration statement as to the
securities under said Act or an opinion of counsel or other evidence
reasonably satisfactory to the Company that such registration is not
required."
(b) The certificates for the Securities may also bear any legend
required by any applicable state securities or other law.
(c) In addition, the Company shall make a notation regarding the
restrictions on transfer of the Securities in its records and the Securities
shall be transferred on the books of the Company only if transferred or sold
pursuant to an effective registration statement under the 1933 Act covering such
shares or in compliance with the provisions of Section 4.1(e) hereof
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING.
The obligation of the Investor to purchase the Preferred Shares and
Warrant in accordance with this Agreement are subject to the fulfillment on or
before the Closing Date of each of the following conditions:
5.1 Representations and Warranties True on The Closing Date. The
representations and warranties of the Company contained in Section 2 shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as if they had been made at the Closing Date.
<PAGE> 11
5.2 Performance. The Company shall have performed and complied in all
material respects with all agreements and conditions contained in this Agreement
required to be performed or complied with by it on or before the Closing Date.
5.3 Qualifications and Consents. All authorizations, approvals or
permits, if any, of any govern governmental authority or regulatory body of the
United States or of any state and all consents of third parties that are
required in connection with the lawful issuance and sale of the Preferred Shares
and the Warrant and the transactions contemplated hereby, shall have been duly
obtained and shall be effective on and as of the Closing Date.
5.4 Legal Opinion. The Investor shall have received an opinion of
counsel to the Company. as to the matters in Exhibit C hereto.
5.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
reasonably satisfactory to the Investor and the Investor shall have received all
such counterpart originals or certified or other copies of such documents as it
may reasonably request.
5.6 Shareholders Agreement. The Company and James F. Riopelle shall
have executed and delivered a Shareholders Agreement substantially in the form
of Exhibit D hereto (the "Shareholders Agreement").
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligation of the company to issue and deliver the Preferred Shares
and Warrant in accordance with this Agreement are subject to the fulfillment on
or before the Closing Date of each of the following conditions:
6.1 Representations and Warranties True on the Closing Date. The
representations and warranties of the Investor contained in paragraphs 3 and 4
shall be true on and as of the Closing Date with the same force and effect as if
they had been made at the Closing Date.
6.2 Performance. Investor shall have performed and complied in all
material respects with all agreements and conditions contained in this Agreement
required to be performed or complied with by it on or before the Closing Date,
6.3 Qualifications and Consents. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state and all consents of third parties that are required in
connection with the lawful issuance and sale of the Preferred Shares and the
Warrant and the transactions contemplated hereby, shall have been duly obtained
and shall be effective on and as of the Closing Date.
6.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby shall be in form and
substance reasonably satisfactory to the Company and the Company shall have
received all such counterpart originals or certified or other copies at such
documents as it may reasonably request.
6.5 Shareholders Agreement. The Investor shall have executed and
delivered the Shareholders Agreement.
7. COMPANY COVENANTS AND INDEMNIFICATION
From and after the Closing Date and continuing until the date specified
in Section 7. 10, the Company shall comply with the provisions of this Section
7.
7.1 Corporate Existence, etc. The Company will preserve and keep in
force and effect corporate existence and such licenses and permits which are
necessary and material to the proper conduct of its business.
<PAGE> 12
7.2 Insurance. The Company will maintain insurance coverage by
financially sound and reputable insurers in such forms, against such risks and
with limits of coverage at least equal to existing limits, as am currently
maintained by the Company.
7.3 Taxes, Claims for Labor and Materials, Compliance with Laws. The
Company will promptly pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon the Company or upon or in respect of
all or any part of the material property or business of the Company, all trade
accounts payable in accordance with usual and customary business terms, and all
claims for work, labor or materials, which if unpaid might become a lien or
charge upon any material property of the Company; provided the Company shall not
be required to pay any such tax, assessment charge, levy, account payable or
claim if the validity, applicability or amount thereof is being contested in
good faith by appropriate actions or proceedings and such refusal or failure to
pay such tax, assessment, charge, levy, account payable or claim does not have a
material adverse affect on the condition, financial or otherwise, of the Company
or its assets, liabilities, properties or business.
7.4 Financial Statements. The Company shall deliver to the Investor:
(a) within thirty (30) days after the end of each month, an
unaudited balance sheet and income statement for such month;
(b) within one hundred twenty (120) days after the end of each
fiscal year of the Company an income statement for such fiscal year, a balance
sheet of the Company as of the end of such year and a statement of cash flows
for such year, together with such notes thereto as are appropriate, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
year. all in reasonable detail and certified by independent public accountants
of recognized national standing selected by the Company and reasonably
acceptable w the Investor;
(c) as soon as available, but in any event within sixty (60) days
after commencement of each new fiscal year, a business plan, projected financial
statements and cash flow projections for such fiscal year as set forth in the
Company's operating plan as approved by the Company's Board of Directors, along
with a capital expenditures budget, and
(d) such other financial statements as Investor may reasonably
request to verify the financial condition of the Company and the valuation of
Investor's investment therein. All such statements shall be certified by the
Chief Financial Officer of the Company as being true, complete and in accordance
with the Company's books and records and regular accounting practices.
7.5 Inspection. The Company shall permit Investor and its authorized
designees to examine the Company's books of account and records ("Examination"),
to visit and inspect the Company's properties, and to discuss the Company's
affairs, finances and accounts with its employees, officers and independent
accountants, all at such reasonable times during normal business hours as may be
requested by Investor (but limited to two Examinations in any calendar year) and
upon reasonable advance notice given to the Company.
7.6 Employee Stock Plans. The Company covenants that it will not
increase the number of shares reserved under the stock option plan described in
Schedule 2.4(b) or establish any additional stock plan providing for issuance of
the Company's securities to officers, directors, employees and consultants,
unless (a) such increase in shares or additional plan is approved by the
Company's Board of Directors, (b) the total number of shares of Common Stock
issued or reserved for issuance under all such plans of the Company does not
exceed __% of the fully diluted common equity of the Company, and (c) if all
options under such plan(s) were immediately granted and exercisable, the Company
would be in compliance with Section 7.9(f) below.
7.7 Capital Expenditures. Each year, as pan of its business plan, the
Company shall submit to its Board of Directors a detailed capital expenditure
budget for the coming year, with such budget to be approved by the Board.
<PAGE> 13
7.8 Use of Proceeds. The Company agrees that it will use the proceeds
from the sale of the Securities hereunder solely for the purpose of repaying
existing indebtedness, and for general corporate purposes. The Company further
agrees that it will not use any pan of the proceeds from the sale of the
Securities to purchase or carry any "margin security" or "margin stock," as such
terms are defined in any regulation, rule or interpretation of the Board of
Governors of the Federal Reserve System.
7.9 Negative Covenants. Unless the Company first obtains the written
consent of the Investor, the Company shall not:
(a) merge, consolidate with or otherwise acquire substantially A of
the assets or securities of any partnership, corporation. firm or other business
enterprise if the acquisition price of such assets or securities exceeds
$1,000,000, nor sell, lease or otherwise dispose of Company assets having a
value in excess of (g) 1,000,000;
(b) other than in the ordinary course of business or consistent
with the Company's past practice, make any investment in excess of $500,000 in
the securities of any partnership, corporation, firm or other business
enterprise;
(c) other than in the ordinary course of business consistent with
the Company's past practice, guarantee or otherwise become liable for the
obligations or liabilities of any partnership, corporation, firm or other
business enterprise,
(d) declare or pay dividends upon any claw of the Company's stock;
(e) redeem, retire, repurchase or otherwise acquire, directly or
indirectly, any of the Company's stock of any class, except for repurchases from
employees of the Company, other than J.F. Riopelle and any transferee of shares
from J.F. Riopelle, pursuant to the term of the Shareholders Agreement dated as
of January 1, 1994 ("Existing Agreement"), including repurchases from employees
who join the Existing Agreement after the date hereof, as such Existing
Agreement is presently in effect and as hereafter amended with the Investor's
prior written consent, not to be unreasonably withheld;
(f) issue any of the Company's stock of any class, except (i)
pursuant to the Additional Investment, (ii) in connection with the exercise of
any warrant granted to the Investor, (iii) pursuant to any antidilution or
adjustment provision in this Agreement or any warrant granted to the Investor,
(iv) pursuant to the exercise of options granted under the plan described in
Schedule 2.4(b) or a plan adopted in compliance with Section 7.6, or (v) in
compliance with Section 1.5, provide that any issuance otherwise permissible
under Section 1.5 shall be subject to the Investor's prior written consent
(which may be withheld in its sole discretion) if, immediately following such
issuance, the Investor's "Imputed Common Equity" shall be less than fifty-one
percent (51%); provided further, however, that the Investor's consent to such
issuance shall not be required if the Company grants to the Investor the right
to purchase (under the timetables and procedures in Section 1.5(c) above) not
less than that number of shares offered that, immediately after such purchase,
would cause the Investor's Imputed Common Equity to be fifty-one percent (51%).
The term "Imputed Common Equity" shall mean, a fraction, the denominator of
which is the number of shares of common stock then outstanding (on a fully
diluted basis assuming all options, warrants and other rights have been
exercised and all convertible securities converted), and the numerator of which
is the sum of (A) the shares of common stock owned directly by the Investor, (B)
the shares of common stock receivable by Investor upon conversion of the
Preferred Shares, (C) the shares of common stock receivable by Investor upon
conversion of the Warrant Shares, (D) the shares which the Investor would be
entitled to receive under the Additional Investment, (E) the shares subject to
the Call Option, and (F) the aggregate amount of the Declined Shares;
(g) cease engaging principally in the business of providing health
care for the senior population;
(h) amend any provision of the Company's articles of incorporation
or bylaws; or
(i) consummate any other transaction, directly or indirectly,
through any subsidiaries or affiliates or otherwise, that is principally
designed to circumvent the covenants contained in this Agreement.
<PAGE> 14
7.10 Termination of Covenants. The covenants set forth in this Section
7 shall terminate and be of no further force or effect after the earlier of (a)
the closing of an initial public offering pursuant to an effective registration
statement under the 1933 Act covering the offer and sale of common stock for the
account of the Company to the public with an aggregate offering price of not
less than Ten Million Dollars ($10,000,000) (a "Qualified Offering", or (b) the
first date on which the Investor holds fewer than five percent (5%) of the
Company's common stock (assuming the conversion of all Preferred Shares and the
exercise and conversion of all Warrant Shares). In addition, the covenants set
forth in Sections 7.1, 7.3, and 7.6 through 7.9, shall expire on the fifth
anniversary of the Closing Date if the Investor (a) does not then own Imputed
Common Equity of fifty-one percent (51%) or more, and (b) has not exercised the
Call Option described in the Shareholders Agreement.
8. REGISTATION RIGHTS
8.1 Definitions. For purposes of this Section 8:
(a) The terms "`register," "registered" and "`registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the 1933 Act and the declaration or ordering of effectiveness of
such registration statement;
(b) The term "Registrable Securities" means (1) the common stock
receivable upon conversion of the Preferred Shares, (2) the common stock
receivable upon conversion of the Warrant Shares, (3) the common stock acquired
by a Holder under any provision of this Agreement, and (4) any common stock of
the Company issued as a dividend or other distribution with respect to, or in
exchange or in replacement of, the common stork identified in clauses (1)
through (3); provided, however, shares shall cease being "Registrable
Securities" at such time that they can be re-sold without registration under
Rule 144(k) or any successor rule of the 1933 Act without any volume limitation;
and
(c) The term "Holder" means the Investor holding Registrable
Securities and any other person holding Registrable Securities to whom these
registration rights have been transferred pursuant to Section 9. 14 of this
Agreement.
8.2 Company Registration If at any time following the completion by the
Company of an initial public offering of its Common Stock or any other equity
securities under the. 1933 Act, the Company proposes to register any of its
Common Stock or any other class of equity securities under the 1933 Act in
connection with the public offering of such securities solely for cash on a form
that would also permit the registration of the Registrable Securities, the
Company shall, each such time, promptly give each Holder written notice of such
determination. Upon the written request of any Holder given within twenty (20)
days after delivery by recognized overnight delivery service of any such notice
by the Company, the Company shall use all commercially reasonable efforts to
cause to be registered under the 1933 Act all of Registrable Securities that
each such Holder has requested be registered.
If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, then the Company shaft so
advise the Holders as a part of such written notice. In such event the right of
any Holder to registration pursuant to this Section 8.2 shall be conditioned
upon such Holder's agreeing to participate in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 8.2, if the underwriter deems it advisable to limit
the number of shares to be underwritten, then the underwriter may exclude some
or all Registrable Securities from such registration and underwriting in
accordance with the provisions of this Section 8.2. The Company shall so advise
all Holders and the other holders distributing their securities through such
underwriting, and the number of Registrable Securities and other securities that
may be included in the registration and underwriting shall be allocated among
the Holders and other shareholders exercising registration rights granted prior
to the date hereof (collectively, the "Selling Holders"), in proportion, as
nearly as practicable, to the respective amounts of securities held by each such
holder at the time of filing the registration statement. Prior to the inclusion
of any shares held by other holders, the
<PAGE> 15
Selling Holders shall be offered the opportunity to include, pari passu, in such
offering all shares which the Selling Holders desire to be so included. If any
Selling Holder or holder disapproves of the terms of any such underwriting, then
he may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
8.3 Obligations of the Company Whenever required under Section 8.2 or
Section 8.10 to use all reasonable efforts to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become and remain effective; provided, however,
that the Company shall in no event be obligated to cause any such registration
to remain effective for more than one hundred eighty (180) days, except as
otherwise required by law. The Company shall promptly notify Holders upon the
effectiveness of such registration statement or the issuance by the SEC of a
stop order with respect to such registration statement.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the' requirements of the
1933 Act and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions in which such qualification can be effected
without unreasonable expense as determined by the Board of Directors in its sole
discretion and as shall be reasonably appropriate for the distribution of the
securities covered by the registration statement, provided that the Company
shall not be required in connection therewith or as a condition thereof to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by selling shareholders pro rata, to the extent
required by such jurisdiction. Notwithstanding the foregoing, the Company shall
be permitted, at any time, to withdraw or to decline to file a registration
statement proposed under Section 8.2.
8.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 8 that the
Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
8.5 Expenses of Demand Registration. All expenses incurred in
connection with a registration pursuant to Section 8.10 (excluding underwriters'
discounts and commissions), including without limitation all registration and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and (to a maximum of $2,500) the reasonable bees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however. that the Company shall not be required to pay any
expenses of any registration proceeding begun pursuant to Section 8. 10 if the
registration request is subsequently withdrawn, unless the Holders agree to
forfeit their right to registration pursuant to Section 8,10; and provided
further, that the Holders may withdraw a request made within seventy-five (75)
days of the end of any fiscal year if the audited financial statements of the
Company for such year and at such year-end materially and adversely differ from
the information available to the Molders at the time of their request, in which
event the Holders shall not be required to pay any of the expenses and shall
retain the right to the demand registration which would otherwise have been
forfeited as a result of such withdrawal request.
<PAGE> 16
8.6 Company Registration Expenses. In the case of any registration
effected pursuant to Section 8.2, the Company shall bear any additional
registration and qualification fees and expenses (including underwriters'
discounts and commissions), and any additional costs and disbursements of
counsel for the Company that result from the inclusion of securities held by the
Holders in such registration. In addition, the Company shall bear the fees and
costs of one counsel for the Selling Holders., to a maximum of $2,500 per
registration.
8.7 Underwriting Requirements In connection with any offering involving
an underwriting of shares being sold by persons exercising the registration
rights contained in Section 8. 10. the Company shall (together with all holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with, the representative of the
underwriter or underwriters of recognized national or regional standing,
reasonably acceptable to the Company, selected for such underwriting by a
majority in interest of the Selling Holders. If the representative advises the
Selling Holders in writing that the representative in its sole discretion deems
it advisable to limit the number of shares to be underwritten, them the number
of shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in proportion, as
nearly as practicable, to the respective amount of Registrable Securities held
by such Holders at the time of filing the Registration Statement.
If the underwriter has not limited the number of Registrable Securities
to be underwritten, then the Company and the other holders may include
securities for their own account in such registration if the underwriter so
agrees and if the number of Registrable Securities that would otherwise have
been included in such registration and underwriting will not thereby be limited
for any reason, including but not limited to the price for which the Registrable
Securities will be sold. To the extent that the underwriter wishes to limit the
number of shares to be included in the registration on behalf of the Company and
the other holders, the shares of Common Stock to be registered held by the other
holders shall be excluded from such offering prior to excluding any shares held
by the Company.
8.8 Delay of Registration No Holder shall have any right to take any
action to restrain enjoin or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 8.
8.9 Indemnification In the event any Registrable Securities are
included in a registration statement under Section 8:
(a) To the extent permitted by law, the Company sill indemnify and
hold harmless each Holder requesting or joining in a registration and each
person, if any, who controls such Holder within the meaning of the 1933 Act,
against any losses, claims, damages or liabilities, joint or several, to which
they may become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based on any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon 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 or arise out of any violation by the Company
of any rule or regulation promulgated under the 1933 Act applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration; and will reimburse each such Holder, or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 8.9(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld) nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder or controlling person or its
representatives.
<PAGE> 17
(b) To the extent permitted by law, each Holder requesting or
joining in a registration will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration statement,
each person, if any, who controls the Company within the meaning of the 1933
Act. each agent and any underwriter for the Company (within the meaning of the
1933 Act) and each and every other Selling Holder against any losses, claims,
damages or liabilities to which the Company or any such director, officer,
controlling person, agent or underwriter may become subject, under the 1933 Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon 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,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished by such Holder or its representatives expressly for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, agent or underwriter in connection with investigating or
defending any. such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 8.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such Holder (which consent
shall not be unreasonably withheld). The Company shall use its best efforts to
obtain similar indemnification undertakings from every other holder exercising
registration rights pursuant to a registration statement for a transaction in
which a Holder participates.
(c) Promptly after receipt by an indemnified party under this
paragraph of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this paragraph, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
materially prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
him of any liability that he may have to any indemnified party otherwise than
under this paragraph.
8.10 Registrations on Form S-3.
(a) If (i) a Holder or Holders who cannot transfer Registrable
Securities without registration pursuant to Rule 144 promulgated under the 1933
Act request in writing (specifying that it is being made pursuant to this
Section 8.10) that the Company file a registration statement on Form S-3 (or any
successor form to Form S-3 regardless of its designation) for a public offering
of shares of the Registrable Securities the reasonably anticipated aggregate
price to the public of which would exceed $1,000,000 and (ii) the Company is a
registrant entitled to use Form S-3 to register such shares, then the Company
shall use all reasonable efforts to cause such shares to be registered on Form
S-3 (or any successor form to Form S-3); provided, however, that the Company
shall not be required to file more than one such registration statements in any
one calendar year.
(b) Holders' rights to registration under this Section 8.10 are in
addition to, and not in lieu of, their rights to registration under Section 8.2.
8.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration
and to the extent such Rule is available, the Company agrees to use all
reasonable efforts to (a) make and keep current public information available,
within the meaning of Rule 144 or any similar or analogous rule promulgated
under the 1933 Act at all times after it has become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934
Act"); (b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the 1933 Act and the 1934 Act (after it
has become subject to such reporting requirements); and (c)
<PAGE> 18
furnish to any Holder, so long as such Holder owns any Registrable Securities,
forthwith upon request a written statement by the Company that it has complied
with the reporting requirements of Rule 144 (at any time after ninety (90) days
after the effective date of said first registration statement filed by the
Company), and of the 1933 Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC permitting the selling of any such securities without
registration.
8.12 Certain Limitations in Connection with Future Grants of
Registration Rights From and after the date of this Agreement, the Company shall
not enter into any agreement with any holder or prospective holder of any
securities of the Company providing for the granting to such holder of
registration rights unless such agreement includes a provision that, in the case
of a public offering involving an underwritten registered offering under Section
8.10, protects the Holders if the underwriters require a limitation on the
number of securities to be included in the underwriting in the manner in which
the Company is protected under Section 8.7.
8.13 Transfer of Registration Rights. The registration rights of the
Investor under this Section 8 may be transferred to any transferee who acquires
the Preferred Shares or an equivalent amount of Registrable Securities;
provided, however, that the Company is given written notice by the Holder at the
time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under this Section 8
are being assigned.
9. AMENDMENTS, WAIVERS AND CONSENTS Any term, covenant agreement or
condition of this Agreement may be amended or compliance therewith may be waived
(either generally or in a particular instance and either retroactively or
prospectively), if the party against whom such amendment or waiver is to be
enforced shall consent in writing.
10. MISCELLANEOUS
10.1 Stamp Tax, Indemnity, Expenses The Company shall pay and save
Investor harmless against any and all liability with respect to stamp and other
taxes if any, which may be payable or which may be determined to be payable in
connection with the execution and delivery of this Agreement. Each of the
parties hereto agrees to protect and indemnify the other parties. against any
liability for any and all brokerage fees and commissions payable or claimed to
be payable to any person in connection with the issue and sale of the Securities
by the Company pursuant to this Agreement which may arise out of the actions of
such party. Except as otherwise provided in this Agreement, each party shall
bear its own expenses incurred in connection with the negotiation, execution and
performance of this Agreement.
10.2 Notices All notices or other communications (other than those sent
to shareholders generally) provided for hereunder shall be in writing and, shall
be given by registered or certified mail (postage prepaid and return receipt
requested) or by facsimile transmission or sent by a recognized overnight
delivery service that can provide proof of delivery upon request addressed to
the Investor or the Company at their respective addresses as set forth on the
records of the company or such other address as any party may designate to the
other in accordance with the aforesaid procedure.
10.3 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the Company and Investor and their respective
successors and assigns.
10.4 Survival of Covenants and Representations; Indemnity All
covenants, representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
closing of the transactions herein contemplated, shall survive such closing and
the delivery of this Agreement. The Company shall defend, hold harmless and
indemnify the Investor from and against any and all losses, liability, claims,
actions, proceedings, expenses and costs, including without limitation
reasonable attorneys' fees and expenses (collectively, "Damages"), arising from
or relating to any breach by the Company of any representation and warranty in
Section 2 hereof, provided that:
<PAGE> 19
(a) the Investor asserts its claim for indemnification in writing
no later than the second anniversary of the Closing Date, except such time limit
shall not apply to a claim based on a breach of a representation or warranty in
Section 2.2, 2.4, 2.18 or 2.24, all of which shall survive without time limit;
(b) the Investor shall have incurred otherwise indemnifiable
Damages of $100,000, except that such threshold shall not apply to Damages
incurred in connection with a breach of a representation or warranty in Section
22, 2.4, 2.18 or 2.24, all of which shall be indemnifiable from the first dollar
of Damages; and
(c) the aggregate liability of the Company to indemnify the
Investor for Damages attributable to breaches of representations and warranties
under Section 2 shall not exceed Three Million Dollars ($3,000,000) in the
aggregate.
In any litigation, arbitration or other action to enforce any of the covenants
and undertakings of the parties in this Agreement, the prevailing party shall be
entitled to recover its costs and expenses incurred in connection with such
action, including without limitation reasonable attorneys' fees and expenses,
from the non-prevailing party.
10.5 Severability. Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
10.6 Captions. The descriptive headings of the various paragraphs or
parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
10.7 Execution. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
constitute one instrument. it shall not be necessary that each party execute the
same counterpart as long as each executes at least one counterpart. Signatures
on behalf of the parties that am transmitted by facsimile machine be treated as
original and binding signatures for all purposes.
10.8 Governing Law This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Colorado.
<PAGE> 20
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be executed by their duly authorized representatives as of the date
first written above.
SPECTRUM HEALTHCARE SERVICES, INC.
By:/s/ Melvin M. Mahoney
-------------------------------------
Melvin M. Mahoney,
Vice President and Treasurer
GERIMED OF AMERICA, INC.
By: /s/ J. F. Riopelle
-------------------------------------
J.F. Riopelle,
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 4.2
SHAREHOLDERS AGREEMENT
OF
GERIMED OF AMERICA, INC.
A COLORADO CORPORATION
THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made as of December
23, 1997 by and between GERIMED OF AMERICA, INC., a Colorado corporation (the
"Corporation"), JAMES F. RIOPELLE, a resident of the State of Colorado
("Riopelle") and SPECTRUM HEALTHCARE SERVICES, INC., a Delaware corporation
("Spectrum"). Riopelle and Spectrum are hereinafter separately referred to as
"Shareholder" and collectively referred to as "Shareholders."
RECITALS
A. Riopelle owns 3,382,500 shares of the common stock, $.0001 par
value, of the Corporation (the "Common Stock") which as of the date hereof
constitutes 64.6% of the issued and outstanding capital stock of the Corporation
(the "Founder's Stock").
B. Pursuant to that certain Securities Purchase Agreement dated
December 22, 1997 between the Corporation and Spectrum (the "Purchase
Agreement"), Spectrum acquired 906,891 shares of Series A Convertible Preferred
Stock, $.0001 par value, of the Corporation ("Preferred Stock") and certain
rights to acquire additional shares of capital stock of the Corporation (such
shares, rights and shares acquired upon exercise of such rights, held by
Spectrum are hereinafter collectively referred to as the "Spectrum Stock").
C. The Corporation and the Shareholders desire to enter into this
Agreement to provide for certain rights and restrictions with respect to the
Founder's Stock and the Spectrum Stock (collectively, together with any other
capital stock of the Corporation and rights to acquire capital stock of the
Corporation acquired by either Shareholder, the "GeriMed Stock") for the
purposes, among others, of: (i) establishing the composition of the board of
directors of the Corporation; (ii) limiting the manner and terms by which the
GeriMed Stock may be transferred, and (iii) granting the Shareholders certain
rights to buy and sell GeriMed Stock.
D. The Corporation and the Shareholders desire to enter into this
Agreement knowing that it is in the Corporation's best interest and fair to each
of the Shareholders.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. NO ENCUMBRANCE. During the term of this Agreement, no Shareholder
shall pledge, hypothecate or otherwise encumber any of the GeriMed Stock or
contract to pledge, hypothecate or encumber such shares. Any attempted pledge,
hypothecation or encumbrance of
<PAGE> 2
GeriMed Stock by a Shareholder shall be void and of no force and effect, except
as permitted by paragraph 5 of this Agreement.
2. RESTRICTIONS ON TRANSFER OF GERIMED STOCK.
(a) Transfer of GeriMed Stock. No Shareholder shall sell for value
(a "Sale") any GeriMed Stock or interest therein, except pursuant to
the provisions of this paragraphs 2, 3 or 5 below.
(b) Right of First Refusal.
(i) At least thirty (30) days prior to making any Sale of any
GeriMed Stock (the "Election Period"), a Shareholder desiring to
sell GeriMed Stock (the "Transferring Shareholder") shall deliver a
written notice (the "Transfer Notice") to the Corporation and the
other Shareholder (the "Other Shareholder").
(ii) The Transfer Notice shall (1) disclose in reasonable detail
the proposed terms and conditions of the Sale, including, but not
limited to, the proposed transferee, the consideration to be paid
and the method of payment for the GeriMed Stock and (2) be
accompanied by a written bona fide offer from the proposed
transferee.
(iii) During the Election Period, the Other Shareholder may
elect (A) to purchase all, but not less than all, of the GeriMed
Stock specified in the Transfer Notice by delivering a written
notice of election (an "Election Notice") to the Transferring
Shareholder, or (B) if applicable, to exercise his or its rights
under paragraph 4 below.
(iv) If prior to the expiration of the Election Period, the
Other Shareholder has not elected to purchase all of the GeriMed
Stock which the Transferring Shareholder proposes to sell or if the
Other Shareholder fails to give the Transferring Shareholder written
notice within the Election Period, the Other Shareholder will be
deemed to have waived its election rights and the Transferring
Shareholder may sell such GeriMed Stock within ninety (90) days
after expiration of the Election Period, on terms no more favorable
than those terms specified in the Transfer Notice. If a sale of such
GeriMed Stock is not consummated within ninety (90) days after
expiration of the Election Period, such GeriMed Stock shall again be
subject to the provisions of this paragraph 2.
(v) Subject to subparagraph (iv) above, if the Other Shareholder
elects to purchase all of the GeriMed Stock from the Transferring
Shareholder: (1) the Other Shareholder shall purchase the GeriMed
Stock covered by the Transfer Notice at the price, and on the terms
specified in the Transfer Notice and (2) the transfer of GeriMed
Stock shall be consummated as soon as practical after delivery of
Election Notice, but in any event within thirty (30) days after the
expiration of the Election Period.
2
<PAGE> 3
3. PURCHASE OF SHAREHOLDER'S SHARES.
(a) Involuntary Transfers.
(i) If the GeriMed Stock held by either Shareholder shall be
levied upon, sequestered, administered by a receiver or a trustee in
bankruptcy, or transferred in any other involuntary transfer, or
otherwise transferred by operation of law, the Shareholder shall
give the Corporation prompt written notice of such occurrence.
(ii) The Corporation shall have, for a period of thirty (30)
days after receipt of the written notice, the right to elect to
purchase all (but not less than all) of such Shareholder's GeriMed
Stock at a purchase price equal to the Fair Market Value (as defined
by subparagraph 3(c) below) of such GeriMed Stock as of the date of
the event giving rise to the Corporation's rights under this
subparagraph 3(a) and on the terms provided herein. Such right shall
apply even though the GeriMed Stock may actually have been sold at
the time of exercise thereof. The Corporation may exercise its right
to purchase such GeriMed Stock by giving the Shareholder, bankruptcy
trustee, or other individual or entity then having legal title to
the GeriMed Stock (the "Title Holder") written notice of its
election to purchase such GeriMed Stock (the "Purchase Notice"). Any
GeriMed Stock which the Corporation does not elect to purchase
within the 30-day period may be transferred by the Title Holder;
provided that any GeriMed Stock transferred and any subsequent
transferee shall continue to be subject to all of the provisions of
this Agreement, including this subparagraph 3(a).
(b) Purchase Terms.
(i) The purchase and sale of GeriMed Stock under this paragraph
3 shall be closed within thirty (30) days after the determination of
such GeriMed Stock's Fair Market Value.
(ii) Payment for the GeriMed Stock purchased under this
paragraph 3 shall be made as follows: 10% cash at time of closing,
and, the remaining 90% pursuant to a ten (10) year note, executed by
the Corporation, which shall be payable in ten (10) equal
installments of principal, plus interest at the publicly announced
prime rate of Norwest Bank Denver, N.A. ("Prime"), adjusted on the
first day of each month.
(c) "Fair Market Value" shall mean the value assigned by the
following process to a Shareholder's GeriMed Stock:
(i) Where the Corporation elects to purchase GeriMed Stock under
this subparagraph 3, the Corporation shall include in its Purchase
Notice the Corporation's determination of the fair market value of
the GeriMed Stock elected to be purchased (the "Valuation").
3
<PAGE> 4
(ii) If the Title Holder accepts the Valuation or fails to
either (1) object to such Valuation within the 10-day period set
forth below or (2) deliver the Title Holder's Valuation (as defined
below) to the Corporation within the 30-day period set forth below,
the Valuation shall be deemed to be the "Fair Market Value" for
purposes of the applicable transaction.
(iii) If the Title Holder disagrees with the Valuation, such
Title Holder shall deliver a written notice of objection to the
Corporation within ten (10) days after the date of delivery of the
Valuation to the Title Holder and shall, within thirty (30) days
after delivery of such Valuation, deliver to the Corporation written
notice of the Title Holder's determination of the fair market value
of the GeriMed Stock covered by the Purchase Notice (the "Title
Holder's Valuation"). If the Corporation accepts the Title Holder's
Valuation, fails to deliver written notice of objection to such
value to the Corporation within the required 10-day period or fails
to contact JAG (as defined below) within the required 10-day period
set forth in subparagraph (iv) below, the Title Holder's Valuation
shall be deemed to be the "Fair Market Value" for purposes of the
applicable transaction.
(iv) If the Corporation disagrees with the Title Holder's
Valuation, the Corporation shall give the Title Holder written
notice of objection within ten (10) days after the date the Title
Holder's Valuation is delivered to the Corporation. Within ten (10)
days after delivery of the notice of objection to the Title Holder's
Valuation, the Corporation shall ask the Judicial Arbiter Group,
Inc. of Denver, Colorado ("JAG") to select a certified public
accounting firm with experience in valuing healthcare-related
businesses (the "Appraiser"). The Appraiser shall determine what in
its opinion is the fair market value of the Corporation's assets
(the "Asset Value"). The Asset Value shall be divided by the number
of outstanding shares of all classes of capital stock of the
Corporation to arrive at a per share valuation (the "Appraised
Value"). The "Fair Market Value" for the applicable transaction
shall then be deemed to be either the Valuation or the Title
Holder's Valuation, whichever is closest to the Appraised Value. The
decision of the Appraiser shall be binding upon the Corporation and
the Title Holder who shall each pay one-half (1/2) of the cost of
the fees charged by JAG and the Appraiser.
4. RIGHT OF CO-SALE.
(a) The Right. Subject to paragraph 2(b) above, if at any time a
Transferring Shareholder who owns a majority of the issued and
outstanding capital stock of the Company (on a fully diluted basis
assuming the exercise of all options which have an exercise price which
is less than the proposed sales price under this paragraph 4), warrants
and other rights and conversion of all convertible securities) proposes
to sell shares of GeriMed Stock pursuant to a bona fide offer from a
party or parties other than the Other Shareholder, then the Other
Shareholder shall be entitled to notify the Transferring Shareholder in
writing within thirty (30) days after receipt of the notification of
such proposed Sale that the Transferring Shareholder elects to sell a
pro rata portion of GeriMed Stock which the Transferring Shareholder
proposes to sell to such third party;
4
<PAGE> 5
whereupon the Transferring Shareholder shall assign so much of his
interest in the agreement of Sale as is proportionate to the Other
Shareholder's participation in the sale of such GeriMed Stock and the
Other Shareholder shall assume such part of the obligations of the
Transferring Shareholder under such agreement. For the purposes of this
paragraph 4 the "pro rata portion" which the Other Shareholder shall be
entitled to sell shall be an amount of Common Stock (assuming the
exercise of all warrants, then exercisable and conversion of all
convertible securities to Common Stock) proposed to be sold, the
numerator of which is the aggregate of all shares of Common Stock then
held by the Other Shareholder and the denominator is the aggregate of
all shares of GeriMed Stock then held by the Other Shareholder and the
Transferring Shareholder. The Other Shareholder shall notify the
Transferring Shareholder whether it elects to sell an amount equal to
or less than its pro rata share of the Common Stock so offered. The
Other Shareholder shall be entitled to apportion Common Stock to be
sold among its partners, affiliates and relatives, provided that the
Other Shareholder notifies the Transferring Shareholder of such
allocation.
(b) Failure to Notify. If within thirty (30) days after the
Transferring Shareholder gives the aforesaid notice to the Other
Shareholder, the Other Shareholder does not notify the Transferring
Shareholder that it desires to sell its pro rata portion of the Common
Stock described in such notice at the price and on the terms and
conditions set forth therein, then the Transferring Shareholder may
sell during the 90-day period after the Transferring Shareholder gives
the aforesaid notice to the Other Shareholder (the "Period") such
Common Stock as to which the Other Shareholder does not indicate a
desire to sell to other persons at the same price and upon the same
terms and conditions as those set forth in the notice. In the event the
Transferring Shareholder has not sold the Common Stock or entered into
an agreement to sell the Common Stock within the Period, the
Transferring Shareholder shall not thereafter sell any Common Stock
without first notifying the Other Shareholder in the manner provided
above.
5. LIMITATIONS TO RIGHT OF FIRST REFUSAL AND RIGHT OF CO-SALE. Without
regard and not subject to the provisions of paragraphs 2 and 4.
(a) Riopelle may sell or otherwise assign for consideration or gift
GeriMed Stock to any or all of his ancestors, descendants, spouse, or
to a custodian, trustee (including a trustee of a voting trust),
executor, or other fiduciary for the account of a trust for the benefit
of his ancestors, descendants or spouse, provided that each such
transferee or assignee, prior to the completion of the sale, transfer,
gift or assignment, shall have executed documents assuming the
obligations of such Shareholder under this Agreement with respect to
the transferred securities; and
(b) Spectrum may contribute, distribute, sell or otherwise assign,
with or without consideration, (a) all of its GeriMed Stock to any
entity controlling, controlled by or under common control with Spectrum
(a "Spectrum Affiliate"), and (b) if Spectrum owns of record more than
fifty percent or more of the outstanding common stock of the
Corporation, any portion of its GeriMed Stock to one or more Spectrum
Affiliates; provided in each case any recipient Spectrum Affiliate
shall have executed documents assuming the obligations of Spectrum
hereunder with respect to the transferred securities.
5
<PAGE> 6
(c) Each Shareholder may sell or transfer GeriMed Stock in a public
offering of securities of the Company registered under the Securities
Act of 1933, as amended (the "1933 Act").
6. CALL OPTION. The Company hereby grants to Spectrum the right and
option to purchase from the Company, that number of shares of common stock of
the Company equal to Three Million Two Hundred Fifty-Five Thousand (3,255,000)
shares, less that number of shares tendered by the shareholders of the Company
and Riopelle under subparagraphs 6 (a) and 6(b), respectively (the "Call
Option"), such Call Option to be exercisable by written notice from Spectrum to
the Company and Riopelle at any time within the ninety (90) day period preceding
a Semiannual Exercise Date (the "Notice of Exercise"). The term "Semiannual
Exercise Date" means any one of the dates which are, respectively, 30, 36, 42,
48, 54 and 60 months after January 1, 1998. The aggregate purchase price for
each of such shares shall be an amount equal to the EBIT Value (as defined
below) of the Company as of the last day of the calendar month preceding the
month in which notice of exercise of the Call Option is delivered (the
"Valuation Date"), divided by the number of outstanding common shares of the
Company as of the closing of the purchase and sale of shares pursuant to the
Call Option, expressed on a fully diluted basis as if all options, warrants and
other rights then currently exercisable (except Spectrum's right to make the
Additional Investment (as defined in the Purchase Agreement) if such right has
not been exercised as of the Valuation Date) had been exercised and all
convertible securities converted; provided, however, if the Share Price
calculation above results in a Share Price which is lower than the exercise
price of any outstanding options, the Share Price shall be recalculated
excluding the shares underlying such options from the number of outstanding
shares, and the recalculated price shall be the "Share Price." The term "EBIT
Value" shall mean the amount resulting from the following formula:
(2/3 times EBIT for the twelve month period ending on the Valuation
Date times 11), plus (1/3 times the target EBIT set forth in the
Company's annual forecast approved by the Board of Directors for the
year in which the Valuation Date occurs times 7), minus
interest-bearing debt of the Company (including capital leases), plus
cash and cash equivalents owned by the Company.
The "EBIT" of the Company for any period shall mean the Company's net income for
such period plus (i) all interest expense incurred by the Company during such
period, plus (ii) all income and franchise tax expense incurred by the Company
during such period, and disregarding all extraordinary gains and losses outside
of the ordinary course of the Company's business. The net income of the Company
for any period shall be determined in accordance with generally accepted
accounting principles, consistently applied. The closing of the purchase and
sale of shares pursuant to the Call Option ("Option Closing") shall be the
business day designated by Spectrum that is not less than 120 days after notice
of exercise of the Call Option, at which time (a) the Company shall deliver to
Spectrum original certificates evidencing the shares being purchased, and (b)
Spectrum shall deliver to the Company the purchase price for the shares
purchased pursuant to the Call Option. The number of shares which are the
subject of the Call Option shall be equitably adjusted for any intervening stock
splits, reverse stock splits, subdivisions, reclassifications and similar
capital transactions after the date of this Agreement and prior to the purchase
pursuant to the exercise of the Call Option.
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<PAGE> 7
(a) Tender Offer. Upon delivery of the Notice of Exercise, the
Company, Riopelle and Spectrum shall use their reasonable efforts to
solicit the shareholders of the Company (excluding Spectrum) to tender
their outstanding shares of the Common Stock for sale to Spectrum at
the Option Closing for a price equal to the Share Price. Spectrum shall
purchase all of such shares of Common Stock which are tendered by the
shareholders of the Company.
(b) If and to the extent the shareholders of the Company fail to
tender in the aggregate 3,255,000 shares of Common Stock (the "Minimum
Shares"), Riopelle shall tender (and/or cause his permitted transferees
to tender) such number of Founders Stock as necessary to meet the
Minimum Shares, provided, however, that in no case shall Riopelle be
required to tender more than 2,536,875 shares of Founders Stock.
Notwithstanding the foregoing, Riopelle may, in his sole discretion,
tender more than 2,536,875 shares of Founders Stock under subparagraph
(a) above. Riopelle shall not sell or otherwise transfer the Founder's
Stock that is subject to this subparagraph 6(b), unless the transferee
of such shares agrees that the shares shall continue to be subject to
this subparagraph 6(b).
(c) Closing of the Tender Offer. The closing of the sale of the
Tendered Shares shall take place no later than 120 days after notice of
exercise of the Call Option is delivered to the Company and, if
applicable, shall close immediately prior to the closing of the Call
Option.
7. SHAREHOLDERS' REDEMPTION RIGHTS.
(a) Spectrum's Redemption Right. If after five (5) years following
the date of this Agreement, Spectrum owns less than fifty-one percent
(51%) of the issued and outstanding Common Stock (assuming conversion
of all of the Spectrum Stock), Spectrum may, in its sole and absolute
discretion, elect to cause the Company to repurchase all or any part of
the Spectrum Stock by giving written notice to the Company during the
one-year period commencing on the fifth anniversary of this Agreement.
The purchase price shall be calculated and paid as set forth in
subparagraph (c) below. If the Company does not have legally available
funds to purchase the Spectrum Stock, the Company may postpone such
purchase until and as funds are legally available for such purpose.
(b) Riopelle Redemption Right. If after five (5) years following the
date of this Agreement, Spectrum and/or its affiliates own more than
fifty percent (50%) of the issued and outstanding Common Stock
(assuming conversion of all of the Spectrum Stock), Riopelle may, in
his sole and absolute discretion, elect to cause the Company to
repurchase all or part of the Founder's Stock by giving written notice
to the Company during such one-year period. The purchase price shall be
calculated and paid as set forth in subparagraph (c) below. If the
Company does not have legally available funds to purchase the Founder's
Stock, the Company may postpone such purchase until and as funds are
legally available for such purpose.
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<PAGE> 8
(c) Purchase Price. The per share purchase price for any shares
purchased by the Company under this paragraph 7 shall be equal to the
Share Price as of the last day of the calendar month preceding the
month in which the written notice was delivered under subparagraphs (a)
or (b) above (the "Election Notice"). The closing of a repurchase under
this paragraph 7 shall occur as soon as possible after delivery of the
Election Notice, but in no case later than ninety (90) days after
delivery of the Election Notice, unless postponed due to lack of
legally available funds. If such closing is postponed, the purchase
price shall be increased by a percentage equal to Prime, plus 2% per
annum until such purchase is closed.
8. RIOPELLE MINORITY SHAREHOLDER RIGHTS. If and when Spectrum owns at
least 50% of the outstanding Common Stock (assuming conversion of all
outstanding Preferred Stock), the Company shall comply with the following
provisions:
(a) Insurance. The Company will maintain insurance coverage by
financially sound and reputable insurers in such forms, against such
risks and with limits of coverage at least equal to existing limits, as
are currently maintained by the Company.
(b) Financial Statements. The Company shall deliver to Riopelle:
(i) Within thirty (30) days after the end of each month, an
unaudited balance sheet and income statement for such month;
(ii) Within one-hundred (120) days after the end of each fiscal
year of the Company an income statement for such fiscal year, a
balance sheet of the Company as of the end of such year and a
statement of cash flows for such year, together with such notes
thereto as are appropriate, prepared in accordance with generally
accepted accounting principles consistently applied and setting
forth in each case in comparative form the figures for the previous
year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company
and reasonably acceptable to Riopelle.
(iii) As soon as available, but in any event within ninety (90)
days after commencement of each new fiscal year, a business plan,
projected financial statements and cash flow projections for such
fiscal year as set forth in the Company's operating plan as approved
by the Company's Board of Directors, along with a capital
expenditures budget; and
(iv) Such other financial statements as Riopelle may reasonably
request to verify the financial condition of the Company and the
valuation of Riopelle's investment therein. All such statements
shall be certified by the Chief Financial Officers of the Company as
being true, complete and in accordance with the Company's books and
records and regular accounting practices.
(c) Inspection. The Company shall permit Riopelle and his authorized
designees to visit and inspect the Company's properties, to examine the
Company's books of account and records and to discuss the Company's
affairs, finances and accounts with its employees, officers and
independent accountants, all at such reasonable times as
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<PAGE> 9
may be requested by Riopelle (but limited to two examinations in any
calendar year) and upon reasonable advance notice given to the Company
but in no case more than two times in any calendar year.
(d) Extraordinary Corporate Acts. Unless the Company first obtains
the written consent of Riopelle, the Company shall not effect any
amendment to the Company's articles of incorporation, recapitalization,
merger or consolidation of the Company, unless such action affects the
Common Stock and the Preferred Stock in an identical manner.
9. TRANSFERS IN VIOLATION OF AGREEMENT. Any transfer or attempted
transfer of any GeriMed Stock in violation of any provision of this Agreement
shall be void, and the Corporation shall not record such transfer on its books
or treat any purported transferee of such GeriMed Stock as the owner of such
shares for any purpose.
10. LEGEND. Each certificate evidencing GeriMed Stock and each
certificate issued in exchange for or upon the transfer of any GeriMed Stock (if
such shares remain subject to this Agreement) shall be stamped or otherwise
imprinted with a legend in substantially the following form:
The shares represented by this Certificate and the transfer
thereof are subject to certain restrictions, call option, and
agreements set forth in the Shareholders Agreement dated as of
December 23, 1997 by and among GeriMed of America, Inc. (the
"Corporation"), James F. Riopelle and Spectrum Healthcare
Services, Inc., a copy of which is on file with the Secretary
of the Corporation.
11. TRANSFER. Prior to transferring any GeriMed Stock to any person or
entity, the transferring Shareholder shall cause the prospective transferee to
execute and deliver to the Corporation and the Other Shareholder a counterpart
of this Agreement.
12. BOARD OF DIRECTORS. Each Shareholder of the Corporation shall vote
all of its voting securities of the Corporation over which it has voting
control, and shall take all other actions reasonably requested by the other
Shareholder (whether in the Shareholder's capacity as a shareholder, director or
officer of the Corporation or otherwise), (a) to nominate and elect one designee
of the other Shareholder to the Board of Directors of the Corporation and any
subsidiary of the Corporation, and, in the case of Spectrum's designee, a member
to the Corporation's compensation committee, (b) following the death,
resignation, removal or other inability of such designee to serve, to nominate
and elect a successor designated by the other Shareholder, and (c) upon written
request of the other Shareholder, to remove its designee and replace him or her
with a successor designated by other Shareholder. Except with the prior written
consent of the other Shareholder, each Shareholder shall vote all voting
securities of the Corporation over which he has voting control against any
resolution to remove the director designated by the other Shareholder.
Notwithstanding the foregoing, neither Shareholder shall be required to vote in
favor of a designee (a) described in Section 230.262(b) of Regulation A
promulgated under the 1933 Act, (b) who has been convicted of a crime involving
moral
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<PAGE> 10
turpitude or (c) who such Shareholder reasonably believes would have a negative
impact on the reputation and business of the Corporation.
13. TERM. This Agreement shall terminate upon the occurrence of any of
the following events:
(a) Cessation of the Corporation's business;
(b) The bankruptcy, receivership or dissolution of the Corporation;
(c) At such time as either Shareholder owns less than five percent
(5%) of the issued and outstanding capital stock of the Corporation;
(d) Mutual written agreement of the Shareholders;
(e) The date on which any registration of GeriMed Stock under the
1933 Act becomes effective.
14. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provisions of this Agreement shall be
effective against the Corporation or the Shareholders unless such modification,
amendment or waiver is approved in writing by the Corporation and the
Shareholders. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
15. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality, or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
16. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
17. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Corporation and its successors and assigns and the Shareholders and any
subsequent holders of GeriMed Stock and the respective successors and assigns of
each of them, so long as they hold GeriMed Stock.
18. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same
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<PAGE> 11
agreement. Signatures on behalf of the parties that are transmitted by facsimile
shall be treated as original and binding signatures for all purposes.
19. REMEDIES. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Corporation and any Shareholder may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of this
Agreement, in addition to seeking damages for breach of this Agreement.
20. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charge
prepaid) to the Corporation at the address set forth below and to any other
recipient at such address as indicated by the Corporation's records, or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party. Notices will be deemed to have been
delivered hereunder when delivered personally, three (3) days after deposit in
the U.S. mail and one (1) day after deposit with a reputable overnight courier
service. The Corporation's address is:
GeriMed of America, Inc.
333 West Hampden Avenue, Suite 200
Englewood, Colorado 80110
21. GOVERNING LAW. This Agreement and the rights of the parties hereto
shall be governed by and construed and enforced in accordance with the laws of
the State of Colorado.
22. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
23. GENDER. Whenever applicable, the pronouns designating the
"masculine" or the "neuter" shall equally apply to "feminine," "neuter" and
"masculine" genders. Furthermore, whenever applicable in this Agreement, the
"singular" shall include the "plural" and the reverse.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
"CORPORATION"
GERIMED OF AMERICA, INC.,
a Colorado corporation
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
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<PAGE> 12
"SHAREHOLDERS"
"RIOPELLE"
-----------------------------------------------
James F. Riopelle, individually
"SPECTRUM"
SPECTRUM HEALTHCARE SERVICES, INC.
a Delaware corporation
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
12
<PAGE> 1
EXHIBIT 4.3
NEITHER THIS WARRANT NOR THE SERIES A CONVERTIBLE PREFERRED STOCK
ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED PURSUANT TO THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. NEITHER THIS WARRANT NOR
ANY OF THE UNDERLYING SERIES A CONVERTIBLE PREFERRED STOCK MAY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED AND QUALIFIED
IN ACCORDANCE WITH SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED.
797,001 Shares of Series A Convertible Preferred Stock Warrant No. 1
WARRANT
to Purchase 797,001 Shares of Series A Convertible Preferred Stock of
GERIMED OF AMERICA, INC.
THIS CERTIFIES THAT, for value received, SPECTRUM HEALTHCARE SERVICES,
INC. or registered assigns is entitled, subject to the terms and conditions set
forth herein, to purchase from GERIMED OF AMERICA INC., a corporation organized
and existing under the laws of the State of Colorado (the "Company"), at any
time on or before 5:00 P.M. St. Louis. Missouri time on the Final Exercise Date,
Seven Hundred Ninety-Seven Thousand One (797,001) shares of Series A Convertible
Preferred Stock of the Company for $0.0001 per share in lawful money of the
United States of America. The number of shares of Series A Convertible Preferred
Stock which may be purchased hereunder, and the Purchase Price therefor, are
subject to adjustment as hereinafter set forth in Sections 2, 3 and 8.
Section 1. Definitions. For all purposes of this Warrant the following
terms shall have the meanings indicated:
"Board of Directors" shall mean the board off directors of the Company
`as constituted from time to time.
"Common Stock" shall mean the common stock of the Company, par value
$0.0001 per share.
<PAGE> 2
"Company" shall mean GERIMED OF AMERICA, INC., a corporation organized
and existing under the laws of the State of Colorado, and its successors and
assigns.
"Final Exercise Date" shall mean December 31, 2003.
"Initial Purchase Price" shall mean the initial Purchase Price of One
Hundredth of One Cent ($0.0001).
"Maximum First Tranche" initially shall mean Three Hundred Sixty-Nine
Thousand Eight Hundred Fifty-One (369,851) shares of Series A Convertible
Preferred Stock.
"Maximum Second Tranche" initially shall mean Four Hundred Twenty-Seven
Thousand One Hundred Fifty (427,150) shares of Series A Convertible Preferred
Stock, provided, however, that if less than the entire Maximum First Tranche
becomes exercisable under Section 3 of this Warrant, then the Maximum Second
Tranche shall be a number of shares of Series A Convertible Preferred Stock
equal to the sum of (i) 377,872, plus (ii) the product of 49,278 times the
percentage of the Maximum First Tranche that becomes exercisable under Section 3
of this Warrant.
"Preferred Stock" shall mean the Series A Convertible Preferred Stock
of the Company, par value $0.0001 per share.
"Purchase Price" initially shall mean the Initial Purchase Price, and
thereafter shall be such Initial Purchase Price as adjusted and in effect from
time to time thereafter pursuant to the provisions hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the regulations promulgated by the SEC thereunder.
"Transfer" shall include any disposition of any Warrants or Warrant
Stock, or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
"Warrant" shall mean this Warrant, evidencing the right, subject to
fulfillment of the conditions set forth herein, to purchase initially an
aggregate of 797,001 shares of Preferred Stock, and all Warrants issued in
exchange, transfer or replacement thereof.
"Warrantholder" shall mean the registered holder or holders of this
Warrant and any related Warrant Stock.
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<PAGE> 3
"Warrant Shares" shall mean the shares of Preferred Stock purchased or
purchasable by the registered holder(s) of this Warrant upon the exercise
thereof pursuant to Section 5.
All terms used in this Warrant which are not defined in Section 1 shall have the
respective meanings ascribed thereto elsewhere in this Warrant.
Section 2. Initial Number of Warrant Unit;
Purchase Price.
(a) Determination of Number of Shares Subject to this Warrant. The
initial number of shares of Preferred Stock which the Warrantholder shall have
the right to purchase is 797,001 shares of Preferred Stock, subject to the
conditions in Section 3 and to adjustment pursuant to Section 8 hereof.
(b) Initial Purchase Price. The Initial Purchase Price for each Warrant
Share shall be One Hundredth of One Cent ($0.0001). The. Purchase Price for the
Warrant Shares shall be subject to adjustment pursuant to Section 8 hereof
Section 3. Conditions on Exercise. The number of Warrant Shares for
which this Warrant ultimately shall be exercisable shall be determined based on
the EBIT of the Company for its 1998 and 1999 fiscal years, as set forth in this
Section. The "EBIT" of the Company for any period shall mean the Company's net
income for such period plus (i) all interest expense by the Company during such
period, plus (ii) all income and franchise tax expense incurred by the Company
during such period, and disregarding all extraordinary gains and losses outside
of the ordinary course of the Company's business. The net income of the Company
for any period shall be as set forth in the Company's audited consolidated
statement of income for such fiscal year, prepared in accordance with generally
accepted accounting principles, consistently applied.
(a) If the EBIT of the Company for its fiscal year ending December 31,
1998 ("Fiscal 1998") is less than $1,000,000, then this Warrant shall become
exercisable with respect to a number of Warrant Shares equal to the Maximum
first Tranche;
(b) If the EBIT of the Company for Fiscal 1998 is $2,000,000 or more,
then the number of Warrant Shares subject to this Warrant shall be reduced by
the entire amount of the Maximum First Tranche; and
(c) If the EBIT of the Company for Fiscal 1998 is less than $2,000,000
but is $1,000,000 or more, then this Warrant shall become exercisable with
respect to a number of Warrant Shares equal to the Maximum First Tranche times a
fraction, the numerator of which is the difference between $2,000,000 and the
Company's EBIT for Fiscal 1998, and
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<PAGE> 4
the denominator of which is $1,000,000; and the number of Warrant Shares subject
to this Warrant shall be reduced by the difference between the Maximum First
Tranche and the number of Warrant Shares determined under the first part of this
subsection (c).
(d) If the EBIT of the Company for its fiscal year ending December 31,
1999 ("Fiscal 1999") is $2,000,000 or more, then all Warrant Shares as to which
this Warrant has not yet become exercisable shall be canceled, and this Warrant
shall be exercisable only with respect to such Warrant Shares, if any, as shall
have become exercisable as a result of the Company's EBIT for Fiscal 1998.
(e) If the EBIT of the Company for Fiscal 1999 is less than $1,000,000,
them this Warrant shall become exercisable with respect to a number of Warrant
Shares equal to the Maximum Second Tranche; and Warrant Shares as to which this
Warrant shall not then have become exercisable, if any, shall be canceled.
(f) If the EBIT of the Company for Fiscal 1999 is less than $2,000,000
but is $1,000,000 or more, then this Warrant shall become exercisable with
respect to a number of Warrant Shares equal to the Maximum Second Tranche times
a fraction, the numerator of which is the difference between $2,000,000 and the
Company's EBIT for fiscal 1999, and the denominator of which is $1,000,000; and
Warrant Shares as to which this Warrant shall not then have become exercisable,
if any, shall be canceled.
Warrant Shares as to which this Warrant becomes exercisable under subsection (e)
or (f) above shall be in addition to those Warrant Shares as to which this
Warrant may become exercisable under subsection (a) or (c) above.
Section 4. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Preferred
Stock upon exercise of this Warrant, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction to
the nearest whole number of shares of Preferred Stock or other securities,
properties or rights receivable upon exercise of this Warrant.
Section 5. Method of Exercise: Legend
(a) Exercise of Warrant. This Warrant, is exercisable in whole or in
part at any time or from time to time on or after the date hereof, and prior to
the Final Exercise Date. In order to exercise this Warrant, the registered
holder hereof shall complete the Subscription Form attached hereto, and deliver
this Warrant and cash or a bank certified or cashier's check in an amount equal
to the then aggregate Purchase Price of the Warrant Shares being purchased, to
the Company, at 333 West Hampton Avenue, Suite 200, Englewood, Colorado 80110
(or at such other location as the Company may designate by notice in writing to
the holder of this Warrant). The Company, in its sole discretion, at the
holder's request, may
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<PAGE> 5
accept payment for Warrant Shares by the holder's surrender of Warrants having
an aggregate fair market value equal to the exercise price of the Warrant Shares
being purchased. The determination of the fair market value of any such
surrendered Warrants shall be made by the Board of Directors of the Company in
its sole discretion. Upon receipt by the Company of such Subscription Form, this
Warrant and Payment, such holder shall be deemed a holder of record of the
Preferred Stock specified in said Subscription Form, and the Company shall, as
promptly as practicable, and in any event within 10 business days thereafter,
execute and deliver to such holder a certificate or certificates evidencing the
aggregate number of Preferred Stock specified in said Subscription Form. Each
certificate so delivered shall be registered in the name of such holder or,
subject to Section 7 below, such other name as shall be designated by such
holder. The Company shall pay all expenses, taxes and other charges payable in
connection with the preparation, execution and delivery of certificates pursuant
to this Section. except that, in case such certificates shall be registered in a
name or names other than the name of the registered holder of this Warrant,
funds sufficient to pay all transfer taxes which shall be payable upon the
execution and delivery of such certificate or certificates shall be paid by the
registered holder hereof to the Company at the time of delivering this Warrant
to the Company as mentioned above.
(b) Transfer Restriction Legend. Each certificate for Warrant Shares
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Securities Act, shall bear a legend
substantially similar to the following on the face thereof:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAW. NEITHER THESE SHARES, NOR ANY
PORTION THEREOF OR INTEREST THEREIN, MAY BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED AND
QUALIFIED IN ACCORDANCE WITH SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW, OR IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY, SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under an effective registration statement of the
securities represented thereby) shall also bear such legend unless in the
opinion of counsel specified in Section 7, the securities represented thereby
need no longer be subject to the restrictions contained in this Warrant. The
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<PAGE> 6
provisions of Section 7 shall be binding upon all subsequent holders of
certificates bearing the above legend and shall also be applicable to all
subsequent holders of this Warrant.
(c) Character of Warrant Stock. All Preferred Stock issuable upon the
exercise of this Warrant shall, be duly authorized, validly issued, fully paid
and nonassessable.
Section 6. Ownership and Replacement.
(a) Ownership of this Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration or transfer
as provided in this Section 6.
(b) Exchange and Replacement. This Warrant is exchangeable upon the
surrender hereof by the registered holder to the Company at its office described
in Section 5, for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares that may be
purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by said registered holder
at the time of surrender. Subject to compliance with Section 7, this Warrant and
all rights hereunder are transferable in whole or in part upon the books, of the
Company by the registered holder hereof in person or by duty authorized
attorney, and a new Warrant shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant, duly endorsed, to said office of the
Company. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
the Company, and upon surrender and cancellation of this Warrant, if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant. This Warrant shall be promptly cancelled by the Company upon the
surrender hereof in connection with any exchange, transfer or replacement. The
Company shall pay all expenses, taxes (other than transfer taxes) and other
charges payable in connection with the preparation, execution and delivery of
Warrants pursuant to this Section 6.
Section 7. Transfer of Warrants or Warrant Shares.
(a) Warrants and Warrant Shares Not Registered. The holder of this
Warrant, by accepting this Warrant, represents and acknowledges that this
Warrant and the Warrant Shares which may be purchased upon exercise of this
Warrant are not being registered under the Securities Act on the grounds that
the issuance of this Warrant and the offering and sale of such Warrant Shares
are exempt from registration under the Securities Act pursuant to one or more
exemptions therefrom, including Section 4(2) thereof, and that
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<PAGE> 7
the Company's reliance on such exemption is predicated in part on the initial
Warrantholder' s representations and agreements made to and with the Company in
the Securities Purchase Agreement dated on or about the date hereof.
Notwithstanding any provisions contained in this Warrant to the
contrary, this Warrant and the related Warrant Shares shall not be transferable
except upon the conditions specified in this Section 7, which conditions are
intended, among other things, to ensure compliance with the provisions of the
Securities Act and applicable state securities laws in respect of the transfer
of this Warrant or of such Warrant Shares.
(b) Notice of Intention to Transfer: Opinion of Counsel. The holder of
this Warrant, by accepting this Warrant, agrees that prior to any transfer of
this Warrant or any transfer of the related Warrant Shares, such holder will (i)
give written notice to the Company of its intention to effect such transfer, and
(ii) deliver to the Company (A) an opinion of counsel for the Company or an
opinion, in form and substance reasonably satisfactory to counsel for the
Company, of counsel skilled in securities matters (selected by such holder and
reasonably satisfactory to the Company) as to the absence of the necessity of
registration under the Securities Act, or (B) an interpretative letter from the
Securities and Exchange Commission to the effect that the proposed transfer may
be made without registration under the Securities Act, in either case
accompanied by evidence that such transfer will also be in compliance with
applicable state securities ("blue sky") laws; provided, however, that the
foregoing shall not apply with respect to any Warrant or Warrant Shares as to
which there is a registration statement in effect under the Securities Act at
the time of the proposed transfer.
By accepting this Warrant, the Warrantholder agrees to indemnify the Company and
hold it harmless from and against all damages, losses, liabilities (including
liability for rescission), costs and expenses which the Company may incur under
the Securities Act or otherwise, by reason of any misrepresentation by the
Warrantholder of facts concerning it or any proposed transfer of the Warrants
and/or Warrant Shares with respect to the availability of any exemption from
registration under the Securities Act.
Section 8. Adjustment of Number of Shares and Purchase Price.
(a) Adjustments for Distributions, Divisions or Consolidation or
Combination of Shares. In the event of any increase or decrease in the number of
shares of issued Preferred Stock by reason of a distribution, division or
consolidation or combination of such Shares at any time or from time to time
after the date hereof such that the holders of Preferred Stock shall have had an
adjustment made, without payment therefor, in the number of shares of Preferred
Stock owned by them or, on or after any record date fixed for the determination
of eligible holders, shall have become entitled or required to have had an
adjustment made in the number of Preferred Stock owned by them, without payment
therefor, them shall be a corresponding adjustment as to the number of shares of
Preferred
7
<PAGE> 8
Stock covered by this Warrant (and to the Purchase Price for each Warrant Share
under this Warrant) with the result that the Warrantholder's proportionate
interest in the shares of Preferred Stock shall be maintained as before the
occurrence of such event without change in the aggregate Purchase Price set
forth in said Warrant
(b) Adjustments for Recapitalization, Reclassification, Reorganization
or Other Like Capital Transactions or for Merger and Consolidation. in the event
the Company (or any other corporation or other entity the securities of which
are receivable at the time upon exercise of the Warrant) shall effect a plan of
recapitalization, reclassification, reorganization or other like capital
transaction or shall merge or consolidate with or into another entity or convey
all or substantially all of its assets to another entity at any time or from
time to time on or after the date hereof, then in each such case the
Warrantholder upon the exercise of this Warrant at any time after the
consummation of such recapitalization, reclassification, reorganization or other
like capital transaction or of such merger, consolidation or conveyance shall be
entitled to receive (in lieu of the securities or other property to which such
holder would have been entitled to receive upon exercise prior to such
consummation), the securities or other property to which the Warrantholder,
would have been ENTITLED to have received upon consummation of the subject
transaction if the holder hereof had exercised this Warrant immediately prior to
such consummation without adjustment, to the aggregate Purchase Price set forth
in said Warrant and all subject to further adjustment pursuant to Section 8(a)
hereof.
Section 9. Special Agreements of the Company. The Company covenants and
agrees that:
(a) Reservation of Shares. The Company will reserve and set apart and
have at all times free from preemptive rights, a number of shares of Preferred
Stock deliverable upon the exercise of this Warrant, and it will have at all
times any other rights or privileges sufficient to enable it at any time to
fulfill all of its obligations hereunder.
(b) Avoidance of Certain Actions. The Company will not, by amendment of
its Articles of Incorporation or Bylaws or through any reorganization, of
assets, consolidation, merger, issue or sale of securities or otherwise avoid or
take any action which would have the effect of avoiding, the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in carrying out all of the
provisions of this Warrant and in taking all of such action as may be necessary
or appropriate in order to protect the rights of the Warrantholder against
impairment.
(c) Successors. This Warrant shall be binding upon any corporation or
other entity succeeding to the Company by merger or consolidation, and the
Company will not enter into any such transaction without obtaining the written
agreement of any such successor to be bound by the terms of this Warrant as if
it were the issuer hereof.
8
<PAGE> 9
Section 10. Notifications by the Company. In case at any time:
(a) the Company shall make any distribution to the holders of
Preferred Stock or Common Stock;
(b) the Company shall make an offer for subscription pro rata
to the holders of its Preferred Stock or Common Stock of any additional
securities of the Company;
(c) there shall be any capital reorganization, reclassification
of the shams of the Company, consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, a
corporation or other entity; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up the Company;
then, in any one or more of such cases, the Company shall give written notice to
Warrantholder of the date on which (i) the books of the Company shall close, or
a record shall be taken for such distribution or subscription rights, or (ii)
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Preferred Stock or Common
Stock of record shall participate in such distribution or subscription rights,
or shall be entitled to exchange their Preferred Stock or Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale. dissolution. liquidation, or
winding-up, as the case may be. Such written notice shall be given not less than
30 days and not more than 90 days prior to the action in question and not less
than 30 days and not more than 90 days prior to the record date or the date on
which the Company's transfer books are closed in respect thereto and such notice
may state that the record date is subject to the effectiveness of a registration
statement under the Securities Act or to a favorable vote of the shareholders of
the Company, if either is required.
Section 11. Notices. Any notice or other document required or permitted
to be given or delivered to Warrantholders shall be delivered at, or sent by
certified or registered mail to the Warrantholder at, the most recent address of
the Warrantholder shown on the records of the Company, or to such other address
as shall have been furnished to the Company in writing by such Warrantholder.
Any notice or other document required or permitted to be given, or delivered to
the Company shall be sent by certified or registered mail to the Company at its
address set forth in Section 5 (and notice shall be deemed delivered three (3)
business days after deposit in the mail), or such other address as shall have
been furnished to the Warrantholder by the Company.
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<PAGE> 10
Section 12. No Voting Rights: Limitation of Liability. This Warrant
shall not entitle any Warrantholder to vote on any matter coming to the
attention of the Shareholders of the Company or to any of the rights of a
shareholder of the Company. No provision hereof, in the absence of affirmative
action by the Warrantholder to purchase Preferred Stock hereunder, and no mere
enumeration herein of the rights or privileges of the holder hereof shall give
rise to any liability of such holder for the Purchase Price or any rights of
such holder as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
Section 13. Miscellaneous. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of Colorado.
This Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof
[THE BALANCE OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
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<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized representative, and to be dated as of December 1997.
GERIMED OF AMERICA, INC.
By:
-----------------------------------
Authorized Officer
11
<PAGE> 12
ASSIGNMENT
To Be Executed by the Registered Holder if It Desires to Transfer the
Within Warrant
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
---------------------------------------
(Name)
----------------------------------------
(Address)
the right to purchase ________ Preferred Stock, covered by the within Warrant,
as said Shares were constituted at the date of said Warrant, and does hereby
irrevocably constitute and appoint Attorney to make such transfer on the books
of the Company maintained for the purpose, with full power of substitution.
Signature
----------------------------------
Dated
-----------------------------
In the presence of
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE> 13
SUBSCRIPTION FORM
To Be Executed by the Registered Holder if It Desires to Exercise the
Within Warrant
The undersigned hereby exercises the right to purchase ___________
shares of Preferred Stock covered by the within Warrant at the date of this
subscription and herewith makes payment of the sum of $___________ representing
the Purchase Price in effect at this date. Certificates for such Shares shall be
issued in the name of and delivered to the undersigned, unless otherwise
specified by written instructions, signed by the undersigned and accompanying
this subscription.
Dated
-----------------------
Signature
----------------------------
Address
------------------------------
13
<PAGE> 1
EXHIBIT 4.4
GERIMED OF AMERICA, INC.
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made as of January 1,
1994 by and between GERIMED OF AMERICA, INC., a Colorado corporation (the
"Company"), and each person or entity whose signature appears at the end of this
Agreement (hereinafter separately referred to as "Shareholder" and collectively
referred to as "Shareholders").
RECITALS
A. Collectively, the Shareholders own all of the issued and outstanding
shares of the Common Stock, $.0001 par value, of the Company (the "Common
Stock").
B. The Company and the Shareholders desire to enter into this Agreement
for the purposes, among others, of: (i) limiting the manner and terms by which
Common Stock may be transferred; and (ii) providing a mechanism for the purchase
and sale of Common Stock among the Shareholders.
C. The Company and the Shareholders desire to enter into this Agreement
knowing that it is in the Company's best interest and fair to each of the
Shareholders.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. NO ENCUMBRANCE. During the term of this Agreement, no Shareholder
shall pledge, hypothecate or otherwise encumber any Common Stock or contract to
pledge, hypothecate or encumber such shares. Any attempted pledge, hypothecation
or encumbrance of Common Stock by a Shareholder shall be void and of no force
and effect.
2. RESTRICTIONS ON TRANSFER OF COMMON STOCK.
(a) Transfer of Common Stock. No Shareholder shall sell, transfer,
assign, gift or otherwise dispose of (a "Transfer") any Common Stock or interest
therein, except pursuant to the provisions of this paragraph 2.
(b) Right of First Refusal.
(i) At least sixty (60) days prior to making any Transfer of
any Common Stock (the "Election Period"), a Shareholder desiring to
Transfer Common Stock (the "Transferring Shareholder") shall deliver a
written notice (the
<PAGE> 2
"Transfer Notice") to the Company and the other Shareholders (the
"Other Shareholders").
(ii) If the proposed Transfer is a sale or other assignment,
the Transfer Notice shall (1) disclose in reasonable detail the
proposed terms and conditions of the Transfer, including, but not
limited to, the proposed transferee, the consideration to be paid and
the method of payment for the Common Stock and (2) be accompanied by a
written bona fide offer from the proposed transferee.
(iii) If the proposed Transfer is a gift, the Transfer Notice
shall disclose in reasonable detail the proposed transferee and the
proposed terms and conditions of the Transfer.
(iv) Within thirty (30) days after the delivery of the Transfer
Notice (the "Company's Option Period"), the Company may elect to
purchase all or any portion of the Common Stock specified in the
Transfer Notice by delivering a written notice of election (an
"Election Notice") to the Transferring Shareholder and the Other
Shareholders. If the Company has not elected to purchase all of the
Common Stock specified in the Transfer Notice within such 30-day
period, each Other Shareholder may elect to purchase all or any portion
of the Common Stock specified in the Transfer Notice which the Company
has not elected to purchase by delivering an Election Notice to the
Transferring Shareholder as soon as practical, but in any event prior
to the expiration of the Election Period. If the Other Shareholders
have in the aggregate elected to purchase more than the number of
available shares, (1) the shares shall be allocated among the Other
Shareholders electing to purchase shares according to each such Other
Shareholder's Pro Rata Share (as defined below) and (2) each Other
Shareholder's Election Notice shall be deemed amended to reflect the
change in the amount of shares elected to be purchased. Each
Shareholders "Pro Rata Share" shall be the amount of shares of Common
Stock available multiplied by a factor with the numerator being the
number of shares the Other Shareholder elected to purchase and the
denominator being the total number of shares the Other Shareholders in
the aggregate elected to purchase.
(v) Subject to subparagraph (vii) below, if the Company and/or
any Other Shareholders (individually, an "Electing Party") elect to
purchase Common Stock from the Transferring Shareholder and the
proposed Transfer is a sale or other assignment: (1) each Electing
Party shall purchase that amount of Common Stock covered by such
Electing Party's Election Notice at the price, and on the terms
specified in the Transfer Notice and (2) the transfer of Common Stock
shall be consummated as soon as practical after delivery of Election
Notices which in the aggregate account for all of the Common Stock to
be Transferred, but in any event within thirty (30) days after the
expiration of the Election Period.
(vi) Subject to subparagraph (vii) below, if the Company and/or
any Other Shareholders elect to purchase Common Stock from the
Transferring Shareholder and the proposed Transfer is a gift: (1) each
Electing Party shall
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<PAGE> 3
purchase that amount of Common Stock covered by such Electing Party's
Election Notice at its Fair Market Value (as defined by paragraph 6
below) and on the following terms: 10% cash at time of closing, 90%
pursuant to a 5 year recourse promissory note, which shall provide that
principal shall be paid in five equal annual installments, along with
any and all interest accrued thereon, executed by the respective
Electing Party and Principal amounts outstanding under such note shall
accrue interest at the publicly announced prime rate of Norwest Bank
Denver, N.A., adjusted on the first day of each month; (2) for purposes
of paragraph 6, all Election Notices shall be deemed to have been
received by the Transferring Shareholder at that point in time where
Election Notices in the aggregate account for all of the Common Stock
to be Transferred, but in no case earlier than the expiration of the
Election Period; (3) if at the end of the Election Period the Electing
Parties have in the aggregate elected to purchase all of the Common
Stock which the Transferring Shareholder proposes to Transfer, the
Electing Parties shall then agree, for purposes of para-graph 6, on a
per share value of the Common Stock to be purchased and shall deliver,
within ten (10) days after the expiration of the Election Period, a
written notice to the Transferring Shareholder setting forth such per
share value, which written notice shall be the Purchasing Party's
Valuation for purposes of paragraph 6; (4) the purchase and sale of the
Common Stock covered by each Electing Shareholder's Election Notice
shall be closed within thirty (30) days after the determination of such
Common Stock's Fair Market Value.
(vii) If prior to the expiration of the Election Period, the
Electing Parties have not in the aggregate elected to purchase all of
the Common Stock which the Transferring Shareholder proposes to
Transfer or if the Electing Parties fail to give the Transferring
Shareholder written notice within the 10-day period set forth in
subparagraph (vi) above, if applicable, the Electing Parties will be
deemed to have waived their election rights and the Transferring
Shareholder may Transfer such Common Stock within ninety (90) days
after expiration of the Election Period, on the terms specified in the
Transfer Notice, subject to the provisions of paragraph 5 hereof. If a
Transfer of such Common Stock is not consummated within ninety (90)
days after expiration of the Election Period on the terms specified in
the Transfer Notice, such Common Stock shall again be subject to the
provisions of this paragraph 2.
3. PURCHASE OF SHAREHOLDER'S SHARES.
(a) Right to Purchase upon the Death or Disability of a
Shareholder. The Company shall have the right for a period of six (6) months
following a Shareholder's death or disability (within the meaning of Section
22(e)(3) of the Internal Revenue Code of 1986, as amended), to elect to purchase
all, but not less than all, of such Shareholder's Common Stock, on the terms
provided herein. Such Common Stock shall be purchased at its Fair Market Value
(as defined in paragraph 6 below) as of the date of death or disability. If the
Company elects to purchase Common Stock under this subparagraph 3(a), the
Company must deliver written notice to the personal representative of the
deceased Shareholder's estate or the disabled Shareholder (the
3
<PAGE> 4
"Selling Shareholder") within the 6-month period described above, notifying the
Selling Shareholder of the Company's intention to purchase the Common Stock,
which notice shall contain the Purchasing Party's Valuation required by
paragraph 6 below. The Selling Shareholder shall cooperate with the Company to
effectuate the purposes of this Agreement.
(b) Right to Purchase Upon Involuntary Transfers.
(i) If any Common Stock owned by a Shareholder shall be levied
upon, sequestered, administered by a receiver or a trustee in
bankruptcy, or transferred in any other involuntary transfer, or
otherwise transferred by operation of law, the Shareholder shall give
the Company prompt written notice of such occurrence.
(ii) The Company shall have, for a period of thirty (30) days
after receipt of the written notice, the right to elect to purchase all
(but not less than all) of such Shareholder's Common Stock at a
purchase price equal to the Fair Market Value (as defined in paragraph
6 below) of such Common Stock as of the date of the event giving rise
to the Company's rights under this subparagraph 3(b) and on the terms
provided herein. Such right shall apply even though the Common Stock
may actually have been sold at the time of exercise thereof. The
Company may exercise its right to purchase such Common Stock by giving
the Shareholder, bankruptcy trustee, or other individual or entity then
having legal title to the Common Stock (the "Title Holder") written
notice of its election to purchase such Common Stock. Any Common Stock
which the Company does not elect to purchase within the 30-day period
may be transferred by the Title Holder, subject to the provisions of
paragraph 5 hereof. Any Common Stock transferred and any subsequent
transferee shall continue to be subject to all of the provisions of
this Agreement, including this subparagraph 3(b).
(c) Right to Purchase Upon Termination of Employment. If any
Shareholder is or subsequently becomes an employee of the Company ("Employee
Shareholder"), upon termination of such employment with the Company for any
reason other than the death or disability of such Employee Shareholder, the
Company shall have the right for a period of twelve (12) months after the date
of termination of the Employee Shareholder's employment with the Company to
purchase all (but not less than all) of such Employee Shareholder's Common Stock
at a purchase price equal to the Fair Market Value (as defined in paragraph 6
below) of such Common Stock as of the date of termination of the Employee
Shareholder's employment with the Company. If the Company elects to purchase an
Employee Shareholder's Common Stock pursuant to this subparagraph 3(c), the
Company shall deliver written notice to the Employee Shareholder within the
12-month election period notifying the Employee Shareholder of the Company's
intention to purchase the Common Stock and setting forth the Purchasing Party's
Valuation required by paragraph 6. If the Company does not elect to purchase an
Employee Shareholder's Common Stock pursuant to this subparagraph 3(c), such
Common Stock shall continue to be subject to all of the provisions of this
Agreement,
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<PAGE> 5
including this subparagraph 3(c) if the Employee Shareholder is subsequently
reemployed by the Company.
(d) Purchase Terms.
(i) The purchase and sale of Common Stock under this paragraph
3 shall be closed within thirty (30) days after the determination of
such Common Stock's Fair Market Value.
(ii) Payment for the Common Stock purchased under this
paragraph 3 shall be made as follows: 10% cash at time of closing, 90%
pursuant to a five (5) year note, which shall provide that principal
shall be paid in five equal annual installments, along with any and all
interest accrued thereon, executed by the Company. Principal amounts
outstanding under such note shall accrue interest at the publicly
announced prime rate of Norwest Bank Denver, N.A., adjusted on the
first day of each month.
4. LEGEND. Each certificate evidencing Common Stock and each
certificate issued in exchange for or upon the transfer of any Common Stock (if
such shares remain subject to this Agreement) shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The securities represented by this certificate are subject to a
Shareholders Agreement dated as of January 1, 1994, among the issuer of such
securities (the "Company") and all of the Company's shareholders. A copy of such
Shareholders Agreement will be furnished without charge by the Company to the
holder hereof upon written request."
5. TRANSFER. Prior to transferring any Common Stock to any person or
entity, the transferring Shareholder shall cause the prospective transferee to
execute and deliver to the Company and the other Shareholders a counterpart of
this Agreement.
6. DEFINITION OF FAIR MARKET VALUE. "Fair Market Value" shall mean the
value assigned by the following process to a Shareholder's Common Stock:
(a) Where the Company and/or Other Shareholders (individually, a
"Purchasing Party") elect to purchase Common Stock under subparagraphs
2(b)(vi), 3(a), 3(b) or 3(c), each Purchasing Party shall include in
its required written notice (the "Purchase Notice") the Purchasing
Party's determination of the fair market value of the Common Stock
elected or required to be purchased (the "Purchasing Party's
Valuation").
(b) If the Transferring Shareholder, Selling Shareholder, Employee
Shareholder or Title Holder (the "Selling Party") accepts a Purchasing
Party's Valuation or fails to either (1) object to such value within
the 10-day period set forth below or (2) deliver the Selling Party's
Valuation (as defined below) to each Purchasing Party within the 30-day
period set forth below, the Purchasing Party's Valuation shall be
deemed to be the "Fair Market Value" for purposes of the applicable
transaction.
5
<PAGE> 6
(c) If the Selling Party disagrees with a Purchasing Party's
Valuation, such Selling Party shall deliver a written notice of
objection to the Purchasing Party within ten (10) days after the date
of delivery of the Purchasing Party's Valuation to the Selling Party
and shall, within thirty (30) days after delivery of such Purchasing
Party's Valuation, deliver to the Purchasing Party written notice of
the Selling Party's determination of the fair market value of the
Common Stock covered by the Purchase Notice (the "Selling Party's
Valuation"). If the Purchasing Party accepts the Selling Party's
Valuation, fails to deliver written notice of objection to such value
to the Selling Party within the required 10-day period or fails to
contact JAG (as defined below) within the required 10-day period set
forth in subparagraph (iv) below, the Selling Party's Valuation shall
be deemed to be the "Fair Market Value" for purposes of the applicable
transaction.
(d) If the Purchasing Party disagrees with the Selling Party's
Valuation, the Purchasing Party shall give the Selling Party written
notice of objection within ten (10) days after the date the Selling
Party's Valuation is delivered to the Purchasing Party. Within ten (10)
days after delivery of the notice of objection to the Selling Party's
Valuation, the Purchasing Party shall ask the Judicial Arbiter Group,
Inc. of Denver, Colorado ("JAG") to select a certified public
accountant or an investment banker practicing in Colorado who has
experience in valuing health care companies similar to the Company (the
"Appraiser"). The Appraiser shall determine, in his opinion, the fair
market value of the Common Stock (the "Appraised Value"). The "Fair
Market Value" for the applicable transaction shall then be deemed to be
either the Purchasing Party's Valuation or the Selling Party's
Valuation, whichever is closest to the Appraised Value. The decision of
the Appraiser shall be binding upon the Purchasing Party and the
Selling Party who shall each pay one-half (1/2) of the cost of the fees
charged by JAG and the Appraiser.
7. TRANSFERS IN VIOLATION OF AGREEMENT. Any transfer or attempted
transfer of any Common Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such transfer on its books or
treat any purported transferee of such Common Stock as the owner of such shares
for any purpose.
8. TERM. This Agreement shall terminate upon the occurrence of any of
the following events:
(a) Cessation of the Company's business;
(b) The bankruptcy, receivership or dissolution of the Company;
(c) Written agreement of Shareholders holding fifty-one (51%) of
the issued and outstanding Common Stock;
(d) At such time as all of the issued and outstanding Common Stock
of the Company shall be owned by one person;
(e) The simultaneous death of the Shareholders; or
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<PAGE> 7
(f) The date a registration statement for the sale, in an
underwritten public offering registered under the Securities Act of
1933, as amended, of capital stock of the Company is declared effective
by the Securities and Exchange Commission.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein,
no modification, amendment or waiver of any provisions of this Agreement shall
be effective against the Company or the Shareholders unless such modification,
amendment or waiver is approved in writing by the Company and the Shareholders.
The failure of any party to enforce any of the provisions of this Agreement
shall in no way be construed as a waiver of such provisions and shall not affect
the right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
10. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality, or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
11. ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
12. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and the Shareholders and any
subsequent holders of Common Stock and the respective successors and assigns of
each of them, so long as they hold Common Stock.
13. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
14. REMEDIES. The parties hereto agree and acknowledge that
money damages may not be an adequate remedy for any breach of the provisions of
this Agreement and that the Company and any Shareholder may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of this
Agreement, in addition to seeking damages for breach of this Agreement.
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<PAGE> 8
15. NOTICES. Any notice provided for in this Agreement shall
be in writing and shall be either personally delivered, or mailed first class
mail (postage prepaid) or sent by reputable overnight courier service (charge
prepaid) to the Company at the address set forth below and to any other
recipient at such address as indicated by the Company's records, or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party. Notices will be deemed to have been
delivered hereunder when delivered personally, three (3) days after deposit in
the U.S. mail and one (1) day after deposit with a reputable overnight courier
service. The Company's address is:
333 West Hampden Avenue, Suite 200
Englewood, Colorado 80110
16. GOVERNING LAW. This Agreement and the rights of the
parties hereto shall be governed by and construed and enforced in accordance
with the laws of the State of Colorado.
17. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
18. GENDER. Whenever applicable, the pronouns designating the
"masculine" or the "neuter" shall equally apply to "feminine," "neuter" and
"masculine" genders. Furthermore, whenever applicable in this Agreement, the
"singular" shall include the "plural" and the reverse.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written, or if subsequent to such
date, the date indicated below such parties' signature.
"COMPANY"
GERIMED OF AMERICA, INC.,
a Colorado corporation
By:
-----------------------------------------
James F. Riopelle, President
Date:
---------------------------------------
"SHAREHOLDER"
--------------------------------------------
Date:
---------------------------------------
8
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Faegre & Benson LLP]
March 31, 2000
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: GeriMed of America, Inc.
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to GeriMed of America, Inc. (the "Company"), in
connection with the proposed sale of up to 7,759,335 shares of the Company's
Common Stock (the "Shares") pursuant to the Company's Registration Statement on
Form S-1 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of Item
16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate proceedings
taken by the Company in connection with the issuance and sale of the Shares.
Based on such review, we are of the opinion that the Shares have been duly
authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will upon such issuance and sale, be legally issued, fully
paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE> 2
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
/s/ FAEGRE & BENSON LLP
2
<PAGE> 1
EXHIBIT 10.1
GERIMED OF AMERICA, INC.
STOCK OPTION PLAN
1. PURPOSE.
This GeriMed of America, Inc. Stock Option Plan ("Plan"), provides for
the grant of Stock Options, Reload Options and Stock Appreciation Rights to Key
Employees of GeriMed of America, Inc. (the "Company"), and such of its
subsidiaries (as defined in Section 424(f) of the Code) as the Board of
Directors of the Company (the "Board") shall from time to time designate
("Participating Subsidiaries"), in order to advance the interests of the Company
and its Participating Subsidiaries, if any, through the motivation, attraction
and retention of their respective Key Employees.
2. INCENTIVE STOCK OPTIONS AND NON-INCENTIVE STOCK OPTIONS.
The Stock Options granted under this Plan may be either Incentive Stock
Options ("ISOs") which are intended to be "Incentive Stock Options" as that term
is defined in Section 422 of the Code; or Nonstatutory Stock Options ("NSOs")
which are intended to be options that do not qualify as "Incentive Stock
Options" under Section 422 of the Code. All Stock Options shall be ISOs unless
the Option Agreement clearly designates the Stock Options granted thereunder, or
a specified portion thereof, as NSOs. Subject to the other provisions of this
Plan, a Participant may receive ISOs and NSOs at the same time, provided that
the ISOs and NSOs are clearly designated as such.
3. ADMINISTRATION.
3.1 Committee. With respect to grants of Stock Options, Reload Options
and Stock Appreciation Rights to Key Employees other than officers and
directors of the Company, this Plan shall be administered by a committee
composed of at least two members of the Board, unless the Board is comprised of
only one director, in which case this Plan will be administered by the Board
(the "Committee"). With respect to grants of Stock Options, Reload Options and
Stock Appreciation Rights to Key Employees who are officers or directors of the
Company, this Plan shall be administered by the Board, if each director is a
Disinterested Person, or by a special committee of two or more Disinterested
Persons. Such special committee may be the Committee if all of the members
thereof are Disinterested Persons, or a separate committee appointed by the
Board composed of at least two Disinterested Persons. The Committee or the
Board, as the case may be, shall have full authority to administer this Plan,
including, but not limited to, authority to interpret and construe any provision
of this Plan and any Stock Option, Reload Option or Stock Appreciation Right
granted hereunder, to adopt such rules and regulations for administering this
Plan as it may deem necessary in order to comply with the requirements of this
Plan or the Code or in order that Stock Options that are intended to be ISOs
will be classified as incentive stock options under the Code, or in order to
conform to any regulation or to any change in any law or regulations applicable
thereto and to take the actions permitted hereunder. The Committee or the Board
may delegate any of its responsibilities under this Plan, other than its
responsibility to make grants of Stock Options, Reload Options and Stock
Appreciation Rights, to determine whether the Stock Appreciation Rights, if any,
payable to a Participant shall be paid in cash, in shares of Common Stock or a
combination thereof, or to
<PAGE> 2
interpret and construe this Plan. If the Board is composed entirely of
Disinterested Persons, the Board may reserve to itself any of the authority
granted to the Committee as set forth herein, and it may perform and discharge
all of the functions and responsibilities of the Committee at any time that a
duly constituted Committee is not appointed and serving. All references in this
Plan to the "Committee" shall be deemed to refer to the Board whenever the Board
is discharging the powers and responsibilities of the Committee, and to any
special committee appointed by the Board to administer particular aspects of
this Plan.
3.2 Actions of Committee. All actions taken and all interpretations and
determinations made by the Committee in good faith (including determinations of
Fair Market Value) shall be final and binding upon all Participants, the Company
and all other interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan, and all members of the Committee shall, in addition to
their rights as directors, be fully indemnified by the Company with respect to
any such action, determination or interpretation.
4. DEFINITIONS.
4.1 "Code". The Code is the Internal Revenue Code of 1986, as amended.
4.2 "Class A Common Stock". A share of Class A Common Stock means a
share of $.01 par value Class A common stock of the Company.
4.3 "Disinterested Person". A Disinterested Person is a director of the
Company who, during the shorter of (a) the one-year period prior to service as
an administrator of this Plan, or (b) the period between the date on which
capital stock of the Company is registered pursuant to Section 12 of the
Securities and Exchange Act of 1934, as amended (the "1934 Act") and the
director's service as an administrator of this Plan, has not been granted or
awarded equity securities pursuant to this Plan or any other plan of the Company
or any of its affiliates except as may be permitted by Rule 16b-3(c)(2)
promulgated under the 1934 Act or any successor to such rule.
4.4 "Fair Market Value". If the Class A Common Stock is not traded
publicly, the Fair Market Value of a share of Class A Common Stock on any date
shall be determined, in good faith, by the Committee after such consultation
with outside legal, accounting or other experts as the Committee may deem
advisable, and the Committee shall maintain a written record of its method of
determining such value. If the Class A Common Stock is traded publicly, the Fair
Market Value of a share of Class A Common Stock on any date shall be the average
of the representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers through NASDAQ (its automated system for
reporting quotes), for the date in question or, if the Class A Common Stock is
listed on the NASDAQ National Market System or is listed on a national stock
exchange, the official quoted closing price on NASDAQ or such exchange, as the
case may be, on the date in question.
4.5 "Key Employee". A Key Employee is an employee of the Company or a
Participating Subsidiary, if any, whose judgment, initiative and continued
efforts are expected to contribute to the successful conduct of the business of
the Company, as determined by the Committee, in its sole discretion.
<PAGE> 3
4.6 "Option Agreement". An Option Agreement is a written agreement
evidencing a Stock Option.
4.7 "Option Price". An Option Price is the price which the Committee
designates for the exercise of a Stock Option.
4.8 "Participant". A Participant is a Key Employee to whom a Stock
Option, Reload Option and/or Stock Appreciation Right is granted.
4.9 "Redemption Value". The Redemption Value of shares of Class A
Common Stock purchasable under a Stock Option shall be the amount, if any, by
which the Fair Market Value of one share of Class A Common Stock on the date on
which the Stock Option is exercised exceeds the Option Price for such share.
4.10 "Reload Option". A Reload Option is a Stock Option granted under
and subject to the terms of Section 8 of this Plan.
4.11 "Stock Appreciation Right". A Stock Appreciation Right is the
right to receive payment, in shares of Class A Common Stock, cash or a
combination of shares of Class A Common Stock and cash, of the Redemption Value
of a specified number of shares of Class A Common Stock then purchasable under
the Stock Option.
4.12 "Stock Option". A Stock Option is the right granted under this
Plan to a Key Employee to purchase, at such time or times and at such Option
Price as are determined by the Committee and specified in the Option Agreement,
the number of shares of Class A Common Stock determined by the Committee and
specified in the Option Agreement.
5. ELIGIBILITY AND PARTICIPATION.
Grants of Stock Options, Reload Options and Stock Appreciation Rights
may be made to Key Employees of the Company or any Participating Subsidiary, if
any. Any director of the Company or of a Participating Subsidiary who is also a
Key Employee shall also be eligible to receive Stock Options, Reload Options and
Stock Appreciation Rights, provided, however, members of the Committee and
directors who are not Key Employees shall not be eligible to receive Stock
Options, Reload Options or Stock Appreciation Rights under this Plan. The
Committee shall from time to time determine the Key Employees to whom Stock
Options shall be granted, the number of shares of Class A Common Stock subject
to the Stock Options to be granted to each such Key Employee, the Option Price
of such Stock Options, and the terms and provisions of such Stock Options, all
as provided in this Plan. The Option Price of any ISO shall be not less than the
Fair Market Value of a share of Class A Common Stock on the date on which the
Stock Option is granted, but the Option Price of an NSO may be less than the
Fair Market Value on the date the NSO is granted if the Committee so determines.
If an ISO is granted to a Key Employee who then owns stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
any subsidiary corporation of the Company, the Option Price of such ISO shall be
at least 110% of the Fair Market Value of the Class A Common Stock subject to
the ISO at the time such ISO is granted, and such ISO shall not be exercisable
after five years after the date on which it was granted. Each Stock
<PAGE> 4
Option shall be evidenced by an Option Agreement containing such terms and
provisions as the Committee may determine, subject to the provisions of this
Plan.
6. SHARES OF CLASS A COMMON STOCK SUBJECT TO THIS PLAN.
6.1 Maximum Number. The maximum aggregate number of shares of Class A
Common Stock that may be made subject to Stock Options granted under this Plan
shall be 600,000 authorized but unissued shares. The aggregate Fair Market Value
(determined as of the time the ISO is granted) of the Class A Common Stock
subject to ISOs granted to a Participant which may first become exercisable in a
particular calendar year may not exceed $100,000. If any shares of Class A
Common Stock subject to Stock Options are not purchased or otherwise paid for
before such Stock Options expire, such shares may again be made subject to Stock
Options.
6.2 Capital Changes. Except as otherwise provided by and subject to
Section 13 hereof, in the event any changes are made to the shares of Class A
Common Stock (whether by reason of merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, change in corporate structure or otherwise), proportionate
adjustments shall be made in: (i) the number of shares of Class A Common Stock
theretofore made subject to Stock Options; (ii) the purchase price of shares of
Class A Common Stock theretofore made subject to Stock Options; and (iii) the
aggregate number of shares of Class A Common Stock which may be made subject to
Stock Options. If any of the foregoing adjustments shall result in a fractional
share, the fraction shall be disregarded, and the Company shall have no
obligation to make any cash or other payment with respect to such fractional
share.
7. EXERCISE OF STOCK OPTIONS.
7.1 Time of Exercise. Subject to the provisions of this Plan, the
Committee, in its discretion, shall determine the time when a Stock Option, or a
portion of a Stock Option, shall become exercisable, and the time when a Stock
Option, or a portion of a Stock Option, shall expire. Such time or times shall
be set forth in the Option Agreement evidencing such Stock Option. A Stock
Option shall expire, to the extent not exercised, no later than the tenth
anniversary of the date on which it was granted. The Committee may accelerate
the vesting of any Participant's Stock Option by giving written notice to the
Participant. Upon receipt of such notice, the Participant and the Company shall
amend the Option Agreement to reflect the new vesting schedule, if, however, the
Option Agreement is not amended, the notice given by the Committee shall be
deemed to amend the Option Agreement with respect to the vesting schedule. The
acceleration of the exercise period of a Stock Option shall not affect the
expiration date of that Stock Option. Any shares of Class A Common Stock not
purchased at the time a Stock Option first becomes exercisable shall remain
purchasable at any time until the Stock Option expires.
7.2 Exchange of Outstanding Stock. The Committee, in its sole
discretion, may permit a Participant to surrender to the Company shares of Class
A Common Stock previously acquired by the Participant as part or full payment
for the exercise of a Stock Option. Such surrendered shares of Class A Common
Stock shall be valued at their Fair Market Value on the date of exercise. A
Participant may not surrender shares of Class A Common Stock having a Fair
Market Value in excess of the aggregate purchase price of the shares of Class A
<PAGE> 5
Common Stock purchased upon exercise of a Stock Option. Shares of Class A Common
Stock surrendered to the Company under this Section 7.2 shall not thereafter be
included in the shares of Class A Common Stock available under Section 6.1.
7.3 Termination of Employment Before Exercise. If a Participant's
employment with the Company or a Participating Subsidiary, if any, shall
terminate by reason of the Participant's death or disability within the meaning
of Section 22(e)(3) of the Code, any Stock Options then held by the Participant,
to the extent then exercisable under the applicable Option Agreement(s), shall
remain exercisable after the termination of his employment for a period of
twelve months (but in no event beyond ten years from the date of grant of the
Stock Option). If a Participant's employment with the Company or a Participating
Subsidiary, if any, shall terminate for any reason other than the Participant's
death or disability, any Stock Options then held by the Participant, to the
extent then exercisable under the applicable Option Agreement(s), shall remain
exercisable after the termination of his or her employment for a period of three
months. If the Stock Option is not exercised during the applicable period, it
shall be deemed to have been forfeited and of no further force or effect.
7.4 Disposition of Forfeited Stock Options. Any shares of Class A
Common Stock subject to Stock Options forfeited by a Participant under this Plan
shall not thereafter be eligible for purchase by the Participant, but may be
made subject to Stock Options granted to other Participants.
8. RELOAD OPTIONS.
8.1 Authorization of Reload Options. Concurrently with the award of
Stock Options to any Participant, the Committee may authorize Reload Options to
purchase, for cash or shares of Class A Common Stock, a number of shares of
Class A Common Stock. The number of Reload Options shall equal:
the number of shares of Class A Common Stock used to
exercise the underlying Stock Options; and
to the extent authorized by the Committee, the number of
shares of Class A Common Stock used to satisfy any tax
withholding requirement incident to the exercise of the
underlying Stock Options. The grant of a Reload Option will
become effective upon the exercise of underlying Stock Options or
Reload Options through the use of shares of Class A Common Stock
held by the Participant for at least twelve months.
Notwithstanding the fact that the underlying Stock Option may be
an Incentive Stock Option, a Reload Option is not intended to
qualify as an "incentive stock option" under Section 422 of the
Code.
8.2 Reload Option Amendment. Each Option Agreement shall state whether
the Committee has authorized Reload Options with respect to the underlying Stock
Options. Upon the exercise of an underlying Stock Option or other Reload Option,
the Reload Option will be evidenced by an amendment to the underlying Option
Agreement.
8.3 Reload Option Price. The Option Price per share of Class A Common
Stock deliverable upon the exercise of a Reload Option shall be the Fair Market
Value
<PAGE> 6
of a share of Class A Common Stock on the date the grant of the Reload Option
becomes effective.
8.4 Term and Exercise. Each Reload Option shall be fully exercisable
six months from the date the grant of the Reload Option becomes effective. The
term of each Reload Option shall be equal to the remaining option term of the
underlying Stock Option.
8.5 Termination of Employment. No additional Reload Options shall be
granted to Participants when Stock Options and/or Reload Options are exercised
pursuant to the terms of this Plan following termination of the Participant's
employment with the Company or a Participating Subsidiary.
8.6 Applicability of Stock Option Sections. Section 7 of this Plan
shall apply equally to Reload Options. Section 7 of this Plan is incorporated by
reference in this Section 8 as though fully set forth herein.
9. STOCK APPRECIATION RIGHTS.
9.1 Grant of Stock Appreciation Rights. The Committee may, from time to
time, grant Stock Appreciation Rights to a Participant with respect to not more
than the number of shares of Class A Common Stock which are, or may become,
purchasable under the Stock Options held by the Participant. The Committee may,
in its sole discretion, specify the terms and conditions of such rights,
including without limitation the time period or time periods during which such
rights may be exercised and the date or dates upon which such rights shall
expire and become void and unexercisable; provided, however, that in no event
shall such rights expire and become void and unexercisable later than the time
when the related Stock Option is exercised, expires or terminates. Each Option
Agreement shall state whether the Committee has granted Stock Appreciation
Rights and shall specify the terms and conditions of such rights, which shall be
subject to all the provisions of this Plan.
9.2 Exercise of Stock Appreciation Rights. Subject to Section 9.3, and
in lieu of purchasing shares of Class A Common Stock upon the exercise of a
Stock Option held by him, a Participant may elect to exercise the Stock
Appreciation Rights, if any, he has been granted and receive payment of the
Redemption Value of all, or any portion, of the number of shares of Class A
Common Stock subject to such Stock Option with respect to which he has been
granted Stock Appreciation Rights; provided, however, that the Stock
Appreciation Rights may be exercised only when the Fair Market Value of the
shares of Class A Common Stock subject to such Stock Option exceeds the exercise
price of the Stock Option. A Participant shall exercise Stock Appreciation
Rights by delivering a written notice to the Committee specifying the number of
shares of Class A Common Stock with respect to which he exercises Stock
Appreciation Rights and agreeing to surrender the right to purchase an
equivalent number of shares of Class A Common Stock subject to his Stock Option.
If a Participant exercises Stock Appreciation Rights, payment of his Stock
Appreciation Rights shall be made in accordance with Section 9.3 on or before
the 90th day after the date of exercise of the Stock Appreciation Rights.
9.3 Form of Payment. If a Participant elects to exercise Stock
Appreciation Rights as provided in Section 9.2, the Committee may, in its
absolute discretion, elect to pay any part or all of the Redemption Value of the
shares with respect to which the Participant has exercised Stock Appreciation
Rights in: (i) cash; (ii) shares of Class A Common
<PAGE> 7
Stock; or (iii) any combination of cash and shares of Class A Common Stock. The
Committee's election pursuant to this Section 9.3 shall be made by giving
written notice to the Participant within 90 days after the date of exercise of
the Stock Appreciation Rights, which notice shall specify the portion which the
Committee elects to pay in cash, shares of Class A Common Stock or a combination
thereof. In the event any portion is to be paid in shares of Class A Common
Stock, the number of shares of Class A Common Stock to be delivered shall be
determined by dividing the amount which the Committee elects to pay in shares of
Class A Common Stock by the Fair Market Value of one share of Class A Common
Stock on the date of exercise of the Stock Appreciation Rights. Any fractional
share resulting from any such calculation shall be disregarded. The shares of
Class A Common Stock, together with any cash payable to the Participant, shall
be delivered within the 90-day period required above.
10. NO CONTRACT OF EMPLOYMENT.
Nothing in this Plan shall confer upon the Participant the right to
continue in the employ of the Company, or any Participating Subsidiary, if any,
nor shall it interfere in any way with the right of the Company, or any
Participating Subsidiary, if any, to discharge the Participant at any time for
any reason whatsoever, with or without cause. Nothing in this Section 10 shall
affect any rights or obligations of the Company or any Participant under any
written contract of employment.
11. NO RIGHTS AS A SHAREHOLDER.
A Participant shall have no rights as a shareholder with respect to any
shares of Class A Common Stock subject to a Stock Option granted under this
Plan. Except as provided in Section 6.2, no adjustments shall be made in the
number of shares of Class A Common Stock issued to a Participant, or in any
other rights of the Participant upon exercise of a Stock Option, by reason of
any dividend, distribution or other right granted to shareholders for which the
record date is prior to the date of exercise of the Participant's Stock Option.
12. ASSIGNABILITY.
No Stock Option, Reload Option or Stock Appreciation Right awarded
under this Plan, nor any other rights acquired by a Participant under this Plan,
shall be assignable or transferable by a Participant, other than by will or
applicable laws of intestate succession. During a Participant's lifetime, Stock
Options may be exercised only by such Participant or the guardian or legal
representative of the Participant. Notwithstanding the foregoing, the Committee
may, in its sole discretion, permit the assignment or transfer of an NSO by a
Participant, other than an officer or director, and the exercise thereof by a
person other than such Participant, on such terms and conditions as the
Committee in its sole discretion, may determine. Any such terms shall be
determined at the time the NSO is granted, and shall be set forth in the Option
Agreement. In the event of a Participant's death, the Stock Option or any Reload
Option or Stock Appreciation Right may be exercised by the personal
representative of the Participant's estate or, if no personal representative has
been appointed, by the successor or successors in interest determined under the
Participant's will or under the applicable laws of intestate succession.
<PAGE> 8
13. TERMINATION OF PLAN.
In the event of dissolution or liquidation of the Company, or upon any
reorganization, merger or consolidation of the Company with one or more
corporations where the Company is the surviving corporation and the shareholders
of the Company immediately prior to such transaction do not own at least fifty
percent (50%) of the issued and outstanding Class A Common Stock immediately
after such transaction, or upon any reorganization, merger or consolidation of
the Company with one or more corporations where the Company is not the surviving
corporation, or upon a sale of substantially all of the assets of the Company to
another corporation or entity or upon the sale of Class A Common Stock to
another person or entity in one or a series of transactions with the result that
such person or entity owns more than fifty percent (50%) of the issued and
outstanding Class A Common Stock immediately after such sale(s), the Plan and
all Stock Options and Reload Options and Stock Appreciation Rights, if any,
outstanding under the Plan shall terminate on the effective date of the
transaction (or, in the event of a tender offer resulting in the sale of fifty
percent (50%) or more of the then outstanding Class A Common Stock (a "Tender
Offer"), 30 days after the final expiration of the Tender Offer) unless prior to
the effective date of the transaction the Board elects, in its sole discretion,
to continue the Plan. In the event the Board does not elect to continue the
Plan, however, any Stock Options, Reload Options and Stock Appreciation Rights,
theretofore granted and outstanding under the Plan shall become immediately
exercisable in full at such time as the approval of the transaction by the
Board, or the final expiration of any Tender Offer (notwithstanding any
performance, vesting or other criteria contained therein), and shall remain
exercisable until the effective date of such transaction or 30 days after the
final expiration of the Tender Offer, whichever is applicable (unless the Stock
Option, Reload Option or Stock Appreciation Right would otherwise expire by its
own terms on an earlier date). The Company shall give each optionee written
notice at least 30 days prior to the effective date of any termination of the
Plan as a result of a transaction described above in order to permit the
optionee to exercise his Stock Options and/or Reload Options and Stock
Appreciation Rights, if any, prior to the effective date of termination. Unless
the Board has elected to continue the Plan, any option not exercised by the
effective date of a transaction described above shall terminate on such date.
14. WITHHOLDING TAXES.
The Company or Participating Subsidiary, if any, may take such steps as
it may deem necessary or appropriate for the withholding of any taxes which the
Company or the Participating Subsidiary, if any, is required by any law or
regulation or any governmental authority, whether federal, state or local,
domestic or foreign, to withhold in connection with any Stock Option, Reload
Option or Stock Appreciation Right, including, but not limited to, the
withholding of all or any portion of any payment or the withholding of issuance
of shares of Class A Common Stock to be issued upon the exercise of any Stock
Option, Reload Option or Stock Appreciation Right, until the Participant
reimburses the Company or Participating Subsidiary, if any, for the amount the
Company or Participating Subsidiary, if any, is required to withhold with
respect to such taxes, or cancelling any portion of such award in an amount
sufficient to reimburse itself for the amount it is required to so withhold.
15. AMENDMENT.
The Board may from time to time alter, amend, suspend or discontinue
this Plan, including, where applicable, any modifications or amendments as it
shall deem advisable in order that ISOs will be classified as incentive stock
options under the Code, or in
<PAGE> 9
order to conform to any regulation or to any change in any law or regulations
applicable thereto; provided, however, that no such action shall adversely
affect the rights and obligations with respect to Stock Options at any time
outstanding under this Plan; and provided further that no such action shall,
without the approval of the shareholders of the Company, (i) increase the
maximum number of shares of the Class A Common Stock that may be made subject to
Stock Options (unless necessary to effect the adjustments required by Section
6.2), (ii) materially increase the benefits accruing to Participants under this
Plan, or (iii) materially modify the requirements as to eligibility for
participation in this Plan.
16. APPLICATION OF SECTION 16.
With respect to persons subject to Section 16 of the 1934 Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any
provision of this Plan or action by the Committee fails to so comply, it shall
be deemed null and void, to the extent permitted by law and deemed advisable by
the Committee.
17. REGISTRATION OF OPTIONED SHARES.
The Stock Options shall not be exercisable unless the purchase of such
optioned shares is pursuant to an applicable effective registration statement
under the Securities Act of 1933, as amended (the "Act"), or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned shares
would be exempt from the registration requirements of the Act, and from the
registration or qualification requirements of applicable state securities laws.
The Company shall have no obligation to register any shares of Class A Common
Stock.
18. STOCK RESTRICTIONS.
The Committee may provide that shares of Class A Common Stock issuable
upon the exercise of a Stock Option, Reload Option or Stock Appreciation Right,
be subject to various restrictions, including restrictions which provide that
the Company has a right to prohibit sales of such shares of Class A Common
Stock, a right of first refusal with respect to such shares of Class A Common
Stock or a right or obligation to repurchase all or a portion of such shares of
Class A Common Stock, which restrictions may survive a Participant's term of
employment with the Company. The acceleration of time or times at which the
Stock Option becomes exercisable may be conditioned upon the Participant's
agreement to such restrictions.
19. NONEXCLUSIVITY OF THIS PLAN.
Neither the adoption of this Plan by the Board nor the submission of
this Plan to shareholders of the Company for approval shall be construed as
creating any limitations on the power or authority of the Board to adopt such
other or additional incentive or other compensation arrangements of whatever
nature as the Board may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or group
of employees, which the Company or any Participating Subsidiary, if any, has
lawfully put into effect, including, without limitation, any retirement,
pension, savings and stock purchase plan, insurance, death and disability
benefits and executive short-term incentive plans.
<PAGE> 10
20. EFFECTIVE DATE.
This Plan was adopted by the Board and became effective on December __,
1993, and was approved by the Company's sole shareholder on December __, 1993.
No ISOs shall be granted under this Plan subsequent to 10 years after its
original effective date, although NSOs may continue to be granted under this
Plan after such ten-year period. ISOs outstanding subsequent to ten years after
the original effective date of this Plan shall continue to be governed by the
provisions of this Plan.
<PAGE> 11
FIRST AMENDMENT TO GERIMED OF AMERICA, INC.
STOCK OPTION PLAN
This First Amendment to GeriMed of America, Inc. Stock Option Plan (this
"Amendment") is adopted this 27th day of June, 1995, by the Board of Directors
of GeriMed of America, Inc., a Colorado corporation (the "Company").
RECITALS
A. The Board of Directors of the Company adopted that certain Stock
Option Plan (the "Plan") effective December 28, 1993.
B. Under Section 15 of the Plan, the Board of Directors of the Company,
with the approval of the voting shareholders of the Company, may at any time
terminate the Plan or make such amendments thereto, as it shall deem advisable
and in the best interest of the Company.
AMENDMENT
1. The first sentence of Section 6.1 of the Plan is hereby deleted in
its entirety and the following sentence is inserted in lieu thereof:
6.1 Maximum Number. The maximum aggregate number of
shares of Class A Common Stock that may be made
subject to Stock Options granted under this Plan
shall be 1,100,000 authorized but unissued shares.
2. This Amendment shall not be effective unless it is approved by a
vote of the shareholders of a majority of the issued and outstanding Voting
Common Stock of the Company once it is approved by the Board of Directors of the
Company.
This Amendment was adopted and approved by the Board of Directors of
the Company by unanimous written consent in lieu of special meeting effective
June 27, 1995.
/s/ JAMES M. GRAHAM
------------------------------------
James M. Graham, Secretary
<PAGE> 12
SECOND AMENDMENT TO GERIMED OF AMERICA, INC.
STOCK OPTION PLAN
THIS SECOND AMENDMENT TO GERIMED OF AMERICA, INC. STOCK OPTION PLAN
(this "Amendment") is adopted this 22nd day of February, 1996 by the Board of
Directors of GeriMed of America, Inc., a Colorado corporation (the "Company).
RECITALS
A. The Board of Directors of the Company (the "Board") on December 28,
1993 adopted, with subsequent shareholder approval, the GeriMed of America, Inc.
Stock Option Plan and on June 27, 1995 adopted, with subsequent approval, the
First Amendment to GeriMed of America, Inc. Stock Option Plan (collectively, the
"Plan").
B. Under Section 15 of the Plan, the Board of Directors of the Company,
with the approval of the voting shareholders of the Company, may at any time
terminate the Plan or make such amendments thereto, as it shall deem advisable
and in the best interest of the Company.
C. The Board of Directors of the Company has determined that it is in
the best interest of the Company to amend the Plan as more fully set forth
below.
AMENDMENT
NOW, THEREFORE, Section 13 of the Plan is hereby amended by deleting
all references to "Class A Common Stock" and substituting in lieu thereof
"voting common stock."
THIS AMENDMENT was adopted and approved by the Board of Directors and
the shareholders of the Company, each by unanimous written consent in lieu of
special meeting effective February 22, 1996.
/s/ James F. Riopelle
---------------------------------
James F. Riopelle, President
<PAGE> 1
EXHIBIT 10.2
BUSINESS LOAN AGREEMENT
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<S> <C>
Borrower: Gerimed of America, Inc. (TIN: 84-1244056) Lender: Citywide Banks
James F. Riopelle PO Box 128
333 W. Hampden Ave. #200 Aurora, CO 80040-0128
Englewood, CO 80110 (303) 365-3600
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THIS BUSINESS LOAN AGREEMENT DATED MARCH 3, 2000, IS MADE AND EXECUTED BETWEEN
GERIMED OF AMERICA, INC.; AND JAMES F. RIOPELLE ("BORROWER") AND CITYWIDE BANKS
("LENDER") ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR
COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR
LOANS OR OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED
ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT ("LOAN"). BORROWER
UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN,
LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS AS
SET FORTH IN THIS AGREEMENT, AND (B) ALL SUCH LOANS SHALL BE AND REMAIN SUBJECT
TO THE TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of March 3, 2000, and shall continue
in full force and effect until such time as all of Borrower's Loans in favor of
Lender have been paid in full, in principal, interest, costs, expenses,
attorneys' fees, and other fees and charges, or until June 1, 2000.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. The above is an accurate and
complete list of all locations at which Borrower keeps or maintains
business records concerning Borrower's collateral.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of in
form and substance satisfactory to the Lender. Thereafter supplemental
schedules shall be delivered according to the following schedule:
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender the following documents
for the Loan: (1) the Note; (2) together with all such Related Documents as
Lender may require for the Loan; all in form and substance satisfactory to
Lender and Lender's counsel.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement
or under any Related Document.
MULTIPLE BORROWERS. This Agreement has been executed by multiple obligors who
are referred to in this Agreement individually, collectively and interchangeably
as "Borrower." Unless specifically stated to the contrary, the word "Borrower"
as used in this Agreement, including without limitation all representations,
warranties and covenants, shall include all Borrowers. Borrower understands and
agrees that, with or without notice to any one Borrower, Lender may (A) make one
or more additional secured or unsecured loans or otherwise extend additional
credit with respect to any other Borrower; (B) with respect to any other
Borrower alter, compromise, renew, extend, accelerate, or otherwise change one
or more times the time for payment or other terms of any indebtedness, including
increases and decreases of the rate of interest on the indebtedness; (C)
exchange, enforce, waive, subordinate, fail or decide not to perfect, and
release any security, with or without the substitution of new collateral; (D)
release, substitute, agree not to sue, or deal with any one or more of
Borrower's or any other Borrower's sureties, endorsers, or other guarantors on
any terms or in any manner Borrower may choose; (E) determine how, when and what
application of payments and credits shall be made on any indebtedness; (F) apply
such security and direct the order or manner of sale of any Collateral,
including without limitation, any non-judicial sale permitted by the terms of
the controlling security agreement or deed of trust, as Lender in its discretion
may determine; (G) sell, transfer, assign or grant participations in all or any
part of the Loan; (H) exercise or refrain from exercising any rights against
Borrower or others, or otherwise act or refrain from acting; (I) settle or
compromise any indebtedness; and (J) subordinate the payment of all or any part
of any of Borrower's indebtedness to Lender to the payment of any liabilities
which may be due Lender or others.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
ORGANIZATION. Gerimed of America, Inc. is a corporation for profit which
is, and at all times shall be, duly organized, validly existing, and in
good standing under and by virtue of the laws of the State of Colorado.
Borrower is duly authorized to transact business in all other states in
which Gerimed of America, Inc. is doing business, having obtained all
necessary filings, governmental licenses and approvals for each state in
which Gerimed of America, Inc. is doing business. Specifically, Gerimed of
America, Inc. is, and at all times shall be, duly qualified as a foreign
corporation in all states in which the failure to so qualify would have a
material adverse effect on its business or financial condition. Gerimed of
America, Inc. has the full power and authority to own its properties and to
transact the business in which it is presently engaged or presently
proposes to engage. Gerimed of America, Inc. maintains an office at 333 W.
Hampden Ave. #200, Englewood, CO 80110. Unless Gerimed of America, Inc. has
designated otherwise in writing, the principal office is the office at
which Gerimed of America, Inc. keeps its books and records including its
records concerning the Collateral. Gerimed of America, Inc. will notify
Lender of any change in the location of Gerimed of America, Inc.'s
principal office. Gerimed of America, Inc. shall do all things necessary to
preserve and to keep in full force and effect its existence, rights and
privileges, and shall comply with all regulations, rules, ordinances,
statutes, orders and decrees of any governmental or quasi-governmental
authority or court applicable to Gerimed of America, Inc. and Gerimed of
America, Inc.'s business activities, James F. Riopelle is a which is, and
at all times shall be, duly organized, validly existing, and in good
standing under and by virtue of the laws of James F. Riopelle's state of
organization. Borrower is duly authorized to transact business in the State
of Colorado and all other states in which James F. Riopelle is doing
business, having obtained all necessary filings, governmental licenses and
approvals for each state in which James F. Riopelle is doing business.
Specifically, James F. Riopelle is, and at all times shall be, duly
qualified as a foreign in all states in which the failure to so qualify
would have a material adverse effect on its business or financial
condition. James F. Riopelle has the full power and authority to own its
properties and to transact the business in which it is presently engaged or
presently proposes to engage. James F. Riopelle maintains an office at 333
W. Hampden Ave. #200, Englewood, CO 80110. Unless James F. Riopelle has
designated otherwise in writing, the principal office is the office at
which James F. Riopelle keeps its books and records including its records
concerning the Collateral. James F. Riopelle will notify Lender of any
change in the location of James F. Riopelle's principal office. James F.
Riopelle shall do all things necessary to preserve and to keep in full
force and effect its existence, rights and privileges, and shall comply
with all regulations, rules, ordinances, statutes, orders and decrees of
any governmental or quasi-governmental authority or court applicable to
James F. Riopelle and James F. Riopelle's business activities.
ASSUMED BUSINESS NAMES. Borrower has filed or recorded all documents or
filings required by law relating to all assumed business names used by
Borrower. Excluding the name of Borrower, the following is a complete list
of all assumed business names under which Borrower does business: None.
AUTHORIZATION. Borrower's execution, delivery, and performance of this
Agreement and all the Related Documents have been duly authorized by all
necessary action by Borrower and do not conflict with, result in a
violation of, or constitute a default under (1) any provision of James F.
Riopelle's articles of incorporation or organization, or bylaws, or any
agreement or other instrument binding upon Borrower or (2) any law,
governmental regulation, court decree, or order applicable to Borrower or
to Borrower's properties.
FINANCIAL INFORMATION. Each of Borrower's financial statements supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
Borrower is required to give under this Agreement when delivered will
constitute, legal, valid, and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
HAZARDOUS SUBSTANCES. Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that: (1) During the period of
Borrower's ownership of Borrower's Collateral, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any Hazardous Substance by any person on, under,
about or from any of the Collateral. (2) Borrower has no knowledge of, or
reason to believe that there has been (a) any breach or violation of any
Environmental Laws; (b) any use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any Hazardous
Substance on, under, about or from the Collateral by any prior owners or
occupants of any of the Collateral; or (c) any actual or threatened
litigation or claims of any kind by any person relating to such matters.
(3) Neither Borrower nor any tenant, contractor, agent or other authorized
user of any of the Collateral shall use, generate, manufacture, store,
treat, dispose of or release any Hazardous Substance on, under, about or
from any of the Collateral; and any such activity shall be conducted in
<PAGE> 2
BUSINESS LOAN AGREEMENT
(CONTINUED)
PAGE 2
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compliance with all applicable federal, state, and local laws, regulations,
and ordinances, including without limitation all Environmental Laws.
Borrower authorizes Lender and its agents to enter upon the Collateral to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the Collateral with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the Collateral for hazardous
waste and hazardous substances. Borrower hereby (1) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(2) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of
this section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release of a
hazardous waste or substance on the properties. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination, expiration or
satisfaction of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the Collateral, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all of Borrower's tax returns
and reports that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements (if any),
and all Related Documents are binding upon the signers thereof, as well as
upon their successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:
NOTICES OF CLAIMS AND LITIGATION. Promptly inform Lender in writing of (1)
all material adverse changes in Borrower's financial condition, and (2) all
existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower or any
Guarantor which could materially affect the financial condition of Borrower
or the financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with GAAP,
applied on a consistent basis, and permit Lender to examine and audit
Borrower's books and records at all reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with the following:
(1) ANNUAL STATEMENTS. As soon as available, but in no event later
than sixty (60) days after the end of each fiscal year, Borrower's
balance sheet and income statement for the year ended, prepared by
Borrower.
(2) INTERIM STATEMENTS. As soon as available, but in no event later
than thirty (30) days after the end of each fiscal quarter, Borrower's
balance sheet and profit and loss statement for the period ended,
prepared by Borrower.
(3) TAX RETURNS. As soon as available, but in no event later than
sixty (60) days after the applicable filing date for the tax reporting
period ended, Federal and other governmental tax returns, prepared by
a tax professional satisfactory to Lender.
(4) ADDITIONAL REQUIREMENTS. Co-Borrower will provide Lender annual
personal financial statements and tax returns.
All financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and
certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least ten (10)
days prior written notice to Lender. Each insurance policy also shall
include an endorsement providing that coverage in favor of Lender will not
be impaired in any way by any act, omission or default of Borrower or any
other person. In connection with all policies covering assets in which
Lender holds or is offered a security interest for the Loans, Borrower will
provide Lender with such lender's loss payable or other endorsements as
Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (1) the
name of the insurer; (2) the risks insured; (3) the amount of the policy;
(4) the properties insured; (5) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (6) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply, in a timely manner, with all terms,
conditions, and provisions set forth in this Agreement, in the Related
Documents, and in all other instruments and agreements between Borrower and
Lender. Borrower shall notify Lender immediately in writing of any default
in connection with any agreement.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Comply with all laws,
ordinances, and regulations, now or hereafter in effect, of all
governmental authorities applicable to the conduct of Borrower's
properties, businesses and operations, and to the use or occupancy of the
Collateral, including without limitation, the Americans With Disabilities
Act. Borrower may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Borrower has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Collateral are not jeopardized. Lender may require
Borrower to post adequate security or a surety bond, reasonably
satisfactory to Lender, to protect Lender's interest.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATES. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds,
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORT. Borrower shall comply in all respects
with any and all Environmental Laws; not cause or permit to
<PAGE> 3
BUSINESS LOAN AGREEMENT
(CONTINUED)
PAGE 3
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exist, as a result of an intentional or unintentional action or omission on
Borrower's part or on the part of any third party, on property owned and/or
occupied by Borrower, any environmental activity where damage may result to
the environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments,
financing statements, instruments, documents and other agreements as Lender
or its attorneys may reasonably request to evidence and secure the Loans
and to perfect all Security Interests.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower's failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on any Collateral and paying all
costs for insuring, maintaining and preserving any Collateral All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Borrower. All such expenses will become a
part of the Indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (1) the term of any
applicable insurance policy: or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity. Any Collateral also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon Default.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (1) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
Including capital leases, (2) sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets
(except as allowed as Permitted Liens), or (3) sell with recourse any of
Borrower's accounts, except to Lender.
TRANSFER AND LIENS. Fail to continue to own all of Borrower's assets,
except for routine transfers, use or depletion in the ordinary course of
Borrower's business. Borrower agrees not to create or grant to any person,
except Lender, any lien, security interest, encumbrance, cloud on title,
mortgage, pledge or similar interest in any of Borrower's property, even in
the ordinary course of Borrower's business. Borrower agrees not to sell,
convey, grant, lease, give, contribute, assign, or otherwise transfer any
of Borrower's assets, except for sales of inventory or leases of goods in
the ordinary course of Borrower's business.
CONTINUITY OF OPERATIONS. (1) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(2) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, or (3) pay any dividends
on Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
on its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income tax
payments to satisfy their liabilities under federal and state law which
arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of Borrower's stock, or
purchase or retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (1) Loan, invest in or advance money or
assets, (2) purchase, create or acquire any interest in any other
enterprise or entity, or (3) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan
to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (1) Borrower or any Guarantor is in default under the terms
of this Agreement or any of the Related Documents or any other agreement
that Borrower or any Guarantor has with Lender; (2) Borrower or any
Guarantor dies, becomes incompetent or becomes insolvent, files a petition
in bankruptcy or similar proceedings, or is adjudged a bankrupt; (3) there
occurs a material adverse change in Borrower's financial condition, in the
financial condition of any Guarantor, or in the value of any Collateral
securing any Loan; or (4) any Guarantor seeks, claims or otherwise attempts
to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (5) Lender in good faith deems itself insecure,
even though no Event of Default shall have occurred.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts.
DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:
PAYMENT DEFAULT. Borrower fails to make any payment when due under the
Loan.
OTHER DEFAULTS. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of
the Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this
Agreement, the Note, or the Related Documents is false or misleading in
any material respect, either now or at the time made or furnished or
becomes false or misleading at any time thereafter.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to create a valid and perfected security interest or lien) at any
time and for any reason.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower or by any
governmental agency against any collateral securing the Loan. This includes
a garnishment of any of Borrower's accounts, including deposit accounts,
with Lender. However, this Event of Default shall not apply if there is a
good faith dispute by Borrower as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and if
Borrower gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determined by Lender, in
its sole discretion, as being an adequate reserve or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Loan is impaired.
INSECURITY. Lender in good faith believes itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. in addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
<PAGE> 4
BUSINESS LOAN AGREEMENT
(CONTINUED)
PAGE 4
================================================================================
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
ATTORNEYS' FEES; EXPENSES. Borrower agrees to pay upon demand all of
Lender's costs and expenses, including Lender's attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may hire or pay someone else to help enforce this
Agreement, and Borrower shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's attorneys' fees and legal
expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also shall pay all court costs
and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loan to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy Borrower may
have with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation Interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loan and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loan irrespective of the failure or insolvency of any
holder of any interest in the Loan. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND ENFORCED
IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF COLORADO. THIS
AGREEMENT HAS BEEN ACCEPTED BY LENDER IN THE STATE OF COLORADO.
JOINT AND SEVERAL LIABILITY. All obligations of Borrower under this
Agreement shall be joint and several, and all references to Borrower shall
mean each and every Borrower. This means that each Borrower signing below
is responsible for all obligations in this Agreement. Where any one or more
of the parties is a corporation, partnership, limited liability company or
similar entity, it is not necessary for Lender to inquire into the powers
of any of the officers, directors, partners, members, or other agents
acting or purporting to act on the entity's behalf, and any obligations
made or created in reliance upon the professed exercise of such powers
shall be guaranteed under this Agreement.
NO WAIVER BY LENDER. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's rights
or of any of Borrower's or any Grantor's, obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
NOTICES. Any notice required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered, when
actually received by telefacsimile (unless otherwise required by law), when
deposited with a nationally recognized overnight courier, or, if mailed,
when deposited in the United States mail, as first class, certified or
registered mail postage prepaid, directed to the addresses shown near the
beginning of this Agreement. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
For notice purposes, Borrower agrees to keep Lender informed at all times
of Borrower's current address. Unless otherwise provided or required by
law, if there is more than one Borrower, any notice given by Lender to any
Borrower is deemed to be notice given to all Borrowers.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be illegal, invalid, or unenforceable as to any person or
circumstance, that finding shall not make the offending provision illegal,
invalid, or unenforceable as to any other person or circumstance. If
feasible, the offending provision shall be considered modified so that it
becomes legal, valid and enforceable. If the offending provision cannot be
so modified, it shall be considered deleted from this Agreement. Unless
otherwise required by law, the illegality, invalidity, or unenforceability
of any provision of this Agreement shall not affect the legality, validity
or enforceability of any other provision of this Agreement.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind Borrower's successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower shall
not, however, have the right to assign Borrower's rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that in extending Loan Advances, Lender is relying on all representations,
warranties, and covenants made by Borrower in this Agreement or in any
certificate or other instrument delivered by Borrower to Lender under this
Agreement or the Related Documents. Borrower further agrees that regardless
of any investigation made by Lender, all such representations, warranties
and covenants will survive the extension of Loan Advances and delivery to
Lender of the Related Documents, shall be continuing in nature, shall be
deemed made and redated by Borrower at the time each Loan Advance is made,
and shall remain in full force and effect until such time as Borrower's
indebtedness shall be paid in full, or until this Agreement shall be
terminated in the manner provided above, whichever is the last to occur.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:
ADVANCE. The word "Advance" means a disbursement of Loan funds made, or to
be made, to Borrower or on Borrower's behalf on a line of credit or
multiple advance basis under the terms and conditions of this Agreement.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means Gerimed of America, Inc.; and James F.
Riopelle, and all other persons and entities signing the Note in whatever
capacity.
COLLATERAL. The word "Collateral" means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, chattel mortgage, crop pledge,
chattel mortgage, collateral chattel mortgage, chattel trust, factor's
lien, equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created
by law, contract, or otherwise.
DEFAULT. The word "Default" means the Default set forth in this Agreement
in the section titled "Default".
ENVIRONMENTAL LAWS. The words "Environmental Laws" mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99--499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., or other applicable state or federal laws, rules, or
regulations adopted pursuant thereto.
EVENT OF DEFAULT. The words "Event of Default" mean any of the Events of
Default set forth in this Agreement in the Default section of this
Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
GRANTOR. The word "Grantor" means each and all of the persons or entities
granting a Security Interest in any Collateral for the Loan, including
without limitation all Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means any guarantor, surety, or
accommodation party of any or all of the Loan.
GUARANTY. The word "Guaranty" means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.
<PAGE> 5
BUSINESS LOAN AGREEMENT
(CONTINUED)
PAGE 5
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INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note Related Documents, including all principal and interest together
with all other indebtedness and costs and expenses for which Borrower is
responsible under this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means Citywide Banks, its successors and assigns.
LOAN. The word "Loan" means any and all loans and financial accommodations
from Lender to Borrower whether now or hereafter existing, and however
evidenced, including without limitation those loans and financial
accommodations described herein or described on any exhibit or schedule
attached to this Agreement from time to time.
NOTE. The word "Note" means the Note executed by Borrower in the principal
amount of $1,800,000.00 dated March 3, 2000, together with all renewals of,
extensions of, modifications of, refinancings of, consolidations of, and
substitutions for the note or credit agreement.
PERMITTED LIENS. The words "Permitted Liens" mean (1) liens and security
interests securing Indebtedness owed by Borrower to Lender; (2) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (3) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (4) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (5) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Loan.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean, without limitation,
any and all types of collateral security, present and future, whether in
the form of a lien, charge, encumbrance, mortgage, deed of trust, security
deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien interest
whatsoever whether created by law, contract, or otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED MARCH 3, 2000.
BORROWER:
GERIMED OF AMERICA, INC.
BY: /s/ JAMES F. RIOPELLE
---------------------------------------
James F. Riopelle, Chairman of the Board of
Gerimed of America, Inc.
X /s/ JAMES F. RIOPELLE
---------------------------------------
James F. Riopelle, Individually
LENDER:
CITYWIDE BANKS
X /s/ STEVE GHADAIFCHIAN, V.P.
---------------------------------------
AUTHORIZED SIGNER
================================================================================
<PAGE> 6
CHANGE IN TERMS AGREEMENT
<TABLE>
<S> <C>
Borrower: Gerimed of America, Inc. (TIN: 84--1244056) Lender: Citywide Banks
James F. Riopelle P0 Box 128
333 W. Hampden Ave. #200 Aurora, CO 80040--0128
Englewood, CO 80110 (303) 365--3600
</TABLE>
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<TABLE>
<S> <C> <C>
Principal Amount: $1,800,000.00 Initial Rate: 10.750% Date of Agreement: March 3, 2000
</TABLE>
DESCRIPTION OF EXISTING INDEBTEDNESS. Original Promissory Note in the amount of
$1,800,000.00 dated December 29, 1995.
DESCRIPTION OF COLLATERAL. Accounts.
DESCRIPTION OF CHANGE IN TERMS. Effective March 3, 2000 James F. Riopelle is
being added as a Co-Borrower per Loan provision.
PROMISE TO PAY. GERIMED OF AMERICA, INC.; AND JAMES F. RIOPELLE ("BORROWER")
JOINTLY AND SEVERALLY PROMISE TO PAY TO CITYWIDE BANKS ("LENDER"), OR ORDER, IN
LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF ONE
MILLION EIGHT HUNDRED THOUSAND & 00/100 DOLLARS ($1,800,000.00) OR SO MUCH AS
MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL
BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH
ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL
PLUS ALL ACCRUED UNPAID INTEREST ON JUNE 1, 2000. IN ADDITION, BORROWER WILL PAY
REGULAR MONTHLY PAYMENTS OF ALL ACCRUED UNPAID INTEREST DUE AS OF EACH PAYMENT
DATE, BEGINNING APRIL 1, 2000, WITH ALL SUBSEQUENT INTEREST PAYMENTS TO BE DUE
ON THE SAME DAY OF EACH MONTH AFTER THAT, INTEREST ON THIS AGREEMENT IS COMPUTED
ON A 365/360 SIMPLE INTEREST BASIS; THAT IS, BY APPLYING THE RATIO OF THE ANNUAL
INTEREST RATE OVER A YEAR OF 360 DAYS, MULTIPLIED BY THE OUTSTANDING PRINCIPAL
BALANCE, MULTIPLIED BY THE ACTUAL NUMBER OF DAYS THE PRINCIPAL BALANCE IS
OUTSTANDING. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate In writing.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to change
from time to time based on changes in an index which is the Bank Base Rate (the
"Index"). The Index is not necessarily the lowest rate charged by Lender on its
loans and is set by Lender in its sole discretion. If the Index becomes
unavailable during the term of this loan, Lender may designate a substitute
Index after notifying Borrower. Lender will tell Borrower the current Index rate
upon Borrower's request. The interest rate change will not occur more often than
each Day. Borrower understands that Lender may make loans based on other rates
as well. THE INDEX CURRENTLY IS 8.750% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THE NOTE WILL BE AT A RATE OF 2.000
PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 10.750% PER
ANNUM. NOTICE: Under no circumstances will the Interest rate on the Note be more
than the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. in any event, even upon full prepayment of
this Agreement, Borrower understands that Lender is entitled to a MINIMUM
INTEREST CHARGE OF $25.00. Other than Borrower's obligation to pay any minimum
interest charge, Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by Lender
in writing, relieve Borrower of Borrower's obligation to continue to make
payments of accrued unpaid interest. Rather, early payments will reduce the
principal balance due. Borrower agrees not to send Lender payments marked "paid
in full", "without recourse", or similar language. If Borrower sends such a
payment, Lender may accept it without losing any of Lender's rights under this
Agreement, and Borrower will remain obligated to pay any further amount owed to
Lender. All written communications concerning disputed amounts, including any
check or other payment instrument that indicates that the payment constitutes
"payment in full" of the amount owed or that is tendered with other conditions
or limitations or as full satisfaction of a disputed amount must be mailed or
delivered to: Citywide Banks, PO Box 128, Aurora, CO 80040--0128.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, at Lender's option, and if permitted by applicable law, Lender may add
any unpaid accrued interest to principal and such sum will bear Interest
therefrom until paid at the rate provided in this Agreement (including any
increased rate). Upon default, Lender, at its option, may, if permitted under
applicable law, increase the variable interest rate on this Agreement to 21.000%
per annum. The Interest rate will not exceed the maximum rate permitted by
applicable law.
DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:
Payment Default. Borrower fails to make any payment when due under the
Indebtedness.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of
the Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this
Agreement or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false or
misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's properly, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower or by any
governmental agency against any collateral securing the Indebtedness. This
includes a garnishment of any of Borrower's accounts, including deposit
accounts, with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Borrower as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Borrower gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor.
Change in Ownership. Any change in ownership of twenty--five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs In Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
Insecurity. Lender in good faith believes itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest immediately due, and
then Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
the indebtedness if Borrower does not pay. Borrower will pay Lender that amount.
This includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit, including
without limitation all attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
Injunction), and appeals. If not prohibited by applicable law, Borrower also
will pay any court costs, in addition to all other sums provided by law.
GOVERNING LAW. This Agreement will be governed by, construed and enforced In
accordance with federal law and the laws of the State of Colorado. This
Agreement has been accepted by Lender in the State of Colorado.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
Jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances
under this Agreement may be requested orally by Borrower or as provided in this
paragraph. All oral requests shall be confirmed in writing on the day of the
request. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following person currently is authorized to request advances and authorize
payments under the line of credit until Lender receives from Borrower, at
Lender's address shown above, written notice of revocation of his or her
authority: James F. Riopelle, Chairman of the Board of Gerimed of America, Inc.
Borrower agrees to be liable for all sums either: (A) advanced in accordance
with the instructions of an authorized person or (B) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Agreement at any time may be evidenced by endorsements on this Agreement or by
Lender's Internal records, Including daily computer print-outs. Lender will
have no obligation to advance funds under this Agreement if: (A) Borrower or any
guarantor is In default under the terms oh this Agreement or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Agreement; (B) Borrower or any guarantor
ceases doing business or is insolvent; (C) any guarantor seeks, claims or
otherwise
<PAGE> 7
CHANGE IN TERMS AGREEMENT
(Continued)
Page 2
================================================================================
attempts to limit, modify or revoke such guarantor's guarantee of this Agreement
or any other loan with Lender; (D) Borrower has applied funds provided pursuant
to this Agreement for purposes other than those authorized by Lender; or (E)
Lender in good faith believes itself insecure.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
SUCCESSORS AND ASSIGNS. Subject to any limitations stated in this Agreement on
transfer of Borrower's interest, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors end assigns. If ownership of the
Collateral becomes vested in a person other than Borrower, Lender, without
notice to Borrower, may deal with Borrower's successors with reference to this
Agreement and the indebtedness by way of forbearance or extension without
releasing Borrower from the obligations of this Agreement or liability under the
indebtedness.
MISCELLANEOUS PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Agreement without losing them. Each Borrower understands
and agrees that, with or without notice to Borrower, Lender may with respect to
any other Borrower (a) make one or more additional secured or unsecured loans or
otherwise extend additional credit; (b) alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms any indebtedness, including increases and decreases of the rate of
interest on the indebtedness; (c) exchange, enforce, waive, subordinate, fail or
decide not to perfect, and release any security, with or without the
substitution of new collateral; (d) apply such security and direct the order or
manner of sale thereof, including without limitation, any non-judicial sale
permitted by the terms of the controlling security agreements, as Lender in its
discretion may determine; (a) release, substitute, agree not to sue, or deal
with any one or more of Borrower's sureties, endorsers, or other guarantors on
any terms or in any manner Lender may choose: and (f) determine how, when and
what application of payments and credits shall be made on any other indebtedness
owing by such other Borrower. Borrower and any other person who signs,
guarantees or endorses this Agreement, to the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change in the
terms of this Agreement, and unless otherwise expressly stated in writing, no
party who signs this Agreement, whether as maker, guarantor, accommodation maker
or endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this loan or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made. The
obligations under this Agreement are joint and several.
PRIOR TO SIGNING THIS AGREEMENT, EACH BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
EACH BORROWER AGREES TO THE TERMS OF THE AGREEMENT.
BORROWER:
GERIMED OF AMERICA, INC.
BY: /s/ JAMES F. RIOPELLE
------------------------------------
James F. Reopelle, Chairman of the Board of
Gerimed of America, Inc.
X /s/ JAMES F. REOPELLE
-----------------------------------
James F. Reopelle, Individually
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Registration Statement relating to 7,759,335
shares of Common Stock of GeriMed of America, Inc. on Form S-1 of our report
dated March 14, 2000, appearing in the Prospectus, which is part of this
Registration Statement, and to the references to us under the heading "Experts"
in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of GeriMed of America, Inc.,
listed in Item 16(b). This financial statement schedule is the responsibility of
the Corporation's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 97,577
<SECURITIES> 0
<RECEIVABLES> 1,654,020
<ALLOWANCES> 165,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,422,438
<PP&E> 1,397,063
<DEPRECIATION> 658,098
<TOTAL-ASSETS> 4,468,871
<CURRENT-LIABILITIES> 5,342,292
<BONDS> 0
0
91
<COMMON> 437
<OTHER-SE> (873,949)
<TOTAL-LIABILITY-AND-EQUITY> 4,468,871
<SALES> 0
<TOTAL-REVENUES> 39,925,916
<CGS> 0
<TOTAL-COSTS> 39,880,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 553,201
<INTEREST-EXPENSE> 20,903
<INCOME-PRETAX> (2,924,263)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,924,263)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,924,263)
<EPS-BASIC> (.99)
<EPS-DILUTED> (.99)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
GERIMED OF AMERICA, INC.
INTERNAL MARKET RULES
The following rules are to be applied to the operation of the internal
market (the "Market") established by the Board of Directors of GeriMed of
America, Inc. ("GeriMed"). It should be noted that from time to time at
GeriMed's discretion, Market rules and procedures may be changed by the Board of
Directors.
It is anticipated that the Market will permit existing and new GeriMed
shareholders to sell shares of GeriMed common stock (the "Shares") up to four
times each year on predetermined days (the "Trade Dates"). Such sales will be
made at the formula price (the "Formula Price") determined by the Board of
Directors to eligible employees, directors and consultants of GeriMed. Bigelow &
Company, a NASD-registered broker-dealer ("Bigelow"), will initially maintain
the Market (in such capacity, the "Broker") for GeriMed. Any employee, director
or shareholder who resides in a state wherein direct individual purchase through
the market is permitted, whether by reason of registration under or exemption
from state securities laws, is eligible for purposes of the Market. In addition,
GeriMed will be authorized, but not obligated, to purchase shares in the Market.
The Broker for the Market will be authorized, but not obligated, to purchase or
sell shares in the Market; provided, however, that the Broker may not sell
shares short.
All record owners of Shares will be eligible to sell some or all of the
Shares owned by them on any Trade Date; in the case of Shares owned
beneficially, sales must be directed by the record holder and in accordance with
any relevant instrument relating to the rights and obligations of the respective
parties. In the event that the aggregate number of Shares offered for sale by
the sellers is greater than the aggregate number of Shares sought to be
purchased by authorized buyers and GeriMed on a specific Trade Date, offers to
sell will be treated in the following manner:
(a) If enough orders to buy are received to purchase all the shares
offered by each seller selling fewer than 500 shares and at least 500 shares
from each other seller, then all sell orders will be accepted up to the first
500 shares and the portion of any sell orders exceeding 500 shares will be
accepted on a pro rata basis.
(b) If not enough orders to buy are received to purchase all the
shares offered by each seller selling fewer than 500 shares and at least 500
shares from each other seller, then the purchase orders will be allocated
equally to each seller up to the maximum number of shares each seller desires to
sell.
(c) Subject to applicable legal or contractual restrictions and the
availability of funds, GeriMed may, in its discretion purchase sufficient Shares
on each Trade Date so that each shareholder wishing to sell Shares will be able
to sell additional Shares in accordance with the above preferences.
<PAGE> 2
If the aggregate purchase orders exceed the number of Shares available
for sale, qualified purchasers will be allocated Shares for purchase on a pro
rata basis.
To the extent that the aggregate number of Shares sought to be
purchased exceeds the aggregate number of Shares for sale, the broker may, but
is not obligated to, sell Shares it owns in the Market.
GeriMed intends to publish the current formula price and upcoming trade
date prior to each trade date to all participants in the internal market through
internal communications, including bulletins, electronic mail communications or
mailed reports.
The Broker will receive all sell orders from record holders and buy
orders from authorized buyers and GeriMed five business days prior to Trade
Date. On each Trade Date, Bigelow will clear trades on an unsolicited basis
between sellers and buyers of Shares (including, to the extent applicable,
GeriMed and the Broker) according to the priority rules described above. The
Broker will then forward payments to sellers, minus commission, and will issue,
in book-entry form unless certificated form is required by law, the Shares to
the buyers.
Individual sellers will pay a sales commission to the Broker of 2% of
the sales price. Buyers will not pay any commission.
Shares held as a result of purchases in the Market will be subject to
restrictions as listed in GeriMed's Articles of Incorporation, as amended and
Restated Bylaws, each as effected from time to time.
The Board of Directors may discontinue the Market at any time, without
notice.
2
