<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________TO_____________________
COMMISSION FILE NO. 1-10677
DRCA MEDICAL CORPORATION
------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0203483
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Three Riverway, Suite 1430, Houston, Texas 77056
-------------------------------------------------
(Address of principal executive offices)
(713) 439-7511
----------------------------------------------------
(Registrant's telephone number, including area code)
None
----------------------------------
(Former Name, Address and fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports); and
(2) has been subject to such filing requirements for the past 90 days. YES [X]
NO [_]
As of June 30, 1996, 5,285,975 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format (Check One) YES [_] NO [X]
<PAGE>
DRCA MEDICAL CORPORATION
INDEX
Page
No.
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets (June 30, 1996
and December 31, 1995) 1
Consolidated Statements of Operations for the
three months and six months ended
June 30, 1996 and June 30, 1995 2
Consolidated Statements of Changes in
Stockholders' Equity for the six months
ended June 30, 1996 and June 30, 1995 3
Consolidated Statements of Cash Flows for
the six months ended June 30, 1996 and
June 30, 1995 4
Notes to Consolidated Financial Statements 5 - 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 9
PART II OTHER INFORMATION
Item 1 - 6 10 - 11
SIGNATURES 12
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
- ------ 1996 1995
-------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 1,200,721 $ 109,231
Accounts receivable, net 6,599,384 5,552,158
Income taxes receivable - 404,717
Notes receivable, net 197,260 235,801
Other current assets 256,216 147,855
----------- -----------
TOTAL CURRENT ASSETS 8,253,581 6,449,762
----------- -----------
PROPERTY AND EQUIPMENT
Equipment (including equipment under capital leases) 4,644,746 5,531,709
Leasehold improvements 437,686 437,676
Furniture and fixtures 403,689 368,962
Vehicles 113,509 108,301
----------- -----------
5,599,630 6,446,648
Less - accumulated depreciation and amortization (3,591,539) (3,999,252)
----------- -----------
2,008,091 2,447,396
----------- -----------
INTANGIBLES ASSETS, NET 843,363 904,161
----------- -----------
OTHER ASSETS 39,619 49,620
----------- -----------
TOTAL ASSETS $11,144,654 $ 9,850,939
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable 979,001 $ 1,166,557
Accrued expenses 1,013,610 683,868
Deferred income taxes 359,700 208,168
Current obligations under capital leases 44,968 139,103
Current portion of notes payable 450,838 1,597,224
----------- -----------
TOTAL CURRENT LIABILITIES 2,848,117 3,794,920
----------- -----------
NOTES PAYABLE 528,527 905,890
OBLIGATIONS UNDER CAPITAL LEASES 94,876 117,504
DEFERRED INCOME TAXES 156,586 156,586
----------- -----------
3,628,106 4,974,900
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 50,000,000
shares authorized, 5,301,808 issued 5,302 5,302
Preferred stock, $.01 par value 10,000,000
shares authorized.
Series A - 8% Cumulative Convertible, 25,226
shares issued and outstanding 252 -
Additional paid-in capital 4,857,009 2,470,570
Retained earnings 2,654,001 2,400,183
Treasury shares, 15,833 shares (16) (16)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,516,548 4,876,039
----------- -----------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,144,654 $ 9,850,939
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
1
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Quarters Ended
----------------------- ----------------------
June 30, June 30, June 30 June 30
1996 1995 1996 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $8,201,381 $7,561,059 $4,139,684 $3,971,651
Costs and expenses:
Compensation costs and
medical services 3,573,793 3,007,693 1,794,633 1,618,111
Other direct costs 1,803,460 1,683,328 918,119 899,168
Selling, general and administrative 1,212,930 1,109,669 658,447 560,380
Depreciation and amortization 347,221 577,350 157,242 275,595
Provision for doubtful accounts 657,111 217,182 309,800 91,413
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 606,866 965,837 301,443 526,984
Loss on sale of subsidiary (90,460) - - -
Minority interest - 33,654 - -
Interest expense (94,734) (152,257) (28,722) (78,274)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 421,672 847,234 272,721 448,710
Provision for income taxes (142,419) (321,060) (94,323) (168,596)
---------- ---------- ---------- ----------
NET INCOME $ 279,253 $ 526,174 $ 178,398 $ 280,114
========== ========== ========== ==========
Earnings per common and
equivalent share:
Primary $.05 $.10 $ .03 $ .05
========== ========== ========== ==========
Fully Diluted $.05 $.10 $ .03 $ .05
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
--------------------- ----------------------- Paid In Retained Treasury
Shares Amount Shares Amount Capital Earnings Stock Total
--------- ---------- --------------- ------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
December 31, 1995 5,301,808 $5,302 $ $2,470,570 $2,400,183 $(16) $4,876,039
For services rendered (135,906) (135,906)
Issuance of Preferred
Stock - Series A 25,226 $252 2,522,345 2,522,597
Dividends - Preferred
Stock - Series A (25,435) (25,435)
Net income 279,253 279,253
--------- ------ ------ ---- ---------- ----------- ---- ----------
Balance -
June 30, 1996 5,301,808 $5,302 25,226 $252 $4,857,009 $2,654,001 $(16) $7,516,548
========= ====== ====== ==== ========== ========== ==== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
<TABLE>
<CAPTION>
June 30 June 30
1996 1995
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 279,253 $ 526,174
Noncash adjustments:
Depreciation and amortization 347,221 551,191
Minority interest - (33,654)
Loss on sale of assets 90,460 -
Change in assets and liabilities,
excluding acquisitions:
Accounts receivable, net (1,047,226) (1,142,706)
Other current assets (108,361) (320,525)
Other assets - 7,788
Accounts payable (187,556) (397,395)
Accrued expenses 329,743 176,896
Income taxes receivable/payable 556,249 135,049
----------- -----------
Net cash provided (used) by operating activities 259,783 (497,182)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (323,983) (52,008)
Net proceeds from sale of subsidiary 700,000 -
Issuance of notes receivable - (500,000)
Collections on notes receivable 38,541 382,001
----------- -----------
Net cash provided (used) by investing
activities 414,558 (170,007)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings - 351,577
Payments on bank borrowings (949,903) -
Proceeds from issuance of notes
payable - 1,413,049
Payments on other notes, net (887,437) (1,614,188)
Payments on capital lease obligations (116,767) (208,304)
Issuance of preferred stock, net of offering
costs 2,396,691 -
Accrued dividends (25,435) -
----------- -----------
Net cash provided (used) by financing activities 417,149 (57,866)
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS
CASH AND EQUIVALENTS: 1,091,490 (725,055)
BEGINNING OF YEAR 109,231 813,942
----------- -----------
END OF QUARTER $ 1,200,721 $ 88,887
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 94,734 $ 167,718
Income taxes paid/(recovered) (416,653) -
Property and equipment acquired with
debt 313,595 -
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
DRCA MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
NOTE 1 BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of those of a normal
recurring nature) considered necessary for a fair presentation have been
included. Operating results for the six month period ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1995.
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, as well as the disclosures of contingent assets and
liabilities. Because of the inherent uncertainties in this process, actual
future results could differ from those expected at the reporting date.
Certain amounts in the June 30, 1995 consolidated statements of operations
have been reclassified to conform to the June 30, 1996 presentation, the most
significant of which is an allocation of a portion of the provision for
doubtful accounts to contractual allowances to more properly reflect revenue
from services rendered to personal injury claimants at the net amounts expected
to be collected upon claim adjudication. The reclassification was based on
improved historical information and currently expected recovery rates. In
addition, selected natural expense classifications have been presented to
enhance industry comparability. None of these changes affected net income or
loss.
NOTE 2 EARNINGS PER COMMON SHARE:
Primary earnings per common share is computed by dividing net income reduced by
preferred dividends by the weighted average number of shares of common stock
and dilutive common stock equivalents outstanding during the period. Common
equivalents include stock options and warrants.
Fully diluted earnings per common share is the more dilutive result of the
following alternate calculations: (1) Reduce net income by preferred stock
dividends, producing earnings available for common shareholders (EACS). Divide
EACS by the weighted average of common stock and dilutive common stock
equivalents outstanding during the period; or (2) Calculate fully diluted
shares by adding the weighted average of common and dilutive common stock
equivalents outstanding plus the number of shares of common stock which would
be issued assuming the conversion of the convertible preferred stock and
accrued dividends thereon into common stock. Divide net income by fully
diluted shares.
5
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
June 30, June 30,
1996 1995
----------- ----------
<S> <C> <C>
Primary
Weighted average of common shares
and common stock equivalents 5,461,340 5,337,389
========== ==========
Net Income $ 178,398 $ 280,114
Preferred dividends (25,433) 0
---------- ----------
Earnings available for common shareholders 152,965 280,114
========== ==========
Earnings Per Share $ .03 $ .05
========== ==========
Fully diluted
Weighted average of common shares
and common stock equivalents 5,461,340 5,337,389
========== ==========
Net Income $ 178,398 $ 280,114
Preferred dividends (25,433) 0
---------- ----------
Earnings available for common shareholders 152,965 280,114
========== ==========
Earnings Per Share $ .03 $ .05
========== ==========
SIX MONTHS ENDED
-----------------------
June 30, June 30,
1996 1995
---------- ----------
Primary
Weighted average of common shares
and common stock equivalents 5,460,155 5,314,424
========== ==========
Net Income $ 279,253 $ 526,174
Preferred dividends (25,433) 0
---------- ----------
Earnings available for common shareholders 253,820 526,174
========== ==========
Earnings Per Share $ .05 $ .10
========== ==========
Fully diluted
Weighted average of common shares
and common stock equivalents 5,460,155 5,330,101
Preferred conversion shares 728,010 0
---------- ----------
Fully diluted shares 6,188,165 5,330,101
========== ==========
Net Income $ 279,253 $ 526,174
========== ==========
Earnings Per Share $ .05 $ .10
========== ==========
</TABLE>
6
<PAGE>
PART I
FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS:
In March 1995, the Company assisted in the formation of a Houston based medical
group. Upon its formation, the new medical group encompassed all of the
Company's Houston-based clinical and ancillary service operations as well as
two orthopedic clinics which joined with the group at its formation. The
second quarter of 1995 and 1996 each include three months of the new group's
operations. The six month period ended June 30, 1995 includes only four months
of the new group and is, therefore, not directly comparable to 1996 results.
In November 1995, the Company stopped operating one of its clinics in Little
Rock, Arkansas and subleased the facility and equipment to a third party. In
March 1996, the Company sold a subsidiary in Little Rock, Arkansas which
included the Company's MRI clinic and other assets. Results of operations of
both the clinic under sublease and the subsidiary were included in the results
for the three and six months ended June 30, 1995. The discontinuation of these
operations saved over $55,000 in the quarter ended June 30, 1996, an annualized
savings of over $220,000.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1995.
Revenues.
Revenues for the second quarter rose $168,033 (4%) over 1995. Revenues from
orthopedics practices increased $220,857 (20%) while other on-going clinical
and ancillary service revenue rose $122,328 (5%).
Compensation Costs and Medical Services and Other Direct Costs.
Compensation Costs and Medical Services increased by $176,522 (11%) and Other
Direct Costs increased by $18,951 (2%). These costs to operate the orthopedics
practices and all other on-going clinical and ancillary service operations rose
by $342,570.
Selling, General and Administrative Expenses.
Expenses increased by $98,067 or about 18%. Legal and accounting fees
increased by about $53,000 mainly for expenses related to issuance of a
subordinated note which was converted into Series A Preferred Stock, changing
the Company's Articles of Incorporation (See Part II, Item 2), and the sale of
a wholly-owned subsidiary of the Company. About $15,000 of the increase was
incurred in the Company's continuing efforts to expand into new geographic
markets. The remainder of the increase is attributed to normal variances based
on the Company's increased revenues.
Depreciation and Amortization.
Expenses decreased due mainly to the sale of a wholly-owned subsidiary in
March, 1996, and to the full depreciation of certain older fixed assets in
1995.
7
<PAGE>
Provision for Doubtful Accounts.
Expenses increased in 1996 mainly due to an increase in the allowance for
claims billed to third-party payors.
Interest Expense.
Interest expense decreased by $49,552, mainly due to the reduction of the
principal balances on various notes and capital lease obligations, a portion of
which resulted from the retirement of debt associated with the sale of a
wholly-owned subsidiary in March, 1996.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995.
Revenues.
Revenues for the first six months of 1996 increased $640,322 (8%) over the same
period in 1995. Revenues from orthopedics practices rose $$1,185,446 (82%).
Other on-going clinical and ancillary service revenues were lower by $150,128.
Compensation Costs and Medical Services.
Compensation Costs and Medical Services rose by $566,100 (19%) and Other Direct
Costs increased $120,132 (7%). These costs to operate the orthopedics
practices and all other on-going clinical and ancillary services increased
$908,794.
Selling, General and Administrative Expenses.
Expenses increased by $103,261 or about 9%. Legal and accounting fees
increased by about $57,000 mainly for expenses related to issuance of a
subordinated note which was converted into Series A Preferred Stock, changing
the Company's Articles of Incorporation (See Part II, Item 2), and the sale of
a wholly-owned subsidiary of the Company. About $18,000 of the increase was
incurred in the Company's continuing efforts to expand into new geographic
markets. The remainder of the increase is attributed to normal variances based
on the Company's increased revenues.
Depreciation and Amortization.
Expenses decreased due mainly to the sale of a wholly-owned subsidiary in
March, 1996, and to the full depreciation of certain older fixed assets in
1995.
Provision for Doubtful Accounts.
Expenses increased in 1996 due to an increase in the Company's revenues, and to
an increase in the allowance for claims billed to third-party payors.
Loss on Sale of Subsidiary.
The Company recorded a loss on the sale of a wholly-owned subsidiary in March,
1996. Proceeds from the sale were sufficient to retire the Company's
liabilities related to the subsidiary.
8
<PAGE>
Minority Interest.
Minority interest in income decreased by $33,654 due to the Company's winding
down of all partnership interests.
Interest Expense.
Interest expense decreased by $57,523, mainly due to the reduction of the
principal balances on various notes and capital lease obligations, a portion of
which resulted from the retirement of debt associated with the sale of a
wholly-owned subsidiary in March, 1996.
LIQUIDITY AND CAPITAL RESOURCES
In April, 1996, the Company issued a $2.5 million convertible subordinated note
to provide acquisition and working capital in support of the Company's planned
expansion. At the Company's annual shareholders' meeting on May 9, 1996, over
two-thirds of the Company's shareholders approved the creation of 10,000,000
shares of preferred stock. Immediately thereafter, the Company's board of
directors approved the issuance of 25,226 shares of the Company's Series A
Preferred Stock in exchange for the $2.5 million convertible subordinated note
plus $22,603 in accrued interest thereon. Net proceeds to the Company after
offering costs were $2,396,691. The Company has plans to expand its physician
practice management services through the acquisition of orthopedic and
orthopedics-related medical practice assets and through the acquisition or
development of musculoskeletal injury- and illness-related ancillary services
required by these medical practices. Depending upon the Company's experience in
this expansion program, additional sources of acquisition and working capital
may be required.
The Company makes continuing estimates of the collectibility of patient
billings as part of its normal accounting procedure (See Part I, Note 1).
Estimates are reviewed and revised on an on-going basis as reimbursements are
received and recorded against accounts receivable. In conjunction with this
process, the Company has recorded a larger allowance for uncollectible accounts
receivable than that recorded in prior periods. This also resulted in an
increased provision for doubtful accounts expense as compared to prior
reporting periods. Liquidity and expenses could be impacted by future changes
in the estimate of collectibility of the Company's accounts receivable.
Although currently due, accounts receivable from personal injury claims usually
take significantly longer to collect than claims billed to insurance carriers
and employers. The collectibility of personal injury revenues is generally on
par with other payors, however, the passage of time between treatment and final
adjudication of the claim makes estimates of collectibility on these accounts
subject to future revision. The percentage of net accounts receivable
attributable to personal injury claims has remained essentially unchanged at
43% since the last fiscal year end.
The Company's working capital at June 30, 1996 was $5,405,464 as compared to
$2,654,842 on December 31, 1995, an increase of $2,750,622. This increase is
principally due to the Company's receipt of net proceeds of $2,396,691 from the
issuance of the Series A Preferred Stock in 1996. The remainder of the change
in working capital is attributable to a $1,047,226 increase in net accounts
receivable, which increase was more than offset by changes resulting from
normal operations and the Company's receipt of an income tax refund of
approximately $400,000.
9
<PAGE>
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not a party to any pending litigation other than routine
litigation incidental to the business or that which is immaterial in amount of
damages sought.
Item 2 Changes in Securities
An amendment of the Company's Articles of Incorporation to authorize the
issuance of 10,000,000 shares of preferred stock, $.01 par value, was approved
by the Company's stockholders at the annual meeting of the Company's
stockholders held on May 9, 1996. Pursuant to the amendment, the Company's
Board of Directors is authorized to establish, designate and issue from time to
time one or more series of Preferred Stock, without further authorization of
the Company's stockholders, and to fix the number of shares and the relative
rights and preferences of the authorized shares of each such series.
The Board of Directors of the Company has designated 26,000 shares of
Preferred Stock as Series A Preferred Stock. The Series A Preferred Stock
provides for quarterly, cumulative dividends that accrue at the rate of (I)
$8.00 per share per annum for the period beginning on the date of issuance and
ending on June 30, 2001; (ii) $10.00 per share per annum for the period
beginning July 1, 2001 and ending on June 30, 2002; (iii) $12.00 per share per
annum for the period beginning July 1, 2002 and ending on June 30, 2003, and
(iv) $16.00 per share per annum after July 1, 2004, and shall be first payable
on June 30, 1999 (subject to certain extensions). Payment of such dividends
shall be in preference and priority to any dividends paid to holders of the
Common Stock. The Series A Preferred Stock is convertible into shares of
Common Stock at a rate equal to that amount to be received for each share of
Series A Preferred Stock in liquidation ($100 per share plus accrued but unpaid
dividends) divided by a factor of $3.50 (subject to adjustment). Each holder
of the Series A Preferred Stock is entitled to voting rights with respect to
any matters put before the Company's stockholders, in an amount of votes equal
to the number of whole shares into which the shares of Series A Preferred Stock
are convertible at the time of such vote. In addition, the consent of two-
thirds of the Series A Preferred Stock, voting as a class, is necessary for the
Company to sell all or substantially all of its assets or effect any merger,
consolidation or share exchange.
Item 3 Defaults upon Senior Securities
This item is not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 9, 1996. The
following persons were elected to the Company's Board of Directors to hold
office fore the ensuing year.
<TABLE>
<CAPTION>
For Withheld
--------- --------
<S> <C> <C>
Jose E. Kauachi 5,069,927 102,650
William F. Donovan, M.D. 5,093,627 78,950
Victor M. Rivera, M.D. 5,057,627 114,950
Thomas M. Conner 5,097,527 75,050
</TABLE>
10
<PAGE>
The results of the voting for ratification of Price Waterhouse to serve as
the Company's independent accountant for the fiscal year ending December 31,
1995, were as follows:
For: 5,131,676 Against: 8,851 Abstained: 32,050
The results of the voting for approval to amend the Articles of
Incorporation to authorize a new class of 10,000,000 shares of Preferred Stock
were as follows:
For: 3,562,561 Against: 324,620 Abstained: 45,650
Broker Non-Votes: 1,239,756
The results of the voting for approval to amend the Articles of
Incorporation to terminate certain restrictions on the number of directors of
the Company were as follows:
For: 4,789,633 Against: 126,125 Abstained: 93,600
Broker Non-Votes: 163,219
Item 5 Other Information
This item is not applicable.
Item 6 (a) Exhibits and Exhibit Index
Exhibit No. Exhibit Title Filed As
----------- ------------- --------
3.1 Articles of Incorporation of the Company,
as amended to date /1/Same
10.50 Investment Agreement by and between
the Company and Chartwell Capital
Investors, L.P. dated April 12, 1996 /1/Same
10.51 Option Agreement between the Company and
Thomas M. Conner dated April 11, 1996 /1/Same
10.52 Option Agreement between the Company and
Victor M. Rivera, M.D. dated April 11, 1996 /1/Same
Item 6 (b) Reports on Form 8-K
This item is not applicable.
- -------------------
/1/Filed herewith
11
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DRCA MEDICAL CORPORATION
By: /s/ JOSE E. KAUACHI
-------------------------------
JOSE E. KAUACHI,
Chairman of the Board,
President & Chief Executive Officer
Dated: August 14, 1996
In Accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
Signature Title Date
--------- ----- ----
By: /s/ JOSE E. KAUACHI Chairman of the Board, President August 14, 1996
---------------------- and Chief Executive Officer
JOSE E. KAUACHI
By: /s/JEFFERSON R. CASEY Senior Vice President, Treasurer August 14, 1996
----------------------- (Principal Financial & Accounting
JEFFERSON R. CASEY Officer), and Secretary
12
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
DRCA MEDICAL CORPORATION
ARTICLE ONE
DRCA Medical Corporation, pursuant to the provisions of Article 4.07 of the
Texas Business Corporation Act, hereby adopts restated articles of incorporation
which accurately copy the articles of incorporation and all amendments thereto
that are in effect to date and such restated articles of incorporation contain
no change in any provision thereof.
ARTICLE TWO
The restated articles of incorporation were adopted by resolution of the
board of directors of the corporation on the 22nd day of May, 1996.
ARTICLE THREE
The articles of incorporation and all amendments and supplements thereto
are hereby superseded by the following restated articles of incorporation which
accurately copy the entire text thereof:
ARTICLE I
The name of the Corporation is DRCA Medical Corporation.
ARTICLE II
The Corporation shall have perpetual existence.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Texas Business Corporation
Act, as amended ("TBCA"), of the State of Texas.
ARTICLE IV
The Corporation will not commence business until it has received, for the
issuance of shares, consideration of $1,000.00.
<PAGE>
ARTICLE V
The Corporation is authorized to issued two classes of shares to be
designated respectively "preferred" and "common." The aggregate number of
shares which the Corporation shall have the authority to issue is Sixty Million
(60,000,000) shares, of which Ten Million (10,000,000) shares shall be Preferred
Stock, $.01 par value per share, and Fifty Million (50,000,000) shares shall be
Common Stock, $.001 par value per share.
The description of the different classes of capital stock of the
Corporation and the designation and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof are as follows:
PART A
PREFERRED STOCK
The Preferred Stock may be divided into and issued in one or more
series as herein provided, each series to be so designated as to distinguish the
shares thereof from the shares of all other series and classes. The Board of
Directors is hereby vested with the authority to establish and designate such
series from time to time and, within the limitations prescribed by law or set
forth herein, to fix and determine the number and the relative rights and
preferences of the authorized shares of any series so established, and to
increase or decrease the number of shares within each such series; provided,
however, that the Board of directors may not decrease the number of shares
within a series below the number of shares within such series that is then
issued. The Board of Directors shall exercise such authority by the adoption of
a resolution or resolutions as prescribed by law. The Preferred Stock of all
series shall be identical, except as to the following relative rights and
preferences, as to which there may be variations between different series:
(1) The rate at which dividends, if any, are to accrue with respect to
the shares of such series and the dates, terms and other conditions on which
such dividends shall be payable;
(2) The nature of dividends payable with respect to the shares of such
series as cumulative, noncumulative or partially cumulative;
(3) Whether the shares of such series shall be subject to redemption
by the Corporation, and, if made subject to such redemption, the price at and
the terms and conditions on which the shares of such series may be redeemed;
(4) The rights and preferences, if any, of the holders of the shares
of such series upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the assets of, the Corporation, which amount may
vary depending upon whether such liquidation, dissolution or winding up is
voluntary or involuntary and, if voluntary, may vary at different dates, and the
status of the shares of such series as participating or non-participating after
the satisfaction of any such rights and preference;
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(5) Any requirements as to, and the terms and amount of, any sinking
fund or purchase fund for, or the redemption, purchase or other retirement by
the Corporation of, the shares of such series;
(6) The right, if any, to exchange or convert the shares of such
series into (i) shares of any other series of the Preferred Stock or, to the
extent permitted by law, into shares of an other class of capital stock of the
Corporation ranking on a parity with or junior to the Preferred Stock as to
dividends or distribution of assets upon liquidation or into other securities of
the Corporation or (ii) shares of capital stock or other securities of another
Corporation, and the rate or basis, time, manner and conditions of exchange or
conversion or the method by which the same shall be determined;
(7) The extent, if any, to which the holders of the shares of such
series shall be entitled to vote as a class or otherwise with respect to any
matter presented for that purpose to the shareholders of the Corporation;
(8) Any obligation of the Corporation to repurchase any or all shares
of such series; and
(9) Any other relative rights and preferences of the shares of such
series consistent with these Articles of Incorporation and applicable law.
The terms of any series of Preferred stock may be amended without
consent of the holders of any other series of Preferred Stock or of the Common
Stock, provided such amendment does not adversely affect the holders of such
other series of Preferred Stock or the Common Stock. Shares of any series of
Preferred Stock which have been issued and reacquired in any manner and are not
held as treasury shares, including shares redeemed by purchase (whether through
the operation of a retirement or sinking fund or otherwise), will have the
status of authorized and unissued Preferred Stock and may be reissued as a part
of the series of which they were originally a part or may be reclassified into
and reissued as a part of a new series.
All or any part of the Preferred Stock may be issued by the
Corporation from time to time and for such consideration as the Board of
Directors may determine. All of such shares, if and when issued, and upon
receipt of such consideration by the Corporation, shall be fully paid and non-
assessable.
PART B
COMMON STOCK
Except as otherwise required by law, each holder of Common Stock shall
be entitled to one (1) vote for each share of such Common Stock standing in his
name on the books of the Corporation. Subject to the rights of the holders of
the Preferred Stock as provided in these Articles of Incorporation, upon
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, holders of the Common Stock are entitled to
receive pro rata the remaining
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assets of the Corporation. Subject to the rights of the holders of the
Preferred Stock as provided in these Articles of Incorporation, dividends may be
paid on the Common Stock as and when declared by the Board of Directors of the
Corporation out of any funds of the Corporation legally available for the
payment of such dividends.
All or any part of the Common Stock may be issued by the Corporation
from time to time and for such consideration as the Board of Directors may
determine. All of such shares, if and when issued, and upon receipt of such
consideration by the Corporation, shall be fully paid and non-assessable."
ARTICLE VI
No stockholder of the Corporation shall, by reason of his holding
shares of any class of stock or series of any class of stock, have any
preemptive or preferential right to purchase or subscribe for any shares of
stock of the Corporation, now or hereafter authorized, any notes, debentures,
bonds or other securities convertible into or carrying warrants, rights or
options to purchase, shares of any class of stock or series of any class of
stock of the Corporation, now or hereafter authorized, or any warrants, rights
or options to purchase, subscribe to or otherwise acquire any such new or
additional shares of any class of stock or series of any class of stock of the
Corporation, now or hereafter authorized, whether or not the issuance of such
shares, such notes, debentures, bonds or other securities, or such warrants,
rights or options would adversely affect the dividend, voting or any other
rights of such stockholder.
ARTICLE VII
Cumulative voting for the election of directors shall not be permitted.
ARTICLE VIII
The holders of any bonds, debentures or other obligations outstanding
or hereafter issued by the Corporation shall have no power to vote in respect to
corporate affairs and management of the Corporation by reason thereof, nor shall
such holders by reason thereof have any right of inspection of the books,
accounts and other records of the Corporation and any other rights which the
stockholders of the Corporation have by reason of the TBCA of the State of Texas
as the same exists or may hereafter be amended.
ARTICLE IX
(A) These Articles of Incorporation shall not be amended unless, in
addition to any other requirements therefor imposed by law, the holders of at
least two-thirds of the shares of stock of the Corporation entitled to vote
thereon shall have voted in favor of the proposed amendment.
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(B) The Board of Directors is expressly authorized to alter, amend or
repeal the Bylaws of the Corporation or to adopt new Bylaws.
ARTICLE X
The Board of Directors of the Corporation may, if it deems advisable,
oppose a tender or other offer for the Corporation's securities, whether the
offer is in cash or in the securities of another corporation or otherwise. When
considering whether to oppose an offer, the Board of Directors may, but is not
legally obligated to, consider any pertinent issues; by way of illustration, but
not of limitation, the Board of directors may, but shall not be legally
obligated to, consider all or any of the following:
(i) Whether the offer price is acceptable based on the historical
and present operating results or financial condition of the Corporation;
(ii) Whether a more favorable price could be obtained for the
Corporation's securities in the future;
(iii) The impact which an acquisition of the Corporation would have
on the employees, customers, suppliers and creditors of the Corporation and
its subsidiaries and the communities which they serve;
(iv) The reputation and business practices of the offeror and its
management and affiliates as they would affect the employees, customers,
suppliers and creditors of the Corporation and its subsidiaries and the
future value of the Corporation's stock by the value of the securities, if
any, that the offeror is offering in exchange for the Corporation's
securities, based on an analysis of the worth of the Corporation as
compared to the offeror or any other entity whose securities are being
offered, and the financial condition of the offeror or such other entity;
and
(v) Any antitrust or other legal or regulatory issues that are
raised by the offer.
ARTICLE XI
(A) No director of the Corporation shall be liable to the Corporation or
any of its stockholders for monetary damages for an act or omission in the
director's capacity as a director; provided that this Article XI shall not
eliminate or limit the liability of a director of the Corporation:
(i) for any breach of such director's duty of loyalty to the
Corporation or its stockholders;
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(ii) for acts or omissions not in good faith that constitutes a
breach of duty of the director to the Corporation or that involve
intentional misconduct or a knowing violation of law;
(iii) for any transaction from which such director derived an
improper personal benefit, whether the benefit resulted from an action
taken within the scope of the director's office; or
(iv) for an act or omission for which liability of a director is
expressed provided by an applicable statute.
(B) If Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act
("TMCLA") hereafter is amended to authorize the further elimination or
limitation of the liability of directors of the Corporation, then the liability
of a director of the Corporation shall be limited to the fullest extent
permitted by the TMCLA, as so amended, and such limitation of liability shall be
in addition to, and not in lieu of, the limitation on the liability of a
director of the Corporation provided by the foregoing provisions of this Article
XI.
(C) Any repeal of or amendment to this Article XI shall be prospective
only and shall not adversely affect any limitation on the liability of a
director of the Corporation existing at the time of such repeal or amendment.
ARTICLE XII
The Corporation shall indemnify every director or officer, their heirs,
executors and administrators, to the full extent as provided by, and in
accordance with, Article 2.02-1 of the TBCA, as it presently exists and as it is
amended, against expenses actually and reasonably incurred by him, as well as
any amount paid upon a judgment in connection with any action, suit or
proceeding, civil or criminal, to which he may be made a party by reason of his
being or having been a director or officer of the Corporation, or at the request
of the Corporation, having been a director or officer of any other corporation
of which the Corporation was at such time a shareholder or creditor and from
which other corporation he is not entitled to be indemnified, except in relation
to matters as to which he is found liable on the basis that personal benefit was
improperly received by him, or in which he shall be found liable to the
Corporation. In the event of a settlement, indemnification shall be provided
only in connection with such matters covered by the settlement as to which the
Corporation is advised by its special legal counsel that the person to be
indemnified did not commit such a breach of duty. The foregoing shall not be
exclusive of other rights to which the officer or director may be entitled.
ARTICLE XIII
No contract or other transaction between the Corporation and any other
corporation shall be affected by the fact that one (1) or more of the directors
or officers of this Corporation is interested
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in or is a director or officer of such other corporation and any director or
officer individually may be a party to or may be interested in any contract or
transaction of this Corporation. No contract or transaction of this Corporation
with any person or persons, firm or association shall be affected by the fact
that any director or officer of this Corporation is a party or interested in
such contract or transaction, or in any way connected with such person or
persons, firm or association, provided that the interest in any such contract or
other transaction of any such director or officer shall be fully disclosed and
that such contract or other transaction shall be authorized or ratified by the
vote of a sufficient number of Directors of the Corporation not so interested.
In the absence of fraud, no director or officer having such adverse interest
shall be liable to the Corporation or to any shareholder or creditor thereof, or
to any other person for any loss incurred by it under or by reason of such
contract or transaction, nor shall any such director or officer be accountable
for any gains or profits realized thereon. In any case described in this
Article XIII any such director may be counted in determining the existence of a
quorum at any meeting of the board of directors which shall authorize or ratify
any such contract or transaction.
ARTICLE XIV
The address of the initial registered office of the Corporation is 3
Riverway, Suite 1710, Houston, Texas 77056. The name of the initial registered
agent of the Corporation at such address is Jose E. Kauachi.
ARTICLE XV
The initial Board of Directors shall consist of four directors. The
persons who are to serve as directors until the first annual meeting of
shareholders or until their successors are elected and qualified are:
Jose E. Kauachi
3 Riverway, Suite 1710
Houston, Texas 77056
William F. Donovan, M.D.
3 Riverway, Suite 1710
Houston, Texas 77056
James H. Brock, Jr.
3 Riverway, Suite 1710
Houston, Texas 77056
G. William Tate, M.D.
15035 E. Freeway
Channelview, Texas 77530
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ARTICLE XVI
Special meetings of the shareholders may be called by (i) the president,
the board of directors, or (ii) the holders of not less than fifty percent (50%)
of shares entitled to vote at the proposed special meeting.
ARTICLE XVII
Any action required by the TBCA to be taken at any annual or special
meeting of shareholders, or any action which may be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holder or holders of shares bearing
not less than the minimum number of votes that would be necessary to take such
action at a meeting at which the holders of all shares entitled to vote on the
actions were present to vote.
Dated the 22nd day of May, 1996.
DRCA MEDICAL CORPORATION
By: /s/ Jeff R. Casey
-------------------------------
Name: Jeff R. Casey
-------------------------------
Title: Senior Vice President
-------------------------------
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CERTIFICATE OF DESIGNATION OF SERIES
AND DETERMINATION OF RIGHTS AND PREFERENCES
OF
CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
OF
DRCA MEDICAL CORPORATION
DRCA Medical Corporation, a Texas corporation (the "Company"), acting
pursuant to Article 2.13 of the Texas Business Corporation Act of Texas, does
hereby submit the following Certificate of Designation of Series and
Determination of Rights and Preferences of its Cumulative Convertible Preferred
Stock, Series A.
FIRST: The name of the Company is DRCA Medical Corporation.
SECOND: By unanimous consent of the Board of Directors of the Company
dated May 9, 1996, the following resolutions were duly adopted:
WHEREAS, the Articles of Incorporation of the Company authorizes
Preferred Stock consisting of 10,000,000 shares, par value $.01 per share,
issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of the Company is authorized,
subject to limitations prescribed by law and by the provisions of Article V
of the Company's Articles of Incorporation, as amended, to establish and
fix the number of shares to be included in any series of Preferred Stock
and the designation, rights, preferences, powers, restrictions and
limitations of the shares of such series; and
WHEREAS, it is the desire of the Board of Directors to establish
and fix the number of shares to be included in a new series of Preferred
Stock and the designation, rights, preferences and limitations of the
shares of such new series;
NOW, THEREFORE, BE IT RESOLVED that pursuant to Article V of the
Company's Articles of Incorporation, as amended, there is hereby
established a new series of 26,000 shares of cumulative convertible
preferred stock of the Company (the "Series A Preferred Stock") to have the
designation, rights, preferences, powers, restrictions and limitations set
forth in a supplement of Article V as follows:
<PAGE>
1. Dividends.
The holders of the Series A Preferred Stock shall be entitled to
receive, out of funds legally available therefor, cumulative dividends at the
rate of (i) $8.00 per share for the period beginning on the date of issuance and
ending on June 30, 2001, (ii) $10.00 per share for the period beginning July 1,
2001 and ending on June 30, 2002, (iii) $12.00 per share for the period
beginning July 1, 2002 and ending on June 30, 2003, and (iv) $16.00 per share
after July 1, 2004 (subject to appropriate adjustments in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares) per annum, and no more, payable quarterly on March 31, June 30,
September 30 and December 31. Such dividends shall first be payable on June 30,
1999. Such dividends shall be payable in preference and priority to any payment
of any cash dividend on Common Stock or any other shares of capital stock of the
Company other than the Series A Preferred Stock (such Common Stock and other
inferior stock being collectively referred to as "Junior Stock"), when and as
declared by the Board of Directors of the Company. Notwithstanding the
foregoing, the Company may defer payment of accrued dividends to the holders of
the Series A Preferred Stock to the extent the dividends cannot be paid from the
Company's "Free Cash Flow" (as hereinafter defined). Such dividends may be
deferred until the earlier of such times as Free Cash Flow is available for
payment of same or June 30, 2001.
Free Cash Flow is defined as the Net Increase in Cash and Cash
Equivalents (as expressed in the Company's "Consolidated Statement of Cash
Flows" for the number of months which have passed since the end of the prior
fiscal year, calculated as of the end of the month most recently ended prior to
the due date of a dividend payment), adjusted to eliminate any net cash provided
or used by financing activities, minus any accrued dividends on Series A
Preferred Stock, less $750,000.
Such dividends shall (even though such dividends are not payable until
beginning June 30, 1999) accrue with respect to each share of Series A Preferred
Stock from the date on which such share is issued and outstanding and thereafter
shall be deemed to accrue from day to day whether or not earned or declared and
whether or not there exists profits, surplus or other funds legally available
for the payment of dividends, and shall be cumulative so that if such dividends
on the Series A Preferred Stock shall not have been paid, or declared and set
apart for payment, the deficiency shall be fully paid or declared and set apart
for payment before any dividend shall be paid or declared or set apart for any
Junior Stock and before any purchase or acquisition of any Junior Stock is made
by the Company. At the earlier of: (1) the redemption of the Series A Preferred
Stock, (2) the liquidation, sale or merger of the Company or (3) June 30, 2001,
any accrued but unpaid dividends shall be paid to the holders of record of
outstanding shares of Series A Preferred Stock.
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The Company shall give written notice, sent by first class certified
mail, postage prepaid and return receipt requested, specifying the date and
amount of each dividend to be paid on Series A Preferred Stock, at least 5 days
in advance of the dividend payment date to all holders of record of the Series A
Preferred Stock as their names and addresses appear on the share register of the
Company on the date of such notice. Each dividend shall be mailed to the holders
of record of the Series A Preferred Stock as their names and addresses appear on
the share register of the Company on the corresponding dividend payment date.
Anything contained in this Section 1 to the contrary notwithstanding, the
holders of shares of Series A Preferred Stock with respect to which dividends
are to be paid in accordance with this Section shall have the right, exercisable
at any time up to the close of business on the applicable dividend payment date
to convert all or any part of such shares into shares of Common Stock pursuant
to Section 4 hereof and for such purpose such dividend shall not be deemed to
have been paid or set apart at the date of such conversion.
2. Liquidation, Dissolution or Winding Up.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, the holders of shares of Series A Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the Company
available for distribution to its stockholders, before any payment shall be made
to the holders of Junior Stock by reason of their ownership thereof, an amount
equal to $100 per share of Series A Preferred Stock plus the amount of any
accrued but unpaid dividends (whether or not declared). If upon any such
liquidation, dissolution or winding up of the Company the remaining assets of
the Company available for distribution to stockholders shall be insufficient to
pay the holders of shares of Series A Preferred Stock the full amount to which
they shall be entitled, the holders of shares of Series A Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Company in proportion to the respective amounts which would otherwise be payable
in respect of the shares held by them upon such distribution if all amounts
payable on or with respect to such shares were paid in full.
3. Voting.
(a) Number of Votes; Voting with Common Stock. Each holder of
outstanding shares of Series A Preferred Stock shall be entitled to the number
of votes equal to the number of whole shares of Common Stock into which the
shares of Series A Preferred Stock held by such holder are convertible (as
adjusted from time to time pursuant to Section 4 hereof), at each meeting of
stockholders of the Company (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Company for their action or consideration. Except as provided by law, by the
provisions of Subsection 3(b) or 3(c) below, or by the provisions establishing
any other series of Preferred Stock,
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holders of Series A Preferred Stock shall vote together with the holders of
Common Stock as a single class.
(b) Adverse Effects. The Company shall not amend, alter or repeal
preferences, rights, powers or other terms of the Series A Preferred Stock so as
to affect adversely the Series A Preferred Stock, without the written consent or
affirmative vote of the holders of at least 66-2/3% of the then outstanding
shares of Series A Preferred Stock given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization or
issuance of any series of Preferred Stock which is on a parity with or has
preference or priority over the Series A Preferred stock as to the right to
receive either dividends or amounts distributable upon liquidation, dissolution
or winding up of the Company shall be deemed to affect adversely the Series A
Preferred Stock. A class vote on the part of the Series A Preferred Stock shall,
without limitation, specifically not be deemed to be required (except as
otherwise required by law or resolution of the Company's Board of Directors) in
connection with: (a) the authorization, issuance or increase in the authorized
amount of any shares of any other class or series of stock which ranks junior
to, the Series A Preferred Stock in respect of the payment of dividends and
distributions upon liquidation, dissolution or winding up of the Company; or (b)
the authorization, issuance or increase in the amount of any bonds, mortgages,
debentures or other obligations of the Corporation.
(c) Mergers, etc. The consent of the holders of not less than 66-2/3%
of the outstanding Series A Preferred stock, voting separately as a single
class, in person or by proxy, either in writing without a meeting or at a
special or annual meeting of shareholders called for the purpose, shall be
necessary for the Company to sell all or substantially all of the Company's
assets or effect any merger, consolidation, share exchange or similar
transaction to which the Company is a party, or to enter into any other
transaction resulting in the acquisition of a majority of the then outstanding
voting stock of the Company by another corporation or entity.
(d) After June 30, 2001. After June 30, 2001, the number of directors
constituting the Board of Directors of the Company shall be increased by one,
and the holders of Series A Preferred Stock, voting as a separate series shall
be entitled by written consent or at the next annual meeting of stockholders or
the next special meeting of stockholders, or at a special meeting of holders of
Series A Preferred Stock called as hereinafter provided, to elect a director to
fill such newly created directorship, without diminution of their right to
participate with holders of Common Stock and holders, if any, of any other
capital stock of the Corporation entitled to vote for the election of directors
in the election of any other directors.
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Whenever such voting right shall vest, it may be exercised initially by
consent in writing of the holders of two-thirds (2/3) of the Series A Preferred
Stock at the time outstanding or at a special meeting of holders of Series A
Preferred Stock or at any annual or special stockholders' meeting, but
thereafter it shall be exercised only at annual stockholders' meetings. A
special meeting for the exercise of such right shall be called by the Secretary
of the Corporation within ten days after receipt of a written request therefor,
signed by the holders of record of at least 10% of the votes of the then
outstanding shares of Series A Preferred Stock; however, no such special meeting
shall be held during the 90-day period preceding the date fixed for the annual
meeting of stockholders.
Any director who shall have been elected by holders of Series A
Preferred Stock as a series pursuant to this subsection shall hold office for a
term expiring (subject to the earlier termination of arrearages) at the next
annual meeting of stockholders, and during such term may be removed at any time,
either for or without cause, only by the affirmative votes of holders of record
of a majority of the votes of the then outstanding shares of Series A Preferred
Stock given at a special meeting of such stockholders called for the purpose or
by written consent of two-thirds (2/3). Any vacancy created by such removal may
also be filled at such meeting or by such a consent. A meeting for the removal
of a director elected by holders of Series A Preferred Stock as a series and the
filling of the vacancy created thereby shall be called by the Secretary of the
Corporation within ten days after receipt of a written request therefor, signed
by the holders of not less than 25% of the votes of the then outstanding shares
of Series A Preferred Stock. Such meeting shall be held at the earliest
practicable date thereafter.
Any vacancy caused by the death, resignation, or expiration of term
(except upon a termination of arrearages) of a director who shall have been
elected by the holders of Series A Preferred Stock as a series pursuant to this
subsection may be filled only by the holders of Series A Preferred Stock by
written consent of two-thirds (2/3), at any annual or special stockholders'
meeting, or at a meeting called for such purpose. Such meeting of the holders of
Series A Preferred Stock shall be called by the Secretary of the Corporation at
the earliest practicable date after any such death or resignation and in any
event within ten days after receipt of a written request therefor, signed by the
holders of record of at least 10% of the votes of the then outstanding shares of
Series A Preferred Stock.
If any meeting of the holders of Series A Preferred Stock required by
this subsection to be called shall not have been called within ten days after
personal service of a written request therefor upon the Secretary of the
Corporation or within 15 days after mailing the same within the United States of
America by registered mail addressed to the Secretary of the Corporation at its
principal office, then holders of record of at least 10% of the votes of the
then outstanding shares of Series A
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<PAGE>
Preferred Stock may designate in writing one of their number to call such a
meeting may be called by such person so designated upon the notice required for
annual meetings of stockholders. Any holder of Series A Preferred Stock so
designated shall have access to the stock books of the Company for the purpose
of causing meetings of stockholders to be called pursuant to these provisions.
Any meeting of holders of Series A Preferred Stock to vote as a series
for the election or removal of directors shall be held at such place or places
designated in the Company's Bylaws for meeting of its stockholders or at such
other place as the holders of at least 10% of the votes of the then outstanding
shares of Series A Preferred Stock may designate. At such meeting, the presence
in person or by proxy of holders of a majority of the votes of the then
outstanding shares of Series A Preferred Stock shall be required to constitute a
quorum; in the absence of a quorum, a majority of the holders present in person
or by proxy shall have power to adjourn the meeting from time to time without
notice, other than announcement at the meeting, until a quorum shall be present.
4. Optional Conversion.
The holders of the Series A Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred stock shall be
convertible, at the option of the holder thereof, without the payment of
additional consideration by the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing the amount a holder of one share of Series A Preferred
Stock would be entitled to receive pursuant to Section 2 hereof upon the
liquidation, dissolution or winding up of the Company by the Conversion Price
(as defined below) in effect at the time of conversion. The Conversion Price at
which shares of Common Stock shall be deliverable upon conversion of Series A
Preferred Stock (the "Conversion Price") shall initially be $3.50. Such initial
Conversion Price, and the rate at which shares of Series A Preferred Stock may
be converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a liquidation of the Company, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of fractional
shares, the
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<PAGE>
Company shall pay cash equal to such fraction multiplied by the then effective
Conversion Price.
(c) Mechanics of Conversion.
(i) In order to convert shares of Series A Preferred Stock into
shares of Common Stock, the holder shall surrender the certificate or
certificates for such shares of Series A Preferred Stock at the principal office
of the Company, together with written notice that such holder elects to convert
all or any number of the shares represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. If required by the Company, certificates surrendered for conversion
shall be endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Company, duly executed by the registered
holder or his or its attorney duly authorized in writing. The date of receipt of
such certificates and notice by the Company shall be the conversion date
("Conversion Date"). The Company shall, as soon as practicable after the
Conversion Date, issue and deliver at the place requested by such holder, or to
his nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Company shall at all times during which the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Company will take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Conversion Price.
(iii) All shares of Series A Preferred Stock surrendered for
conversion as herein provided shall no longer be deemed to be outstanding, and
all rights with respect to such shares, including the rights, if any, to receive
dividends, notices and to vote, shall immediately cease and terminate on the
Conversion Date, except only the right of the holders thereof to receive shares
of Common Stock and cash in lieu of fractional shares in exchange therefore. Any
shares of Series A Preferred Stock so converted shall be retired and cancelled
and shall not be reissued, and the Company may from time to time take such
appropriate action as may be necessary to reduce the number of shares of
authorized Series A Preferred Stock accordingly.
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(iv) If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Securities Act of 1933, as
amended, the conversion may at the option of any holder tendering Series A
Preferred Stock for conversion be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock issuable upon such conversion
of the Series A Preferred Stock shall not be deemed to have converted such
Series A Preferred Stock until simultaneously with or immediately prior to the
closing of the sale of securities.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding "Key Employee Options" (as defined below).
(B) "Original Issue Date" shall mean the date on which the
first share of Series A Preferred Stock is first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to subsection 4(d)(iii) below,
deemed to be issued) by the Company after the Original Issue Date, other than
shares of Common Stock issued or issuable:
(1) as a dividend or distribution on Series A
Preferred Stock;
(2) by reason of a dividend, stock split, split-up or
other distribution on shares of Common Stock
excluded from the definition of Additional Shares
of Common Stock by the foregoing clause (1);
(3) upon the exercise of Key Employee Options;
(4) upon conversion of shares of Series A
Preferred Stock; or
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(5) upon the exercise or conversion of an Option or
any Rights to Acquire Common Stock granted or
issued by the Company on or before April 12, 1996.
(E) "Key Employee Options" shall mean rights or options
granted to employees, directors or consultants of the Company pursuant to the
Company's 1988 Stock Option Plan, not exercisable in the aggregate (including
options already granted under such Plan) for more than 1,000,000 shares.
(F) "Rights to Acquire Common Stock" (or "Rights") shall
mean all rights whatever issued by the Company to acquire Common Stock by
exercise of a warrant, option or similar call or conversion of any existing
instruments, in either case for consideration fixed, in amount or by formula, as
of the date of issuance.
(ii) No Adjustment of Conversion Price. No adjustment of the number of
shares of Common Stock into which the Series A Preferred Stock is convertible
shall be made, by adjustment in the applicable Conversion Price thereof: (a)
unless the consideration per share (determined pursuant to Subsection 4(d)(v))
below for an Additional Share of Common Stock issued or deemed to be issued by
the Company is less than the applicable Conversion Price in effect on the date
of, and immediately prior to, the issue of such additional shares, or (b) if
prior to such issuance, the Company receives written notice from holders of at
least 66-2/3% of the then outstanding shares of Series A Preferred Stock
agreeing that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
Stock. If the Company at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or other Rights to
Acquire Common Stock, then the maximum number of shares of Common Stock (as set
forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options, Rights or, in the case of Convertible Securities, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, provided
that Additional Shares of Common Stock shall not be deemed to have been issued
unless the consideration per share (determined pursuant to Subsection 4(d)(v)
hereof) of such Additional Shares of Common Stock would be less than the
applicable Conversion Price in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
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<PAGE>
(A) No further adjustment in the Conversion Price shall be made
upon the subsequent issue of shares of Common Stock upon the exercise of such
Rights or conversion or exchange of such Convertible Securities;
(B) Upon the expiration or termination of any unexercised Option
or Right, the Conversion Price shall not be readjusted, but the Additional
Shares of Common Stock deemed issued as the result of the original issue of such
Option or Right shall not be deemed issued for the purposes of any subsequent
adjustment of the Conversion Price; and
(C) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any Option, Right or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted (but not upwards) to such Conversion Price as would have
obtained had the adjustment that was made upon the issuance of such Option,
Right or Convertible Security not exercised or converted prior to such change
been made upon the basis of such change, but no further adjustment shall be made
for the actual issuance of Common Stock upon the exercise or conversion of any
such Option, Right or Convertible Security.
(iv) Adjustment of Conversion Price upon Issuance of Additional Shares
of Common Stock. If the Company shall at any time after the Original Issue Date
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Subsection 4(d)(iii), but excluding shares
issued as a dividend or distribution as provided in Subsection 4(f) or upon a
stock split or combination as provided in Subsection 4(e)), without
consideration or for a consideration per share less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue to a price (calculated to the nearest cent) equal to the
consideration per share received by the Company for such Additional Shares of
Common Stock.
Notwithstanding the foregoing, the applicable Conversion Price shall
not be reduced if the amount of such reduction would be an amount less than
$.01, but any such amount shall be carried forward and reduction with respect
thereto made at the time of and together with any subsequent reduction which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate $.01 or more.
(v) Determination of Consideration. For purposes of this Subsection
4(d), the consideration received by the Company for the issue of any Additional
Shares of Common Stock shall be computed as follows:
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(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding
amounts paid or payable for accrued interest or accrued
dividends;
(2) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of
such issue, as determined in good faith by the Company's
Board of Directors; and
(3) in the even Additional Shares of Common Stock are issued
together with other shares or securities or other assets
of the Company for consideration which covers both, be
the proportion of such consideration so received,
computed as provided in clauses (1) and (2) above, as
determined in good faith by the Company's Board of
Directors.
(B) Options, Rights and Convertible Securities: The consideration
per share received by the Company for Additional Shares of Common Stock deemed
to have been issued pursuant to Subsection 4(d)(iii), relating to Options,
Rights and Convertible Securities, shall be determined by dividing
. the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options,
Rights or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise of
such Options, Rights or the conversion or exchange of such
Convertible Securities, by
. the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or
Rights or the conversion or exchange of such Convertible
Securities.
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<PAGE>
(e) Adjustment for Stock Splits and Combinations. If the Company
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Company shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date shall
make or issue a dividend or other distribution payable in Additional Shares of
Common Stock, then and in each such event the Conversion Price shall be
decreased as of the time of such issuance, by multiplying the Conversion Price
by a fraction;
. the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to
the time of such issuance, and
. the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to
the time of such issuance plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution.
(g) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date shall
make or issue a dividend or other distribution payable in securities of the
Company other than shares of Common Stock, then and in each such event provision
shall be made so that the holders of shares of the Series A Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Company that
they would have received had their Series A Preferred Stock been converted into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period given application
to all adjustments called for during such period, under this paragraph with
respect to the rights of the holders of the Series A Preferred Stock.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock,
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whether by capital reorganization, reclassification, or otherwise (other of
assets for below), then and in each such event the holder of each share of
Series A Preferred Stock shall have the right thereafter to convert such share
into the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification, or other change, by
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation, merger or share exchange of the Company with or into another
corporation or the sale of all or substantially all of the assets of the Company
to another corporation to which the holders of Series A Preferred Stock shall
have consented in accordance with Section 3 hereof, then each share of Series A
Preferred Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Company deliverable upon conversion of such
Series A Preferred Stock would have been entitled upon such consolidation,
merger or sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and interest
thereafter of the holders of the Series A Preferred Stock, to the end that the
provisions set forth in this Section 4 (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series A
Preferred Stock.
(j) No Impairment. The Company will not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid 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 the carrying out of all
the provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment and showing
in detail the facts upon which such adjustment or readjustment is based and
shall file a copy of such certificate with
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<PAGE>
its corporate records. The Company shall, upon the written request at any time
of any holder of Series A Preferred Stock, furnish or cause to be furnished to
such holder a similar certificate setting forth (1) such adjustments and
readjustments, (2) the Conversion Price then in effect, and (3) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series A Preferred Stock. Despite such
adjustment or readjustment, the form of each or all stock certificate
representing Series A Preferred Stock, if the same shall reflect the initial or
any subsequent conversion price, need not be changed in order for the
adjustments or readjustments to be valued in accordance with the provisions of
this Certificate of Designation, which shall control.
(l) Notice of Record Date. In the event:
1. that the Company declares a dividend (or any other
distribution) on its Common Stock;
2. that the Company subdivides or combines its outstanding
shares of Common Stock;
3. of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation, merger or
share exchange of the Company into or with another
corporation, or of the sale of all or substantially all of
the assets of the Company; or
4. of the involuntary or voluntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed at its principal office and shall cause
to be mailed to the holders of the Series A Preferred Stock at their last
addresses as shown on the records of the Company, at least 20 days prior to the
record date specified in (A) below or 20 days before the date specified in (B)
below, a notice stating
(A) the record date of such dividend, distribution, subdivision
or combination, or, if a record is not to be taken, the date as to which the
holders of Common Stock of record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, share exchange, sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of
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<PAGE>
record shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.
5. Mandatory Conversion.
(a) Mandatory Conversion. The Company may, at its option, require all
(and not less than all) holders of shares of Series A Preferred Stock then
outstanding to convert their shares of Series A Preferred Stock into shares of
Common Stock, at the then effective conversion rate pursuant to Section 4 hereof
if the average daily trading volume of Common Stock for the 30 consecutive days
of trading ending not more than 5 calendar days immediately preceding the date
of the notice described in subsection 5(b) hereof equals or exceeds 16,500
shares (33,000 if the principal trading market for Common Stock is a NASDAQ or
other over-the-counter market and such market includes, or "double counts," both
buy and sell transactions with respect to the same shares in reporting volume)
and the Company's Common Stock shall have had an average closing market price on
the principal stock exchange on which it is listed (or, if not listed on any
stock exchange, a last sale price on the NASDAQ National Market System, or if
not listed or admitted to trading on such system, a closing bid price in the
over-the-counter market) of not less than $5.50 (subject to appropriate
adjustments in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares) on the same period of 30
consecutive trading days.
(b) Notice. All holders of record of shares of Series A Preferred
Stock then outstanding will be given at least 10 days' prior written notice of
the date fixed and the place designated for mandatory or special conversion of
all such shares of Series A Preferred Stock pursuant to this Section 5. Such
notice will be sent by first class or registered mail, postage prepaid, to each
record holder of Series A Preferred Stock at such holder's address last shown on
the records of the Company.
6. Redemption of the Series A Preferred Stock.
(a) Optional Redemption; Notice. If, on June 30, 2001, any shares of
Series A Preferred Stock shall be then outstanding, the Company may redeem
(unless otherwise prevented by law) all (but not less than all) such outstanding
shares at any amount per share equal to $100.00 plus an amount equal to accrued
but unpaid dividends, if any, to the date of redemption of such share (the
"Redemption Price"). 60 days' prior notice by the Company of such redemption
shall be sent by first-class certified mail, postage prepaid and return receipt
requested, by the Company to the holders of the shares of Series A Preferred
Stock to be redeemed at their respective addresses as the same shall appear on
the books of the Company.
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<PAGE>
(b) Deposit. On or prior to the date of redemption contained in a notice
pursuant to Section 6(a) hereof (the "Redemption Date"), the Company shall
deposit the Redemption Price of all shares of Series A Preferred Stock with a
bank or trust corporation having aggregate capital and surplus in excess of
$100,000 as a trust fund for the benefit of the respective holders of Series A
Preferred Stock, with irrevocable instructions and authority to the bank or
trust corporation to pay the Redemption Price for such shares to their
respective holder on or after the Redemption Date upon receipt of his share
certificate or notification from the Company that such holder has surrendered
his share certificate to the Company. As of the Redemption Date, the deposit
shall constitute full payment of the Redemption Price to their holders, and from
and after the Redemption Date the shares so called for redemption shall be
redeemed and shall be deemed to be no longer outstanding, and the holders
thereof shall cease to be stockholders with respect to such shares and shall
have no rights with respect thereto except the rights to receive from the bank
or trust corporation payment of the Redemption Price of the shares, without
interest, upon surrender of their certificates therefor. Such instructions shall
also provide that any moneys deposited by the Company pursuant to this Section
6(b) for the redemption of the shares thereafter converted into shares of the
Company's Common Stock pursuant to Section 4 hereof prior to Redemption Date
shall be returned to the Company forthwith upon such conversion. The balance of
any moneys deposited by the Company pursuant to this Section 6(b) remaining
unclaimed at the expiration of six (6) months following the Redemption Date
shall thereafter be returned to the Company upon its request expressed in a
resolution of its Board of Directors. The Company will be responsible for costs
and expenses to be incurred in connection with such deposit arrangement, such
amounts to be offset by any interest earned on the deposit, with any excess
interest to be payable to the Company.
(c) Cancellation of Redeemed Stock. Any shares of Series A Preferred Stock
redeemed pursuant to this Section or otherwise acquired by the Company in any
manner whatsoever shall be cancelled and shall not under any circumstances be
reissued; the Company may from time to time take such appropriate corporate
action as may be necessary to reduce accordingly the number of authorized shares
of the Company's capital stock.
(d) Repurchase Prohibited. The Company will not, and will not permit any
affiliate (as defined in the Securities Exchange Act of 1934, as amended) of the
Company to, purchase or acquire any shares of Series A Preferred Stock otherwise
than pursuant to (1) the terms of this Section 6, or (2) an offer made on the
same terms to all holders of Series A Preferred Stock at the time outstanding.
(e) Right to Convert Unaffected. Anything contained in this Section 6 to
the contrary notwithstanding, the holders of shares of Series A Preferred Stock
to be redeemed in accordance with this Section 6 shall have the right,
exercisable at any
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time up to the close of business on the applicable redemption date (unless the
Company is legally prohibited from redeeming such shares on such date, in which
event such right shall be exercisable until the removal of such legal
disability), to convert all or any part of such shares to be redeemed as herein
provided into shares of Common Stock pursuant to Section 4 hereof.
7. Sinking Fund.
There shall be no sinking fund for the payment of dividends or liquidation
preference on Series A Preferred Stock or the redemption of any shares thereof.
8. Amendment.
This Certificate of Designation constitutes an agreement between the
Company and the holders of the Series A Preferred Stock. It may be amended by
vote of the Board of Directors of the Company and the holders of two-thirds
(2/3) of the outstanding shares of Series A Preferred Stock.
THIRD: The foregoing resolutions have been adopted by all necessary
action on the part of the Company.
Dated: May 14, 1996
DRCA MEDICAL CORPORATION
By: /s/ Jeff R. Casey
-----------------------------------
Name: Jeff R. Casey
-----------------------------------
Title: Senior Vice President
-----------------------------------
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EXHIBIT 10.50
INVESTMENT AGREEMENT, dated as of April 12, 1996, by and between DRCA
Medical Corporation, a Texas corporation (the "Borrower") and Chartwell Capital
Investors, L.P., a Delaware limited partnership (the "Lender")
W I T N E S S E T H :
WHEREAS, the Borrower is a publicly traded corporation engaged in the
business of managing physicians' practices; and
WHEREAS, the Borrower desires to expand its business; and
WHEREAS, the Borrower has requested that Lender make available a credit
facility of $2,500,000; and
WHEREAS, subject to and upon the terms and conditions herein set forth, the
Lender is willing to make available to the Borrower the credit facility provided
for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Affiliate" shall mean with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person and any Person that directly or indirectly owns
more than 5% of the Borrower, and any officer or director of the Borrower, or
any Affiliate of any such Person. A Person shall be deemed to control another
Person if such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such other Person, whether
through the ownership of voting securities, by contract or otherwise. PhysiCare,
L.L.P., is an Affiliate of the Borrower and its Subsidiaries.
"Agreement" shall mean this Investment Agreement, as modified supplemented
or amended from time to time.
"Bankruptcy Code" shall have the meaning provided in Section 9.5.
"Borrower" shall have the meaning ascribed thereto in the first paragraph
of this Agreement.
<PAGE>
"Borrowing Entities" shall mean the Borrower, its Subsidiaries and all
entities whose operations are consolidated with the Borrower for financial
reporting purposes.
"Borrowing Date" shall mean the date occurring on or after the Effective
Date on which the proceeds of the Loan are made available to the Borrower.
"Budget" shall have the meaning provided in Section 6.1(d).
"Business Day" shall mean any day except Saturday, Sunday and any day which
shall be in New York City, a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued or
directly and fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities of not more than six
months from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial bank incorporated in the United States of recognized
standing having capital and surplus in excess of $500,000,000 with maturities of
not more than six months from the date of acquisition by such Person, (iii)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) specified in the clause (ii)
above, (iv) commercial paper issued by the parent corporation of any commercial
bank (provided that the parent corporation and the bank are both incorporated in
the United States) of recognized standing having capital and surplus in excess
of $500,000,000 and commercial paper issued by any Person incorporated in the
United States, which commercial paper is rated at least A-1 or the equivalent
thereof by Standard & Poor's Corporation or at least P-1 or the equivalent
thereof by Moody's Investors Service, Inc. and in each case maturing not more
than six months after the date of acquisition by such Person and (v) investments
in money market funds substantially all the assets of which are comprised of
securities of the types described in clauses (i) through (iv) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the voting common stock of the Borrower and any
stock into which such Common Stock may thereafter have been changed.
"Consulting Agreement" shall mean the Consulting Agreement in the form of
Exhibit A hereto.
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"Contingent Obligation" shall mean, as to any Person, any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of primary obligor, (iii) to purchase property, securities
or services primarily for the purpose of assuring the holder of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the holder of such
primary obligation against loss in respect thereof; provided, however, that the
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of primary obligation in respect of which such Contingent
Obligation is made, or if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder) as determined by such Person in good faith.
"Conversion" shall have the meaning provided in Section 8.1.
"Conversion Date" shall have the meaning provided in Section 8.1.
"Conversion Expiry Date" shall mean June 30, 1996.
"Conversion Notice" shall have the meaning provided in Section 8.3.
"Conversion Tests" shall have the meaning provided in Section 8.4.
"Credit Documents" shall mean this Agreement, the Note, the Warrant, the
Preferred Stock, the Tag-Along Rights Agreement, the Voting Agreement and the
Registration Rights Agreement.
"Default" shall mean any event, act or condition which notice or lapse of
time, or both, would constitute an Event of Default.
"Default Rate of Interest" shall have the meaning provided in Section 2.3.
3
<PAGE>
"Dollars" and the sign "$" shall each mean freely transferable lawful money
of the United States.
"Effective Date" shall have the meaning provided in Section 10.9.
"ERISA Affiliate" shall mean with respect to any Person any Person any
other Person with respect to whom such Person may have liability under ERISA.
"Event of Default" shall have the meaning provided in Section 9.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute then in effect, and a reference to a particular
section thereof shall be deemed to include a reference to the comparable
section, if any, of any such similar federal statute.
"Health Care Laws" shall mean the federal and state laws, regulations,
orders and restrictions governing the corporate practice of medicine, physician
self-referral and medical fraud and abuse.
"Indebtedness" shall mean, as to any Person, without duplication, (i) all
indebtedness (including principal, interest, fees and charges) of such Person
for borrowed money or for the deferred purchase price of property or services,
(ii) the face amount of all letters of credit issued for account of such Person
and all drafts drawn thereunder, (iii) all liabilities secured by any Lien on
any property owned by such Person, whether or not such liabilities have been
assumed by such Person, (iv) the aggregate amount required to be capitalized
under leases under which such Person is the lessee and (v) all Contingent
Obligations of such Person.
"Lender" shall have the meaning ascribed thereto in the first paragraph of
this Agreement.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), preference, priority or
other security agreement of any kind or nature whatsoever (including without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any other
similar recording or notice statute, and any lease having substantially the same
effect as any of the foregoing).
"Loan" shall have the meaning provided in Section 2.1.
"Maturity Date" shall mean June 30, 1996; provided, however, in the event
that Borrower is not able to obtain the
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approval of its shareholders necessary to authorize the issuance of the
Preferred Stock on or before June 30, 1996, the Maturity Date will be extended
until December 31, 1996.
"Note" shall have the meaning provided in Section 2.2.
"Permitted Liens" are liens permitted by Section 7.1.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any multiemployer plan or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute), or at any time during the five calendar
years preceding the date of this Agreement was maintained or contributed to by
(or to which there was an obligation to contribute), any of the Borrowing
Entities or an ERISA Affiliate of any of the Borrowing Entities.
"Preferred Stock" shall mean the Series A Convertible Preferred stock of
the Borrower containing the terms and conditions set forth in Exhibit B hereto.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement in the form of Exhibit C hereto.
"SEC" shall have the meaning provided in Section 6.1(g).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute then in effect, and a reference to a particular section
thereof shall be deemed to include a reference to the comparable section, if
any, of any similar federal statute.
"Subsidiary" shall mean, as to any Person, (i) any corporation more than
50% of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Subsidiaries of such Person has more than a 50% equity
interest at the time.
"Tag-Along Rights Agreement" shall mean the Tag-Along Rights Agreement in
the form of Exhibit D hereto.
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"Termination Date" shall mean the date of the earlier of (i) the redemption
for cash and cancellation of the Preferred Stock, (ii) the conversion of the
Preferred Stock into Common Stock or (iii) the issuance of Common Stock in
respect of the exercise of the Warrant Agreement.
"Transfer" shall mean sale, gift, pledge, assignment, bequest, transfer,
transfer in trust, mortgage alienation, hypothecation, encumbering or
disposition in any manner whatsoever, voluntarily or involuntarily, including,
without limitation, any attachment, assignment for the benefit of creditors or
transfer by operation of law or otherwise, or any transfer as a result of any
voluntary or involuntary legal proceedings, execution, sale, bankruptcy,
insolvency, or otherwise.
"UCC" shall mean the Uniform Commercial Code as from time to time in effect
in the relevant jurisdiction.
"United States" and "U.S." shall each mean the United States of America.
"Voting Agreement" shall mean the Voting and Brokerage Agreement in the
form of Exhibit E hereto.
"Warrant" shall mean the Warrant in the form of Exhibit F hereto.
1.2 Principles of Construction. (a) All references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not a particular provision of this Agreement.
(b) All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles in the United States
in conformity with those used in the preparation of the financial statements
referred to in Section 5.5 (a).
SECTION 2. AMOUNT AND TERMS OF CREDIT.
2.1 The Loan, Subject to and upon the terms and conditions set forth
herein, the Lender agrees to make a term loan (the "Loan") in an amount equal to
$2,500,000.
2.2 Note. The Borrower's obligation to pay the principal of, and interest
on, the loan made by Lender shall be evidenced by a subordinated promissory note
duly executed and delivered by the Borrower in the form of Exhibit G (the
"Note").
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2.3 Interest. (a) The Borrower agrees to pay interest in respect of the
unpaid principal amount of the Note from the Borrowing Date until the earlier of
the Maturity Date or the date an Event of Default occurs at a rate per annum
which shall be 10% until June 30, 1996, and 18% per annum thereafter; provided,
however, that if the Note is converted to shares of Preferred Stock pursuant to
Section 8, interest shall accrue until the Conversion Date. Except in the case
of an Event of Default and acceleration by Lender, subject to clause (b) below,
accrued interest shall be due and payable by the Borrower on the Maturity Date.
In the event that the Maturity Date is a date after June 30, 1996, (i) then
Borrower shall pay to the Lender on June 30, 1996, all interest accrued up to
such date; and (ii) after June 30, 1996, all accrued interest on the outstanding
principal amount of the Loan shall be due and payable on the last day of each
calendar month until the Maturity Date.
(b) If the Borrower satisfies the Conversion Tests provided for in Section
8.4 and requires the Conversion of the Loan into shares of Preferred Stock of
the Borrower, or if the Lender chooses to convert the Note into Preferred Stock
of the Borrower, accrued interest charges on the Loan up to the Conversion Date
shall be converted into Preferred Stock.
(c) If the Borrower defaults in the payment of the amounts due under
Section 2.3(a) hereof on the Maturity Date or an Event of Default occurs, the
rate of interest (the "Default Rate of Interest") payable on the total amount
owed (including principal and, if and to the extent permitted by law, accrued
interest and other amounts) shall be 18% per annum. Nothing set forth herein or
in any of the other Credit documents shall permit Lender to charge, or require
Borrower to pay, interest in excess of the lawful rate of interest. Any such
payment in excess of the lawful rate shall be credited to principal or refunded
to Borrower.
2.4 Warrant. The Borrower shall execute and deliver to the Lender with
the Note a detachable warrant in the form of the Warrant which shall be
surrendered by Lender to Borrower and cancelled upon Conversion and shall be
exercisable, if at all, by Lender only after the Maturity Date if the Conversion
has not occurred on or before the Maturity Date, all as more specifically set
forth in the Warrant.
SECTION 3. PREPAYMENTS; PAYMENTS.
3.1 Prepayments. Prior to June 30, 1996, except as otherwise provided in
Section 8 regarding the Borrower's right to cause a Conversion, the Borrower
shall have no right to prepay the Loan. On or after June 30, 1996, Borrower may
pay without penalty all or any portion of the amount owed earlier than it is
due.
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3.2 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under the Agreement or the Notes shall be made to
the Lender not later than 2:00 p.m. (Wilmington, Delaware time) on the date when
due and shall be made in Dollars in immediately available funds at Lender's
account at First Union National Bank of Delaware, Wilmington, Delaware. If any
payment to be made hereunder or under the Note shall be stated to be due on a
day which is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and, interest shall be payable at the applicable
rate during such extension.
3.3 Net Payments. All payments made by the Borrower hereunder or under
the Note will be made without setoff, counterclaim or other defense. All such
payments will be made free and clear of, and without deduction or withholding
for, any present or future taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction or
by any political subdivision or taxing authority thereof or therein with respect
to such payments (but excluding, except as provided in the second succeeding
sentence, any tax imposed on or measured by the net income or net profits of
Lender pursuant to the laws of the jurisdiction in which the principal office of
Lender is located or any subdivision thereof or therein) and all interest,
penalties or similar liabilities with respect to such non-excluded taxes,
levies, imposts, duties, fees, assessments or other charges (all such non-
excluded taxes, levies, imposts, duties, fees, assessments or another charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, the Borrower agrees to pay the full amount of such Taxes, and such
additional amounts as may be necessary so that every payment of all amounts due
under this Agreement or under the Note, after withholding or deduction for or on
account of any Taxes, will not be less than the amount provided for herein or in
the Note. The Borrower agrees to indemnify and hold harmless Lender, and
reimburse Lender upon its written requests, for the amount of any Taxes so
levied or imposed and paid by Lender.
SECTION 4. CONDITIONS PRECEDENT.
The obligation of Lender to make a loan hereunder is subject, at the time
of the making of such loan (except as hereinafter indicated), to the
satisfaction of the following conditions:
4.1 Execution of Agreement; Note and Warrant. On the Borrowing Date,
there shall have been delivered to Lender the Note and Warrant duly executed by
the Borrower in the amount, maturity and as otherwise provided herein.
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4.2 No Default; Representations and Warranties. At the time of the Loan
and also after giving effect thereto (i) there shall exist no Default or Event
of Default and (ii) all representations and warranties contained herein shall be
true and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such Loan.
4.3 Opinion of Counsel. On the Borrowing Date, Lender shall have received
from Hutcheson & Grundy, L.L.P., counsel to the Borrower, an opinion addressed
to the Lender and dated the Borrowing Date covering the matters incident to the
transactions contemplated herein as the Lenders may reasonably request in form
and substance satisfactory to the Lender and the Borrower.
4.4 Corporate Documents; Proceedings. (a) On the Borrowing Date, the
Lenders shall have received a certificate, dated the Borrowing Date, signed by
the President or any Vice President of the Borrower, and attested to by the
Secretary or any Assistant Secretary of the Borrower, in the form of Exhibit H
with appropriate insertions, together with copies of the Articles of
Incorporation and By-Laws of the Borrower and the resolutions of the Borrower
referred to in such certificate.
(b) All corporate and legal proceedings and all instruments and agreements
in connection with the transactions contemplated in this Agreement and other
documents to be received by Lender shall be satisfactory in form and substance
to the Lender, and the Lender shall have received all information and copies of
all documents and papers, including records of corporate proceedings and
governmental approvals, if any, which the Lender reasonably may have requested
in connection therewith, such documents and papers where appropriate to be
certified by proper corporate or governmental authorities.
4.5 Evidence of Insurance Coverage. Schedule 4.5. lists the policies of
insurance insuring Borrower and its assets against reasonably anticipated risks,
which policies are in full force and effect.
4.6 Other Agreements. Each of the parties to the following agreements
shall have executed and delivered such agreements, all of which shall be in full
force and effect:
(a) the Tag-Along-Rights Agreement;
(b) the Voting Agreement;
(c) the Registration Rights Agreement;
(d) the Consulting Agreement;
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(e) the Warrant; and
(f) An Option Agreement between Borrower and Tom Conner in form and
substance acceptable to Lender.
Lender's funding of the Loan shall constitute evidence of Borrower's
satisfaction of the conditions precedent specified in Article 4 or Lender's
waiver of the conditions specified herein. The Note and the Warrant shall be
delivered to Lender's designated agent in Wilmington, Delaware. All other
certificates, legal opinions and other documents and all papers referred to in
this Section 4, unless otherwise specified, shall be delivered to Lender at the
Lender's office and shall be satisfactory in form and substance to the Lender.
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
In order to induce the Lender to enter into this Agreement and to make the
Loan, the Borrower makes the following representations, warranties and
agreements as of the Effective Date and the Borrowing Date, which shall survive
the execution and delivery of this Agreement and the Note, the making of the
Loan and the Conversion.
5.1 Corporate Status. The Borrower is a duly organized and validly
existing corporation in good standing under the laws of Texas. Each of the
Borrowing Entities is a duly organized and validly existing entity under the
laws of the jurisdiction of its incorporation. Each of the Borrowing Entities
(i) has the power and authority to own its property and assets and to transact
the business in which it is engaged and (ii) is duly qualified as a foreign
corporation or partnership, and in good standing in each jurisdiction where the
ownership, leasing or operation of property or the conduct of its business
requires such qualification.
5.2 Corporate Power and Authority. The Borrower has the corporate power
to execute, deliver and perform the terms and provisions of each of the Credit
Documents to which it is a party and has taken all necessary corporate action to
authorize the execution, delivery and performance by it of each of such Credit
Documents. The Borrower has duly executed and delivered each of the Credit
Documents that it is required to execute and deliver, and each such Credit
Document constitutes its legal, valid and binding obligation enforceable in
accordance with its terms.
5.3 No Violation. Neither the execution, delivery or performance by the
Borrower of the Credit Documents to which it is a party, nor compliance by it
with the terms and provisions thereof, nor the use of the proceeds of the Loan
(i) will contravene any provision of any law, statute, rule or regulation or any
order, writ, injunction or decree of any court or governmental
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instrumentality, (ii) will conflict or be inconsistent with or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
the Borrower or any of the Borrowing Entities pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement, loan agreement or any
other agreement, contract or instrument to which the Borrower or any of the
Borrowing Entities is a party or by which it or any of its property or assets is
bound or to which it may be subject or (iii) will violate any provision of the
Articles of Incorporation or By-Laws or other organizational document of the
Borrower or any of the Borrowing Entities.
5.4 Governmental Approvals. Except for filings necessary to authorize the
Preferred Stock, no order, consent, approval, license, authorization or
validation of, or filing recording or registration with (except as have been
obtained or made prior to the Effective Date), or exemption by, any governmental
or public body or authority, or any subdivision thereof, is required to
authorize, or is required in connection with, (i) the execution, delivery and
performance of any Credit Document to which the Borrower is a party or (ii) the
legality, validity, binding effect or enforceability of any such Credit Document
or (iii) the activities of the Borrower or the Borrowing Entities anticipated to
be undertaken in connection with its business.
5.5 Financial Statements; Financial Condition; Undisclosed Liabilities;
etc. (a) The audited balance sheets of the Borrowing Entities at December 31,
1995 and the related statements of income and the related schedules of the
Borrowing Entities for the period ended on such date, with the report of Price
Waterhouse thereon, and heretofore furnished to the Lender present fairly the
financial condition of the Borrowing Entities at the date of such statements of
financial condition and the results of the operations of the Borrowing Entities
for such fiscal year. All such financial statements have been prepared in
accordance with generally accepted accounting principles and practices ("GAAP").
Except as set forth on Schedule 5.5(b), since December 31, 1995, there has been
no material adverse change in the business, operations, property, assets,
condition (financial or otherwise) or prospects of the Borrowing Entities taken
as a whole.
(b) Except as fully reflected in the financial statements delivered
pursuant to Section 5.5(a) or as set forth in Schedule 5.5(b), there are no
liabilities or obligations with respect to the Borrowing Entities of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether or
not due) which, either individually or in aggregate, would be material to the
Borrowing Entities taken as a whole. The Borrower does not know of any basis
for the assertion against the Borrowing Entities
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of any liability or obligation of any nature whatsoever that is not fully
reflected in the financial statements delivered pursuant to Section 5.5(a)
which, either individually or in the aggregate, could be material to the
Borrowing Entities taken as a whole.
(c) Schedule 5.5(c) hereto fully and accurately sets out all the material
contracts to which any of the Borrowing Entities is a party, and Borrower has
provided copies to Lender of such contracts requested by Lender.
5.6 Litigation. There are no actions, suits or proceedings pending or, to
the best knowledge of the Borrower, threatened (i) with respect to any of the
Credit Documents or (ii) except as set forth in Schedule 5.6 hereto, against any
of the Borrowing Entities, except for actions, suits or proceedings as would
not, in the aggregate, have a material adverse effect on the business,
operations, property, assets, condition (financial or otherwise) or prospects of
the Borrowing Entities taken as a whole.
5.7 True and Complete Disclosure. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of any of the
Borrowing Entities in writing to the Lender (including without limitation all
information contained in the Credit Documents) for purposes of or in connection
with this Agreement or any transaction contemplated herein is, and all other
such factual information (taken as a whole) hereafter furnished by or on behalf
of any of the Borrowing Entities in writing to the Lender will be, true and
accurate in all material respects on the date as of which such information is
dated or certified and not incomplete by omitting to state any fact necessary to
make such information (taken as a whole) not misleading at such time in light of
the circumstances under which such information was provided.
5.8 Use of Proceeds. All proceeds of the Loan shall be used by the
Borrower for the purposes listed in Schedule 5.8 hereto. Any other use of the
proceeds of the Loan shall require the prior written consent of the Lender. The
Borrower shall not use the proceeds to make a capital contribution to a
Subsidiary or to any other person.
5.9 Tax Returns and Payments. Each of the Borrowing Entities has filed
all tax returns required to be filed by it and has paid all income taxes payable
by it which have become due pursuant to such tax returns and all other taxes and
assessments payable by it which have become due, other than those not yet
delinquent and except for those contested in good faith and for which adequate
reserves have been established. Such tax returns accurately reflect in all
material respects all liability for taxes of the Borrower and its Subsidiaries
for the periods covered thereby. Each of the Borrowing Entities has paid, or
has provided adequate reserves (in good faith judgment of the management of the
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Borrower and in accordance with generally accepted accounting principles) for
the payment of, all federal, state and foreign income taxes applicable for all
prior fiscal years and for the current fiscal year to the date hereof. There is
no material action, suit, proceeding, investigation, audit, or claim now pending
or, to the best knowledge of the Borrower, threatened by any authority regarding
any taxes relating to the Borrower or any of its Subsidiaries.
5.10 Compliance with ERISA. Each Plan is in substantial compliance with
ERISA and the Code; none of the Borrower, any other Borrowing Entity nor any
ERISA Affiliate has incurred as of December 31, 1995 any material liability to
or on account of a Plan except as reflected in the December 31, 1995, financial
statements of the Borrowing Entities; no proceedings have been instituted to
terminate any Plan; to the knowledge of the Borrower, no condition exists which
presents a material risk to the Borrower or any of the Borrowing Entities or any
ERISA Affiliate of incurring a liability after December 31, 1995 to or on
account of a Plan except in the ordinary course of the business of the Borrowing
Entities and similar in nature and amount to expenses and liabilities reflected
in the December 31, 1995 financial statements of the Borrowing Entities; and the
Borrower and the other Borrowing Entities may terminate contributions to any
employee benefit plans maintained by them without incurring any material
liability, other than for benefits accrued and reflected in the December 31,
1995 financial statements of the Borrowing Entities, to any Person interested
therein.
5.11 Capitalization. The authorized capital stock of the Borrower
consists of 50,000,000 shares of Common Stock of which 5,285,975 shares are
outstanding. All such outstanding shares of Common Stock have been duly and
validly issued and are fully paid and non-assessable. Other than the Note
issued to the Lender pursuant to this Agreement, the stock options to be granted
to Tom Conner pursuant to the Option Agreement referred to in Section 4.6(f)
hereof, the Preferred Stock into which the Note is convertible and the
securities and agreements listed on Schedule 5.11 hereto, none of the Borrower
or its Subsidiaries has outstanding any securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, its capital stock.
5.12 Subsidiaries. The entities listed on Schedule 5.12 hereto are the
only Subsidiaries of the Borrower. Schedule 5.12 hereto correctly sets forth
the percentage ownership (direct and indirect) of the Borrower in each class of
capital stock of its Subsidiaries and also identifies the direct owner thereof.
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5.13 Compliance with Statutes, etc. Each of the Borrowing Entities is in
compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property (including without limitation, the Health Care Laws and all applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls), except such non compliances as would not, in the
aggregate, have a material adverse effect on the business, operations, property,
assets, condition (financial or otherwise) or prospects of the Borrowing
Entities taken as a whole.
5.14 Investment Company Act. None of the Borrowing Entities is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
5.15 Public Utility Holding Company Act. None of the Borrowing Entities
is a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
5.16 Labor Relations. None of the Borrowing Entities is engaged in any
unfair labor practice that would have a material adverse effect on the Borrowing
Entities taken as a whole. There is (i) no significant unfair labor practice
complaint pending against any of the Borrowing Entities or, to the best
knowledge of the Borrower, threatened against any of them, and no significant
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is pending against any of the Borrowing Entities
or, to the best knowledge of the Borrower, threatened against any of them, (ii)
no significant strike, labor dispute, slowdown or stoppage pending against any
of the Borrowing Entities or, to the best knowledge of the Borrower, threatened
against any of the Borrowing Entities and (iii) to the best knowledge of the
Borrower, no union representation question existing with respect to the
employees of any of the Borrowing Entities and, to the best knowledge of the
Borrower, no union organizing activities are taking place, except (with respect
to any mater specified in clause (i), (ii) or (iii) above, either individually
or in the aggregate) such as could not have a material adverse effect on the
business, operations, property, assets, condition (financial or otherwise) or
prospects of the Borrowing Entities taken as a whole.
5.17 Patents, Licenses, Franchises and Formulas. Each of the Borrowing
Entities owns all the patents, trademarks, permits, service marks, trade names,
copyrights, licenses, franchises and formulas, or rights with respect to the
foregoing, and has obtained assignments of all leases and other rights of
whatever nature, necessary for the present conduct of its business, without any
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known conflict with the rights of others which, or the failure to obtain which,
as the case may be, would result in a material adverse effect on the business,
operations, property, assets, condition (financial or otherwise) or prospects of
the Borrowing Entities taken as a whole.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that on and after the Effective Date and
until the Termination Date:
6.1 Information Covenants. The Borrower will furnish to the Lender:
(a) Quarterly Financial Statements. Within 45 days (or 90 days in
the case of the fourth fiscal quarter) after the close of each quarterly
accounting period in each fiscal year of the Borrower, consolidating and
consolidated statements of financial condition of the Borrowing Entities as
at the end of such quarterly accounting period in each fiscal year of the
Borrower, and the related statements of income and retained earnings and
statements of changes in financial position for such quarterly period and
for the elapsed portion of the fiscal year ended with the last day of such
quarterly period, in each case setting forth comparative figures for the
related periods in the prior fiscal year, all of which shall be certified
by the chief financial officer of the Borrower, subject to normal year-end
audit adjustments and prepared in accordance with generally accepted
accounting principles.
(b) Annual Financial Statements. Within 90 days after the close of
each fiscal year of the Borrower, the consolidating and consolidated
statements of financial condition of the Borrowing Entities as at the end
of such fiscal year and the related statements of income and retained
earnings and statements of changes in financial position for such fiscal
year, in each case setting forth comparative figures for the preceding
fiscal year and prepared in accordance with generally accepted accounting
principles and certified by independent certified public accountants of
recognized national standing reasonably acceptable to the Lender, in each
case together with a report of such accounting firm stating that in the
course of its regular audit of the financial statements of the Borrowing
Entities, which audit was conducted in accordance with generally accepted
auditing standards, such accounting firm obtained no knowledge of any
Default or Event of Default which has occurred and is continuing or, if in
the opinion of such accounting firm such a
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Default or Event of Default has occurred and is continuing, a statement as
to the nature thereof.
(c) Management Letters. Promptly after the Borrower's receipt
thereof, a copy of any "management letter" received by the Borrower from
its certified public accountants, if any.
(d) Budgets. Within 60 days after the first day of each fiscal year
of the Borrower, a budget for the Borrowing Entities in form and substance
satisfactory to the Lender (including budgeted statements of income and
sources and uses of cash and balance sheets) prepared by the Borrower for
the entire fiscal year in aggregate and individually for each month of such
fiscal year ("Budget") accompanied by the statement of the chief financial
officer of the Borrower to the effect that, to the best of his knowledge,
the Budget is a reasonable estimate for the period covered thereby.
(e) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 6.1(a) and (b), a certificate
of the chief financial officer of the Borrower to the effect that, to the
best of his knowledge, no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
continuing, specifying the nature and extent thereof.
(f) Notice of Default or Litigation. Promptly, and in any event
within three Business Days after an officer of the Borrower obtains
knowledge thereof, notice of (i) the occurrence of any event which
constitutes a Default or Event of Default, (ii) any litigation or
governmental proceeding pending (x) against any of the Borrowing Entities
which could materially and adversely affect the business, operations,
property, assets, condition (financial or otherwise) or prospects of the
Borrowing Entities taken as a whole or (y) with respect to any of the
Credit Documents and (iii) any other event which is likely to materially
and adversely affect the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrowing Entities, taken as a
whole.
(g) Other Reports and Filings. Promptly, copies of all financial
information, proxy materials and other information and reports, if any,
which the Borrower shall file with the Securities and Exchange Commission
or any governmental agencies substituted therefor (the "SEC").
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(h) Other Information. From time to time, such other information or
documents (financial or otherwise) as the Lender may reasonably request,
including monthly statements.
6.2 Books, Records and Inspections. The Borrower will, and will
cause each of the other Borrowing Entities to, keep proper books of record and
account in which full, true and correct entries in conformity with generally
accepted accounting principles and all requirements of law shall be made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of the other Borrowing Entities to, permit
officers and designated representatives of the Lender to visit and inspect,
under guidance of officers of the Borrower or such Borrowing Entity, any of the
properties of the Borrower or the other Borrowing Entities, and to examine the
books of record and account of the Borrower or such Borrowing Entity with, and
be advised as to the same by, its and their officers, all at such reasonable
times and intervals and to such reasonable extent as the Lender may request.
6.3 Maintenance of Property, Insurance. The Borrower will, and will
cause each of the other Borrowing Entities to, (i) keep all property useful and
necessary in its business in good working order and condition, (ii) maintain
with financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks as are
reflected in Schedule 4.5 hereto, and (iii) furnish to the Lender, upon written
request, full information as to the insurance carried.
6.4 Corporate Franchises. The Borrower will, and will cause each of
the other Borrowing Entities to, do or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its material
rights, franchises, licenses and patents; provided, however, that nothing in
this Section 6.4 shall prevent the withdrawal by the Borrower or any of the
other Borrowing Entities of its qualification as a foreign corporation in any
jurisdiction where such withdrawal does not have a material adverse effect on
the business, operations, property, assets, condition (financial or otherwise)
or prospects of the Borrowing Entities taken as a whole.
6.5 Compliance with Statutes, etc. The Borrower will, and will cause
each of the other Borrowing Entities to, comply, and periodically undertake such
studies and investigations as Lender may reasonably request to insure
compliance, with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property (including, without limitation, the Health Care Laws and all applicable
statutes, regulations, orders
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and restrictions relating to environmental standards and controls), except such
noncompliances as could not, in the aggregate, have a material adverse effect on
the business, operations, property, assets, condition (financial or otherwise)
or prospects of the Borrowing Entities taken as a whole.
6.6 ERISA. The Borrower will deliver to the Lender a complete copy
of the annual report (Form 5500) of each Plan required to be filed with the
Internal Revenue Service within 30 days of such filing.
6.7 Performance of Obligations. The Borrower will, and will cause
each of the other Borrowing Entities to, perform all its obligations under the
terms of each mortgage, indenture, security agreement and other debt instrument
by which it is bound, except such non-performances as could not in the aggregate
have a material adverse effect on the business, operations, property, assets,
condition (financial or otherwise) or prospects of the Borrowing Entities taken
as a whole.
6.8 Preferred Stock. The Borrower will promptly take all reasonable
actions necessary to authorize and issue the Preferred Stock prior to the
Maturity Date including recommending approval by its shareholders.
6.9 Payment of Taxes. The Borrower will pay and discharge or cause
to be paid and discharged, and will cause each of the other Borrowing Entities
to pay and discharge, all material taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits, or upon any material
properties belonging to it, in each case on a timely basis, and all lawful
claims which, if unpaid, might become a lien or charge upon any material
properties of the Borrower or any of the other Borrowing Entities; provided that
neither the Borrower nor any of the other Borrowing Entities shall be required
to pay any such tax, assessment, charge, levy or claim which is being contested
in good faith and by proper proceedings if it has maintained adequate reserves
with respect thereto in accordance with generally accepted accounting
principles.
6.10 Further Action by Borrower. The Borrower, at its expense, shall
promptly and duly execute and deliver to the Lender such documents and
assurances and take such further action as Lender may from time to time
reasonably request in order to carry out more effectively the intent and purpose
of this Agreement and the other Credit Documents and to establish and protect
the rights and remedies created or intended to be created in favor of the Lender
hereunder and thereunder.
SECTION 7. NEGATIVE COVENANTS.
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The Borrower covenants and agrees that on and after the
Effective Date and until the Termination Date:
7.1 Consolidation, Merger, Sale of Assets, etc. Without the written
consent of the Lender, the Borrower will not, and will not permit any of the
other Borrowing Entities to, wind up, liquidate or dissolve its affairs or enter
into any transaction of merger or consolidation, or convey, sell, lease or
otherwise dispose of (or agree to do any of the foregoing at any future time)
all or any substantial part of its property or assets, or purchase or otherwise
acquire (in one or a series of related transactions) any part of the property or
assets (other than purchases or other acquisitions of inventory, materials and
equipment in the ordinary course of business) of any Person except acquisitions
(by any form, whether in the form of a merger, consolidation, asset acquisition
or otherwise, provided that in any such merger or consolidation the holders of
Common Stock immediately prior thereto receive as a result securities entitling
such holders to exercise immediately thereafter more than 50 percent of the
total voting power of all outstanding securities entitled to vote in the
election of directors of the surviving corporation) of medical practices,
medical service businesses, or other businesses related thereto or permit any of
the other Borrowing Entities to do any of the foregoing, except that (i) the
Borrowing Entities may make sales of inventory in the ordinary course of
business, (ii) the Borrowing Entities may, in the ordinary course of business,
sell equipment which is uneconomic or obsolete, and (iii) capital expenditures
shall be permitted to the extent not in violation of Section 7.6.
7.2 Dividends. The Borrower will not and will not permit any of the
other Borrowing Entities to, declare or pay any dividends, or return any
capital, to its stockholders or partners or authorize or make any other
distribution, payment or delivery of property or cash to its stockholders or
partners as such, or redeem, retire, purchase or otherwise acquire, directly or
indirectly, for a consideration, any shares or any interest in its or their
capital or capital stock now or hereafter outstanding (or any options or
warrants issued by the Borrower or any of the Borrowing Entities with respect to
its or their capital or capital stock); provided, however, a wholly owned
Subsidiary may take any of such actions prohibited above with another wholly
owned Subsidiary or with Borrower.
7.3 Indebtedness. Without the written consent of the Lender, the
Borrower will not, and will not permit any of the other Borrowing Entities to,
contract, create, incur, assume or suffer to exist any Indebtedness, except (i)
for the purposes listed in Schedule 5.8, (ii) accrued expenses and current trade
accounts payable incurred in the ordinary course of business, which are to be
repaid in full not more than 90 days after the date on which
such Indebtedness is originally incurred, (iii) debt reflected in the financial
statements dated December 31, 1995 submitted to the
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Lender in accordance with Section 5.5, (iv) liabilities set forth on Schedule
5.5(b) and (v) any indebtedness incurred in connection with any individual
capital expenditures of less than $75,000.
7.4 Advances, Investments and Loans. Without the written consent of
the Lender, the Borrower will not, and will not permit any of the other
Borrowing Entities to, lend money or credit or make advances to any Person, or
purchase or acquire any stock, obligations or securities of, or any other
interest in, or make any capital contribution to, any other Person, except that
the following shall be permitted:
(i) the Borrower and the other Borrowing Entities may acquire and
hold receivables owing to it, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
(ii) the Borrower and the other Borrowing Entities may acquire and
hold Cash Equivalents;
(iii) the Borrower and the other Borrowing Entities may execute,
without limitation, promissory notes, security agreements, financing statements
and/or any other documents required to document and/or collateralize loans or
advances from one Borrowing Entity to any other Borrowing Entity and to evidence
any Borrowing Entity's guarantee or pledge of collateral to support Borrower's
commercial and/or private lending sources; and
(iv) the Borrower and the other Borrowing Entities may make loans or
advances to employees or Affiliates in the ordinary course of business up to
$5,000.00 per Person, which loans or advances are expected to be repaid within
90 days, or in any case to any Person in an amount not to exceed $1,000.00
7.5 Transactions with Affiliates. Schedule 7.5 sets forth
substantially all of the transactions between the Borrowing Entities and their
Affiliates. Except for transactions with Subsidiaries as contemplated by this
Agreement and the transactions with Affiliates described on Schedule 7.5, the
Borrower will not, and will not permit any of the other Borrowing Entities to,
enter into any transaction or series of related transactions, whether or not in
the ordinary course of business, with any Affiliate of the Borrowing Entities,
other than on terms and conditions substantially as favorable to the Borrower or
such Borrowing Entity as would be obtainable by the Borrower or such Borrowing
Entity at the time in a comparable arm's-length transaction with a Person other
than an Affiliate.
7.6 Capital Expenditures. Without the prior written consent of the
Lender, the Borrower will not, and will not permit any of the other Borrowing
Entities to, make any expenditure for fixed or capital assets (including,
without limitation,
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expenditures for maintenance and repairs which should be capitalized in
accordance with generally accepted accounting principles and including
capitalized lease obligations) other than those expenditures described in
Schedule 5.8 hereto and any individual capital expenditures of less than
$75,000.00.
7.7 Limitation on Modifications of Articles of Incorporation, By-Laws
and Certain Other Agreements; etc. The Borrower will not, and will not permit
any of the other Borrowing Entities to, amend, modify or change its articles of
incorporation or by-laws, or any agreement entered into by it, with respect to
its capital or capital stock, or enter into any new agreement with respect to
its capital or capital stock except the Borrower may amend its articles of
incorporation to authorize the Preferred Stock and delete certain restrictions
therein regarding the number of the Borrower's directors.
7.8 Business. The Borrower will not, and will not permit any of the
other Borrowing Entities to, engage (directly or indirectly) in any business
materially different than the business in which it is engaged on the Effective
Date.
SECTION 8. CONVERSION OF NOTE.
8.1 Conversion. (a) Subject to and upon compliance with the
provisions of this Section 8 and provided the shareholders of Borrower have
authorized the Borrower to issue Preferred Stock, the Lender may on any Business
Day (such Business Day, a "Conversion Date"), at its option, convert the Note
(including any accrued but unpaid interest due under the Note) in whole, but not
in part, into a whole number of shares of Preferred stock of the Borrower as set
forth below.
(b) Subject to and upon compliance with the provisions of this Section
8 and provided that the Borrower has met the Conversion Tests prior to the
Conversion Expiry Date, the Lender shall convert the Note in whole, but not in
part, into a whole number of shares of Preferred Stock of the Borrower as set
forth below.
(c) Conversion of the Note into shares of Preferred Stock pursuant to
paragraphs (a) or (b) is referred to as "Conversion."
8.2 Determination of Number of Shares. Upon Conversion of the Note,
the Lender shall be entitled to receive from the Borrower a number of shares of
the Borrower's Preferred Stock ($100 liquidation preference) determined by
dividing the principal plus accrued interest outstanding under the Note on the
Conversion Date by $100.00.
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8.3 Notice of Conversion. (a) Whenever the Lender elects to effect a
Conversion, the Lender shall give the Borrower at least 10 Business Days prior
notice thereof. Each such notice (a "Conversion Notice") shall specify (i) the
Conversion Date, and (ii) the number of shares of Preferred Stock that the
Lender will receive.
(b) Whenever the Borrower has met the Conversion Tests and elects to
require a Conversion, it shall give the Lender at least 10 Business Days prior
notice thereof by completing and delivering to Lender a Conversion Notice.
8.4 Conversion Tests. Provided that the following conditions are met
(the "Conversion Tests"), the Borrower may require the Conversion of the Notes:
(i) No material Default or material Event of Default has occurred
and remains unremedied; and
(ii) The stockholders of the Borrower shall have approved an
amendment of the Borrower's Articles of Incorporation to authorize issuance of
preferred shares, the Borrower's Board of Directors shall have duly adopted,
authorized and designated the Preferred Stock and the Borrower shall have
amended its Articles of Incorporation and taken all other corporate action that
may be necessary to issue the Preferred Stock.
(iii) Borrower's Counsel, Hutcheson & Grundy, L.L.P., shall have
delivered to the Lender an opinion in form and substance satisfactory to the
Lender relating to the authorization of the Preferred Stock.
8.5 Mechanics of Conversion. On the Conversion Date, (i) the
Borrower shall deliver to the Lender at the Lender's office a certificate or
certificates for the number of shares of Preferred Stock to which the Lender is
entitled pursuant to Section 8.2 and (ii) in exchange the Lender shall tender to
the Borrower the Note and the Warrant Agreement.
8.6 Effect of Conversion. The delivery to the Lender of a
certificate or certificates evidencing the shares of Preferred Stock into which
the Lender's Note has been converted plus cash in lieu of any fractional shares
shall be deemed to satisfy the Borrower's obligation to pay, when due, the
principal amount of the Loan so converted and all accrued and unpaid interest
thereon through the Conversion Date. Such accrued interest shall be deemed paid
and not cancelled, extinguished or forfeited.
8.7 Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the Conversion of the Note.
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8.8 Borrower to Reserve Preferred Stock. (a) The Borrower covenants
and agrees that upon approval of an amendment to the Borrower's Articles of
Incorporation by the shareholders authorizing the Preferred Stock, it will at
all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Preferred Stock for the purpose of
effecting Conversion of the Note hereunder the full number of shares of
Preferred Stock deliverable on the Conversion Date pursuant to Section 8.2 and,
if at any time the sum of the number of authorized but unissued shares of
Preferred Stock shall not be sufficient to effect Conversion of the Note
hereunder, the Borrower will take such corporate action as may be necessary to
increase its authorized but unissued Preferred Stock to such number of shares as
shall be sufficient for that purpose.
(b) The Borrower covenants and agrees that all Preferred Stock which
may be delivered in accordance with this Agreement shall upon delivery be duly
and validly issued and fully paid and nonassessable.
8.9 Taxes on Conversion. The Borrower will pay any and all
documentary stamp or similar issue or transfer taxes or any other taxes payable
in respect of the issue or delivery of Preferred Stock upon Conversion.
8.10 Legend. The Lender acknowledges that any certificate for shares
of Preferred Stock received by it hereunder upon Conversion will bear the
following legend:
The shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"),
and such securities may not be offered, sold, pledged or otherwise
transferred except (1) pursuant to an exemption from, or in a
transaction not subject to, the registration requirements under the
Securities Act to the extent supported by an opinion of counsel who is
reasonably acceptable to the issuer or (2) pursuant to an effective
registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any State of the
United States.
The foregoing legend shall be removed from the certificates
representing any such converted shares at the request of the holder thereof at
such time as they become eligible for resale pursuant to Rule 144(k) under the
Securities Act, which request is accompanied by an opinion of legal counsel who
is reasonably satisfactory to the Borrower concerning compliance with the
conditions of Rule 144(k).
8.11 Lender's Representation Regarding Acquisition of the Preferred
Stock. Lender has conducted its own due diligence
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regarding Borrower, has met in person or via telephone with Borrower's
management and board of directors and has been given the opportunity to review
all corporate documents of Borrower and to ask questions regarding Borrower and
its business prior to Lender's execution of this Agreement. Lender has been
provided and has reviewed (i) the Borrower's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995 and (ii) the Proxy Statement for the
Borrower's 1996 annual meeting of stockholders. The Lender will represent and
warrant on the Conversion Date that it is acquiring the Preferred Stock solely
for its own account and not with the intent to resell such shares in connection
with any distribution of such securities in violation of the Securities Act or
other applicable securities laws and the rules and regulations promulgated
thereunder.
SECTION 9. EVENTS OF DEFAULT.
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
9.1 Payments. The Borrower shall default in the payment when due of
the principal or interest on the Note or any other amounts owing hereunder or
under the Note and the continuance thereof for ten (10) days after written
notice; or
9.2 Representations, etc. Any representation, warranty or statement
made by or on behalf of any of the Borrowing Entities, herein or in any other
Credit Document or in any certificate delivered pursuant hereto or thereto shall
prove to be untrue in any material respect on the date as of which made or
deemed made; or
9.3 Covenants. The Borrower or any other Borrowing Entity shall (i)
default in the due performance or observance by it of any term, covenant or
agreement contained in Section 6.1(f) or Section 7 or (ii) default in the due
performance or observance by it of any term, covenant or agreement (other than
those referred to in Sections 9.1 and 9.2 and clause (i) of this Section 9.3)
contained in this Agreement, and such default referred to in clause (i) or (ii)
of the this Section 9.3 shall continue unremedied for a period of 30 days after
written notice, specifying the default, to the Borrower by the Lender; or
9.4 Default Under Other Agreements. (a) The Borrower, or any of the
Borrowing Entities shall be in default in (i) any payment of any Indebtedness
(other than the Note) beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created or (ii) the
observance or performance of any agreement or condition relating to any
Indebtedness (other than the Note) or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other
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event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause (determined without regard to whether any notice is required), any such
Indebtedness to become due prior to its stated maturity; or (b) any Indebtedness
of the Borrower or any of the Borrowing Entities shall be declared to be due and
payable, or required to be prepaid other than by a regularly scheduled required
prepayment, prior to the stated maturity thereof; provided that it shall not be
a Default or Event of Default under this Section 9.4 unless the aggregate
principal amount of all such Indebtedness as described in clauses (a) and (b),
inclusive, exceeds $100,000 at any one time; or
9.5 Bankruptcy, etc. The Borrower or any of the other Borrowing
Entities shall commence a voluntary case concerning itself under Title 11 of the
United States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto or any similar law of any jurisdiction (the "Bankruptcy
Code"); or an involuntary case is commenced against the Borrower, or any of the
Borrowing Entities, and the petition is not controverted within 10 days, and is
not dismissed within 60 days, after commencement of the case; or a custodian is
appointed for, or takes charge of, all or substantially all of the property of
the Borrower, or any of the Borrowing Entities, or the Borrower or any of the
Borrowing Entities commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Borrower or any of the Borrowing Entities, or there is
commenced against the Borrower or any of the Borrowing Entities any such
proceeding which remains undismissed for a period of 60 days, or the Borrower or
any of the Borrowing Entities is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is entered; or
the Borrower or any of the Borrowing Entities suffers any appointment of any
custodian or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 60 days; or the Borrower or any of the
Borrowing Entities makes a general assignment for the benefit of creditors; or
any corporate action is taken by the Borrower or any of the Borrowing Entities
for the purpose of effecting any of the foregoing; or
9.6 ERISA. Borrower or any of the Borrowing Entities or ERISA
Affiliates has incurred or is likely to incur a liability to or on account of a
Plan and there shall result from any such the imposition of a Lien upon the
assets of the Borrower or any of the Borrowing Entities, the granting of a
security interest, or a liability or a material risk of incurring a liability,
which Lien, security interest or liability, will have a material adverse effect
upon the business, operations, property, assets, condition
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(financial or otherwise) or prospects of the Borrowing Entities taken as a
whole; or
9.7 Judgments. One or more judgments or decrees shall be entered
against the Borrower, or any of the Borrowing Entities involving in the
aggregate for the Borrower and the Borrowing Entities a liability (not paid or
fully covered by insurance) of $100,000 or more, and all such judgments or
decrees shall not have been vacated, discharged or stayed or bonded pending
appeal within 60 days after the entry thereof;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Lender may by written notice to the Borrower, take
any or all of the following actions, without prejudice to the rights of the
Lender or the holder of the Note to enforce its claims against the Borrower
(provided, that, if an Event of Default specified in Section 9.5 shall occur
with respect to the Borrower, the result which would occur upon the giving of
written notice by the Lender to the Borrower shall occur automatically without
the giving of any such notice), (i) declare the principal of and any accrued
interest in respect of the Loan and the Note and all obligations owing hereunder
and thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower or (ii) declare that the total amount owed
(including principal, accrued interest and other amounts to the extent permitted
by law) shall thereafter bear interest at the Default Rate of Interest.
In addition to the above rights and remedies that the Lenders have if an Event
of Default shall occur, the Lender shall be relieved of any obligation, but not
the right, to convert its Note pursuant to Section 8.1(b).
SECTION 10. MISCELLANEOUS.
10.1 Payment of Expenses, etc. The Borrower shall: (i) whether or not
the transactions herein contemplated are consummated, pay all reasonable out-of-
pocket costs and expenses of the Lender (including, without limitation, the
reasonable fees and disbursements of Lender's counsel) in connection with the
preparation, execution and delivery of this Agreement and the other Credit
Documents and the documents and instrument referred to herein and therein and
any amendment, waiver or consent relating hereto or thereto and in connection
with the enforcement of this Agreement and the other Credit Documents and the
documents and instruments referred to herein and therein (including, without
limitation, the reasonable fees and disbursements of counsel for the Lender);
(ii) pay and hold the Lender harmless from and against any and all present and
future stamp and other similar taxes with
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respect to the foregoing matters and save the Lender harmless from and against
any and all liabilities with respect to or resulting from any delay or omission
to pay such taxes; and (iii) indemnify the Lender, its partners, officers,
directors, employees, representatives and agents from and hold each of them
harmless against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses and disbursements
incurred by any of them as a result of, or arising out of, or in any way related
to, or by reason of, any investigation, litigation or other proceeding (whether
or not the Lender is a party thereto) related to the entering into and/or
performance of this Agreement or any other Credit Document or the use of the
proceeds of the Loan hereunder or the consummation of any transactions
contemplated herein or in any other Credit Document, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such liabilities, obligations, losses, etc., to the extent
incurred by reason of the gross negligence or willful misconduct of the person
to be indemnified).
10.2 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder or related to the
execution hereof shall be in writing (including telegraphic, telex, facsimile or
cable communication) and mailed through the U.S. Postal Service, telegraphed,
telexed, telecopies, cabled or delivered to the address of the party listed
opposite such party's signature line, or at such other address as shall be
designated by such party in a written notice to the other party hereto. All
such notices and communications shall, when mailed, telegraphed, telexed,
telecopies, or cabled or sent by courier, become effective upon receipt.
10.3 Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
permitted assigns of the parties hereto, provided that the Borrower may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of the Lender. No assignment by Lender of the Credit Documents
shall be effective so long as any amount is due Lender under the Note and
Borrower is not in default thereunder. No assignment by Lender of this
Agreement, unless the Note is in default, shall be effective until three (3)
years after the date of this Agreement; provided, however, this sentence does
not prohibit Lender from assigning any of the other Credit Documents. If the
Lender transfers, assigns or pledges all or a part of its rights hereunder or
under the Note to any other Person, any reference to Lender in
this Agreement or the Note shall thereafter refer to the Lender and to such
other person to the extent of their respective interests.
10.4 No Waiver; Remedies Cumulative. No failure or delay on the part
of the Lender or any holder of the Note in exercising any
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right, power or privilege hereunder or under any other Credit Document and no
course of dealing between the Borrower and the Lender or the holder of the Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Credit Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Credit Document expressly provided are
cumulative and not exclusive of any rights, powers or remedies which the Lender
or any holder of the Note would otherwise have. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of the Lender or any holder of the Note to any other or further action in any
circumstances without notice or demand.
10.5 Obligations. No partner of Lender will have any personal
liability for the performance of this Agreement, or for any claim, liability,
judgment or obligation arising out of or connected with this Agreement. The
Borrower, may look solely to Lender and Lender's assets for satisfaction of any
such performance, claim, liability, judgment or obligation.
10.6 Calculations; Computations. (a) The financial statements to be
furnished to the Lender pursuant hereto shall be made and prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved (except as set forth in the notes thereto or as otherwise
disclosed in writing by the Borrower to the Lender).
(b) All computations of interest hereunder shall be made on the basis
of a year of the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest is payable.
10.7 Governing Law; Submission to Jurisdiction; Venue.
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAW OF THE STATE OF DELAWARE. Subject to the provision of
clause (c) below, any legal action or proceeding against any of the parties
hereto with respect to this Agreement or any other Credit Document may be
brought in the courts of the State of Texas or of the United States for the
Southern District of Texas, and, by execution and delivery of this Agreement,
each party hereto hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each of the Borrower and the Lender further irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to its address set
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forth opposite its signature below, such service to become effective 30 days
after such mailing. Nothing herein shall affect the right of the Lender, or any
holder of the Note to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Borrower in any
other jurisdiction.
(b) Each of the Borrower and the Lender hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in
clause (a) above and to the arbitration in accordance with clause (d) below and
hereby further irrevocably waives and agrees not to plead or claim in any such
court or arbitration tribunal that any such action or proceeding brought in any
such court or tribunal has been brought in an inconvenient forum.
(c) Notwithstanding the above, either party may submit any dispute,
controversy or claim arising out of, relating to, or in connection with, this
Agreement or any other Credit Document or the interpretation, enforcement or
breach thereof to be resolved by arbitration conducted pursuant to clause (d)
below. Upon notification by such party of its desire therefore, the other party
hereby consents to the removal of any action commenced by either party in any
court to arbitration.
(d) The arbitration referred to in clause (c) above shall be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), as amended and in effect on the date that demand for
arbitration is filed with the AAA. Each party to the arbitration shall select
one (1) arbitrator. Immediately thereafter, the two (2) arbitrators selected by
the parties pursuant to the preceding sentence shall mutually select a third
arbitrator. If the parties are unable to select a third arbitrator, the third
arbitrator will be selected by the AAA. The ruling of the three (3) arbitrators
selected in accordance with the preceding sentences shall be binding and
conclusive upon the parties hereto to the fullest extent permitted, and judgment
upon the award rendered may be entered in any court of competent jurisdiction.
The arbitration shall take place in Jacksonville, Florida.
10.8 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by both parties hereto shall be lodged with the Borrower and the
Lender.
29
<PAGE>
10.9 Effectiveness. This Agreement shall become effective on the
date (the "Effective Date") on which all parties hereto shall have each signed a
copy of this Agreement (whether the same or different copies).
10.10 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
10.11 Amendment or Waiver. Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by this Borrower and each of the Lenders.
10.12 Survival. All representations, warranties and indemnities set
forth herein shall survive the execution and delivery of this Agreement and the
Note, the making and repayment of the Loan and the Conversion for the benefit of
the Lender in its capacity as a former creditor and as a shareholder.
10.13 Allocation. Lender and Borrower hereby stipulate and agree
that the Note has a value of $2,499,000 and the Warrant has a value of $1,000.
Lender and Borrower shall each file their federal income tax returns in
accordance with these stipulated values.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
DRCA MEDICAL CORPORATION
Three Riverplace
Suite 1430
Houston, Texas 77056
By /s/ Jose E. Kauachi
----------------------------------
Name: Jose E. Kauachi
Title: President
CHARTWELL CAPITAL INVESTORS, L.P.
One Independent Drive, Suite 1610
Jacksonville, Florida 32202
By: Chartwell Capital Partners, L.P.,
its General Partner
By: Chartwell Partners, L.P.,
its General Partner
By: Chartwell, Inc., its
General Partner
By /s/ Anthony Marinatos
------------------------
Name: Anthony Marinatos
Title: President
31
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
- ---------
Schedule 4.5 - Insurance
Schedule 5.5(b) - Material Adverse Changes and Liabilities
Schedule 5.5(c) - Material Contracts
Schedule 5.6 - Litigation
Schedule 5.8 - Use of Proceeds
Schedule 5.11 - Convertible Securities, etc.
Schedule 5.12 - Subsidiaries
Schedule 7.5 - Transactions with Affiliates
EXHIBITS
- --------
Exhibit A - Form of Consulting Agreement
Exhibit B - Terms of Preferred Stock
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Tag-Along Rights Agreement
Exhibit E - Form of Voting Agreement
Exhibit F - Form of Warrant
Exhibit G - Form of Note
Exhibit H - Form of Officers' Certificate
32
<PAGE>
EXHIBIT 10.51
STOCK OPTION AGREEMENT
THIS AGREEMENT is made effective as of April 11, 1996 between DRCA Medical
Corporation (hereinafter called the "Company"), and Thomas M. Conner
(hereinafter called "Optionee").
GRANT OF THE OPTION
1. The Company hereby grants to Optionee the right and option to purchase,
on the terms and conditions hereafter set forth, all or any part of an aggregate
of FOUR THOUSAND (4,000) shares of the presently authorized but unissued common
stock of the Company (which common stock subject to the Option shall hereinafter
be referred to as the "Common Stock"). The purchase price of the Common Stock
shall be $3.00 per share ("Option Price"), which Option Price is not less than
the fair market value of the Common Stock as of the date hereof. This stock
option is intended to be a nonstatutory stock option for purpose of the Internal
Revenue Service.
2. The Option may not be assigned, transferred or disposed of by the
Optionee other than by will or the laws of decent and distribution. For
purposes of this subparagraph, "disposed of" shall mean any gift or intervivos
transfer; any transfer to a trust, any lien, pledge, mortgage, or other
encumbrance; any transfer by reason of marital property division; any
disposition pursuant to court, bankruptcy, administrative or similar
proceedings; or any disposition whatsoever, whether voluntary or involuntary.
The Option shall be exercisable, during the Optionee's lifetime, only by the
Optionee.
EXERCISE OF THE OPTION
3. The Option may be exercised on or before the Expiration Date (as
defined below) in whole at any time or in part from time to time with respect to
whole shares only of the Common Stock in accordance with Section 4 below. The
Option may be exercised only by the delivery to the Company at its principal
office (a) of a written notice of the exercise of the Option that specified the
number of shares of Common Stock as to which the Option is being exercised; and
(b) payment in full of the Option Price for such Common Stock. No exercise of
the Option shall be required to be honored if it does not comply with the
provisions of this Agreement or if the honoring of such exercise would cause any
law or regulation to be violated.
4. The Options shall vest as specified below:
a. No Options shall vest until Optionee is either elected or appointed to
the Board of Directors of the Company;
b. Following Optionees' election or appointment to the Board of Director
of the Company, Options shall vest on the last day of each month as
follows:
Month 1 through month 11 Options will vest at the rate of 167
shares per month. Month 12 Options will vest for 163. Month 13
through month 23 Options will vest at the rate of 167 shares per
month. Month 24 Options will vest for 163 shares.
5. Upon the Company's determination that the Option has been validity
exercised as to any of the Common Stock, the Company shall direct the persons
responsible for issuing the Common
1
<PAGE>
Stock to issue certificates in the Optionee's name for the number of shares set
forth in his written notice. However, the Company shall not be liable to the
Optionee for damages related to any delays in issuing the certificates to him,
any loss of the certificates, or any mistakes or errors in the issuance of the
certificates or in the certificates themselves.
6. The Company intends for the Option to be qualified as a "nonstatutory
stock option" with the meaning of the Internal Revenue Code.
EXPIRATION DATE OF OPTION.
7. The Option must be exercised on or before the expiration of three years
after the first vesting date as specified in Section 4 above ("Expiration
Date").
EFFECT ON CORPORATE TRANSACTIONS
8. The existence of the Option shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any and all
adjustments, recapitalization, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of the Company
or any issue of common stock, bonds, debentures, preferred or prior preference
stock ahead of or affecting the shares of Common Stock issuable upon exercise of
the Option or the right thereof and at any price determined by the Board of
Directors of the Company, or the dissolution or liquidation of the Company or
the sale or transfer of any or all of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise. In
the event of involuntary dissolution of the Company, the Option shall be deemed
cancelled to the extent not previously exercised.
If the Company is merged into or consolidated with another corporation
under where the Company is not the surviving corporation, or if the Company is
liquidated, or engages in any corporate separation or division, including, but
not limited to, split-up, split-off or spin-off, sale or other disposition of
its assets to another corporation during the period of the Option hereunder, (a)
subject to the provisions of (c) below, after the effective date of such merger,
consolidation, liquidation or other transaction, as the case may be, Optionee
shall be entitled, upon exercise of the Option, to receive, in lieu of Common
Stock of the Company, shares of such stock or other securities as the holders of
Common Stock of the Company received, if any, pursuant to the terms of the
merger, consolidation or other transaction; (b) the Board of Directors of the
Company may waive any limitation set forth in or imposed pursuant to this
Agreement so that the Option, from and after a date prior to the effective date
of such merger, consolidation, liquidation, or other transaction, as the case
may be, specified by such Board, may be exercisable in full; and/or (c) the
Option may be cancelled by the Board of Directors of the Company as of the
effective date of any such merger, consolidation, liquidation or other
transaction provided that (i) notice of such cancellation shall be given to
Optionee and (ii) Optionee shall have the right to exercise the Option in full
during a 30-day period preceding the effective date of such merger,
consolidation, liquidation, or other transaction.
CERTAIN RESTRICTIONS
9. Optionee understands that the Option is not registered under the
Securities Act of 1933, as amended (the "Act") and the Company has no obligation
to register under the Act the
2
<PAGE>
Option or any of the Shares of Common Stock subject to and issuable upon the
exercise of the Option. Optionee represents that the Option is being acquired
by him and that such shares of Common Stock will be acquired for his own account
for investment and without a view to resale or or distribution in violation of
the Acct or any other securities law, and, upon any such acquisition Optionee
will enter into such written representations, warranties and agreements as the
Company may reasonably request in order to comply with the Act or any other
securities law or with this Agreement. Any disposition of the Option or the
Common Stock must comply with the Act or any other securities law or with this
Agreement. Any disposition of the Option or the Common Stock must comply with
the Securities and Exchange Act of 1934, and state securities laws, as
applicable. All certificates for the shares issued upon exercise of the Option
will bear the following legend unless such shares are registered under the Act
prior to their issuance.
The shares represented by this Certificate have not been registered under
the Securities Act of 1933 (the "Act"), and are "restricted securities" as
that term is defined in Rule 144 under the Act. The shares may not be
offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act or pursuant to an exemption
from registration under the Act, the availability of which is to be
established to the satisfaction of the Company.
10. Subject to approval of corporate counsel, the Company agrees to grant
Optionee Piggy-Back registration rights for any vested and exercised Options.
11. The Common Stock cannot be readily purchased or sold on the open
market, and for that reason, among others, the parties will be irreparably
damaged in the event that the provisions of this Agreement are not specifically
enforced. Should any dispute arise concerning the sale or disposition of Common
Stock, an injunction may be issued restraining any sale or disposition pending
the determination of such controversy. In the event of any controversy
concerning the purchase or sale of any such Common Stock or the compliance with
any obligation hereunder, the same shall be enforceable in a court of equity by
a decree of specific performance. Such remedy shall, however, be cumulative and
not exclusive, and shall be in addition to any other remedy which the parties
may have. In any successful action for injunction or specific performance under
this Agreement, the party against whom such action was brought shall be
responsible for and shall indemnify the other parties hereto against any and all
expenses incurred in connection therewith, including but not limited to, court
costs and attorneys' and accountants' fees.
12. Optionee shall have no rights as a shareholder in respect of shares of
Common Stock issuable upon exerscise of the Option as to which the Option shall
not have been exercised, payment made as herein provided and certificates
representing such shares issued in Optionee's name, and shall have no rights
with respect to such shares not expressly conferred by this Agreement.
GENERAL
13. Any notice required to be given under the terms of this Agreement
shall be addressed to the Company in care of its Secretary at the principal
executive office of the Company in Houston, Texas, and any notice to be given to
Optionee shall be addressed to him at the address given by him beneath his
signature hereto or such other address as either party hereto may hereafter
designate in writing to the other. Any such notice shall be deemed to have been
duly given when enclosed in a
3
<PAGE>
properly sealed envelope or wrapper addressed as aforesaid, registered or
certified and deposited (postage, registration or certification fee prepaid) in
a post office or branch post office regularly maintained by the United States.
14. Optionee shall be solely responsible for the payment of all
withholding and other federal or state employment or other taxes (if any)
attributable to the Option and will indemnify and hold harmless the Company, its
successors and assigns, against all such taxes (and any and all related interest
and penalties) and all costs and expenses, including attorneys' fees related to
defending any such claims for taxes.
15. This Agreement shall be binding upon and insure to the benefit of any
successor or successors of the Company.
16. The interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Texas.
17. This Agreement is intended for the exclusive benefit of the parties to
this Agreement and their respective personal representatives, successors and
permitted assigns, and nothing contained in this Agreement shall be construed as
creating any rights or benefits in or to any third party.
IN WITNESS WHEREOF, the Company has caused this to be executed on its
behalf by its duly authorized officer, and Optionee has hereunto set his hand as
of the day and year first above written, which is the date of the grant of this
Option.
DRCA MEDICAL CORPORATION "OPTIONEE"
By: /S/ JOSE E. KAUACHI /S/ THOMAS M. CONNER
--------------------------- -----------------------------
Jose E. Kauachi Thomas M. Conner
Chairman of the Board & CEO
Address of "Optionee":
2509 Durarte Way
Laguna Beach, California a 92651
4
<PAGE>
EXHIBIT 10.52
STOCK OPTION AGREEMENT
THIS AGREEMENT is made effective as of April 11, 1996 between DRCA Medical
Corporation (hereinafter called the "Company"), and Victor M. Rivera, M.D.
(hereinafter called "Optionee").
GRANT OF THE OPTION
1. The Company hereby grants to Optionee the right and option to purchase,
on the terms and conditions hereafter set forth, all or any part of an aggregate
of FOUR THOUSAND (4,000) shares of the presently authorized but unissued common
stock of the Company (which common stock subject to the Option shall hereinafter
be referred to as the "Common Stock"). The purchase price of the Common Stock
shall be $3.00 per share ("Option Price"), which Option Price is not less than
the fair market value of the Common Stock as of the date hereof. This stock
option is intended to be a nonstatutory stock option for purpose of the Internal
Revenue Service.
2. The Option may not be assigned, transferred or disposed of by the
Optionee other than by will or the laws of decent and distribution. For
purposes of this subparagraph, "disposed of" shall mean any gift or intervivos
transfer; any transfer to a trust, any lien, pledge, mortgage, or other
encumbrance; any transfer by reason of marital property division; any
disposition pursuant to court, bankruptcy, administrative or similar
proceedings; or any disposition whatsoever, whether voluntary or involuntary.
The Option shall be exercisable, during the Optionee's lifetime, only by the
Optionee.
EXERCISE OF THE OPTION
3. The Option may be exercised on or before the Expiration Date (as
defined below) in whole at any time or in part from time to time with respect to
whole shares only of the Common Stock in accordance with Section 4 below. The
Option may be exercised only by the delivery to the Company at its principal
office (a) of a written notice of the exercise of the Option that specified the
number of shares of Common Stock as to which the Option is being exercised; and
(b) payment in full of the Option Price for such Common Stock. No exercise of
the Option shall be required to be honored if it does not comply with the
provisions of this Agreement or if the honoring of such exercise would cause any
law or regulation to be violated.
4. The Options shall vest as specified below:
a. No Options shall vest until Optionee is reelected to the Board of
Directors of the Company;
b. Following Optionees' reelection to the Board of Director of the
Company, Options shall vest on the last day of each month as
follows: Month 1 through month 11 Options will vest at the rate of
167 shares per month. Month 12 Options will vest for 163. Month 13
through month 23 Options will vest at the rate of 167 shares per
month. Month 24 Options will vest for 163 shares.
1
<PAGE>
Such vesting shall occur on the last day of each month and shall not be
prorated in the event the services as a Director is terminated. Shares not
vested to the Optionee at termination of Optionee's services as a Director of
the Company shall revert to the Company and Optionee shall have no right or
claim against any such Options so forfeited.
5. Upon the Company's determination that the Option has been validity
exercised as to any of the Common Stock, the Company shall direct the persons
responsible for issuing the Common Stock to issue certificates in the Optionee's
name for the number of shares set forth in his written notice. However, the
Company shall not be liable to the Optionee for damages related to any delays in
issuing the certificates to him, any loss of the certificates, or any mistakes
or errors in the issuance of the certificates or in the certificates themselves.
6. The Company intends for the Option to be qualified as a "nonstatutory
stock option" with the meaning of the Internal Revenue Code.
EXPIRATION DATE OF OPTION.
7. The Option must be exercised on or before the expiration of three years
after the first vesting date as specified in Section 4 above ("Expiration
Date").
EFFECT ON CORPORATE TRANSACTIONS
8. The existence of the Option shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any and all
adjustments, recapitalization, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of the Company
or any issue of common stock, bonds, debentures, preferred or prior preference
stock ahead of or affecting the shares of Common Stock issuable upon exercise of
the Option or the right thereof and at any price determined by the Board of
Directors of the Company, or the dissolution or liquidation of the Company or
the sale or transfer of any or all of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise. In
the event of involuntary dissolution of the Company, the Option shall be deemed
cancelled to the extent not previously exercised.
If the Company is merged into or consolidated with another corporation
under where the Company is not the surviving corporation, or if the Company is
liquidated, or engages in any corporate separation or division, including, but
not limited to, split-up, split-off or spin-off, sale or other disposition of
its assets to another corporation during the period of the Option hereunder, (a)
subject to the provisions of (c) below, after the effective date of such merger,
consolidation, liquidation or other transaction, as the case may be, Optionee
shall be entitled, upon exercise of the Option, to receive, in lieu of Common
Stock of the Company, shares of such stock or other securities as the holders of
Common Stock of the Company received, if any, pursuant to the terms of the
merger, consolidation or other transaction; (b) the Board of Directors of the
Company may waive any limitation set forth in or imposed pursuant to this
Agreement so that the Option, from and after a date prior to the effective date
of such merger, consolidation, liquidation, or other transaction, as the case
may be, specified by such Board, may be exercisable in full; and/or (c) the
Option may be cancelled by the Board of Directors of the Company as of the
effective date of any such merger, consolidation, liquidation or other
transaction provided that (i) notice of such cancellation shall be given to
Optionee
2
<PAGE>
and (ii) Optionee shall have the right to exercise the Option in full during a
30-day period preceding the effective date of such merger, consolidation,
liquidation, or other transaction.
CERTAIN RESTRICTIONS
9. Optionee understands that the Option is not registered under the
Securities Act of 1933, as amended (the "Act") and the Company has no obligation
to register under the Act the Option or any of the Shares of Common Stock
subject to and issuable upon the exercise of the Option. Optionee represents
that the Option is being acquired by him and that such shares of Common Stock
will be acquired for his own account for investment and without a view to resale
or or distribution in violation of the Acct or any other securities law, and,
upon any such acquisition Optionee will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with the Act or any other securities law or with this Agreement. Any
disposition of the Option or the Common Stock must comply with the Act or any
other securities law or with this Agreement. Any disposition of the Option or
the Common Stock must comply with the Securities and Exchange Act of 1934, and
state securities laws, as applicable. All certificates for the shares issued
upon exercise of the Option will bear the following legend unless such shares
are registered under the Act prior to their issuance.
The shares represented by this Certificate have not been registered under
the Securities Act of 1933 (the "Act"), and are "restricted securities" as
that term is defined in Rule 144 under the Act. The shares may not be
offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act or pursuant to an exemption
from registration under the Act, the availability of which is to be
established to the satisfaction of the Company.
10. Subject to approval of corporate counsel, the Company agrees to grant
Optionee Piggy-Back registration rights for any vested and exercised Options.
11. The Common Stock cannot be readily purchased or sold on the open
market, and for that reason, among others, the parties will be irreparably
damaged in the event that the provisions of this Agreement are not specifically
enforced. Should any dispute arise concerning the sale or disposition of Common
Stock, an injunction may be issued restraining any sale or disposition pending
the determination of such controversy. In the event of any controversy
concerning the purchase or sale of any such Common Stock or the compliance with
any obligation hereunder, the same shall be enforceable in a court of equity by
a decree of specific performance. Such remedy shall, however, be cumulative and
not exclusive, and shall be in addition to any other remedy which the parties
may have. In any successful action for injunction or specific performance under
this Agreement, the party against whom such action was brought shall be
responsible for and shall indemnify the other parties hereto against any and all
expenses incurred in connection therewith, including but not limited to, court
costs and attorneys' and accountants' fees.
12. Optionee shall have no rights as a shareholder in respect of shares of
Common Stock issuable upon exerscise of the Option as to which the Option shall
not have been exercised, payment made as herein provided and certificates
representing such shares issued in Optionee's name, and shall have no rights
with respect to such shares not expressly conferred by this Agreement.
3
<PAGE>
GENERAL
13. Any notice required to be given under the terms of this Agreement
shall be addressed to the Company in care of its Secretary at the principal
executive office of the Company in Houston, Texas, and any notice to be given to
Optionee shall be addressed to him at the address given by him beneath his
signature hereto or such other address as either party hereto may hereafter
designate in writing to the other. Any such notice shall be deemed to have been
duly given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified and deposited (postage, registration or
certification fee prepaid) in a post office or branch post office regularly
maintained by the United States.
14. Optionee shall be solely responsible for the payment of all
withholding and other federal or state employment or other taxes (if any)
attributable to the Option and will indemnify and hold harmless the Company, its
successors and assigns, against all such taxes (and any and all related interest
and penalties) and all costs and expenses, including attorneys' fees related to
defending any such claims for taxes.
15. This Agreement shall be binding upon and insure to the benefit of any
successor or successors of the Company.
16. The interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Texas.
17. This Agreement is intended for the exclusive benefit of the parties to
this Agreement and their respective personal representatives, successors and
permitted assigns, and nothing contained in this Agreement shall be construed as
creating any rights or benefits in or to any third party.
IN WITNESS WHEREOF, the Company has caused this to be executed on its
behalf by its duly authorized officer, and Optionee has hereunto set his hand as
of the day and year first above written, which is the date of the grant of this
Option.
DRCA MEDICAL CORPORATION "OPTIONEE"
By: /S/ JOSE E. KAUACHI /S/ VICTOR M. RIVERA
------------------- --------------------
Jose E. Kauachi Victor M. Rivera, M.D.
Chairman of the Board & CEO
Address of "Optionee":
6560 Fannin, Suite 1224
Houston, Texas 77030
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB FOR
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,200,721
<SECURITIES> 0
<RECEIVABLES> 6,952,237
<ALLOWANCES> 352,853
<INVENTORY> 0
<CURRENT-ASSETS> 8,253,581
<PP&E> 5,599,630
<DEPRECIATION> 3,591,539
<TOTAL-ASSETS> 11,144,654
<CURRENT-LIABILITIES> 2,848,117
<BONDS> 623,403
252
0
<COMMON> 5,302
<OTHER-SE> 7,510,994
<TOTAL-LIABILITY-AND-EQUITY> 11,144,654
<SALES> 8,201,381
<TOTAL-REVENUES> 8,201,381
<CGS> 7,594,515
<TOTAL-COSTS> 7,594,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 657,111
<INTEREST-EXPENSE> 94,734
<INCOME-PRETAX> 421,672
<INCOME-TAX> 142,419
<INCOME-CONTINUING> 279,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 279,253
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
