<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
DRCA MEDICAL CORPORATION
(Name of Registrant as Specified In Its Charter)
DRCA MEDICAL CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(i)(l), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
.........................................................................
2) Aggregate number of securities to which transaction applies:
.........................................................................
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:/1/
.........................................................................
4) Proposed maximum aggregate value of transaction:
.........................................................................
5) Total fee paid:
.........................................................................
/1/ Set forth the amount on which the filing fee is calculated and state how it
was determined.
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
.........................................................................
2) Form, Schedule or Registration Statement No.:
.........................................................................
3) Filing Party:
.........................................................................
4) Date Filed:
.........................................................................
<PAGE>
DRCA MEDICAL CORPORATION
(formerly Doctors Rehabilitation Corporation of America)
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 9, 1996
To the Stockholders of DRCA Medical Corporation:
The Annual Meeting of Stockholders of DRCA Medical Corporation (the
"Company") will be held at the Company's corporate offices at 3 Riverway, Suite
1430, Houston, Texas 77056, at 12:00 p.m., local time, May 9, 1996 for the
following purposes:
1. To elect Directors to serve until the 1997 Annual Meeting of
Stockholders or until their successors shall have been duly elected
and qualified;
2. To ratify the selection by the Board of Directors of Price
Waterhouse as independent accountants of the Company for the fiscal
year ending December 31, 1996; and
3. To amend the Articles of Incorporation to authorize the issuance of
10,000,000 shares of Preferred Stock;
4. To amend the Articles of Incorporation to terminate certain
limitations on the number of the Company's Directors; and
5. To transact such other business as may properly come before the
meeting.
Common stockholders of record at the close of business on March 15,
1996 will be entitled to notice of and vote at the meeting.
By order of the Board of Directors
JEFFERSON R. CASEY, Secretary
Houston, Texas
Dated: April 12, 1996
Please mark, date and sign the enclosed proxy card and return it in the enclosed
addressed envelope at your earliest convenience, thereby saving the Company the
expense of further solicitation of proxies. Stockholders planning to attend the
Annual Meeting in person are requested to mark the appropriate box on the
enclosed Proxy.
<PAGE>
DRCA MEDICAL CORPORATION
3 RIVERWAY, SUITE 1430
HOUSTON, TEXAS 77056
PROXY STATEMENT
1996 ANNUAL MEETING OF STOCKHOLDERS
This proxy statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of DRCA Medical Corporation (the
"Company") of the enclosed proxy (the "Proxy") to be used at the Company's 1996
Annual Meeting of Stockholders (the "Annual Meeting") and at any adjournments
thereof for the purposes of considering and voting upon the matters set forth in
the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
is to be held at the Company's corporate offices at 3 Riverway, Suite 1430,
Houston, Texas 77056, at 12:00 noon, local time, on Thursday, May 9, 1996. This
Proxy Statement and the Proxy were first sent or given to the Company's
stockholders on or about April 12, 1996.
Only stockholders of record on March 15, 1996, (the "record date") are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
The Proxy, if properly executed and returned, will be voted (or
withheld or abstained from voting) according to the choices specified therein.
The Proxy will be voted in favor of (i) the election of each nominee for
director named thereon, unless a choice is indicated to withhold authority to
vote for such nominee, and (ii) each proposal described therein unless a choice
is indicated to vote against or to abstain from voting on any specific proposal.
The Proxy may be revoked (i) by providing written notice of such
revocation to Continental Stock Transfer & Trust Company, 2 Broadway, 19th
Floor, New York, NY 10004, if such notice is received prior to 5:00 P.M., New
York City time on Friday, May 3, 1996, or (ii) by attendance at the meeting and
voting in person.
Stockholders planning to attend the Annual Meeting in person are
requested to mark the appropriate box on the enclosed Proxy.
VOTE REQUIRED
The Common Stock is the only voting security of the Company. As of
the record date, there were 5,301,808 shares of Common Stock issued and
5,285,975 shares outstanding. The presence, in person or by proxy, of a
majority of the outstanding shares of Common Stock on the record date is
necessary to constitute a quorum at the meeting. Each stockholder is entitled
to one vote for each share of Common Stock owned on the record date. The
affirmative vote of the holders of a majority of the shares of Common Stock
present at the Annual Meeting in person or by proxy and entitled to vote at the
Annual Meeting, assuming a quorum, is required for the approval of Items 1 and 2
set forth in the accompanying Notice. Assuming the presence of a quorum, the
affirmative vote of the holders of at least two-thirds (2/3) of the issued and
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
required for the approval of Items 3 and 4 set forth in the accompanying Notice.
Proxies are being tallied by Continental Stock Transfer & Trust Company for
stockholders who are not present at the Annual Meeting. A panel of three Judges
appointed by the Company will tabulate the shares which are voted by Proxy and
in person at the Annual Meeting. Abstentions are considered as being present at
the meeting for purposes of determining a quorum. Broker non-votes are not
counted for purposes of determining a quorum.
With respect to the vote on Item 3 set forth in the accompanying
notice regarding an amendment to the Company's Articles of Incorporation to
authorize the issuance of preferred stock, Mr. Kauachi and Dr. and Mrs. Donovan,
whose shares collectively represent 46.6% of the Company's outstanding Common
Stock entitled to vote at the Annual Meeting, have agreed to vote in favor of
Item 3.
1
<PAGE>
ITEM 1
NOMINEES, DIRECTORS AND COMMITTEES
ELECTION OF DIRECTORS
The number of directors elected to the Board can range from two to
seven as provided in the Company's Bylaws. At the meeting four directors are to
be elected to hold office until the next annual meeting of shareholders or until
the successors of each shall be qualified. The four nominees are William F.
Donovan, M.D., Jose E. Kauachi, Victor M. Rivera, M.D., and Thomas Conner.
Messrs. Kauachi, Donovan and Rivera, are currently directors of the Company.
Unless a choice is specifically indicated on the enclosed Proxy to withhold
authority to vote for a nominee, all shares represented by proxies which are
executed and received prior to the meeting will be voted for the election of
said nominees.
Messrs. Donovan, Kauachi, Rivera, and Conner have each consented to
being named in this proxy statement and have agreed to serve if elected.
Although it is not contemplated that any of these nominees will be unable to
serve, if such a situation arises before or during the meeting, the proxies will
be voted for any nominee who shall be designated by the present Board of
Directors to fill such vacancy.
Appearing below is certain biographical and other information with
respect to each nominee.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jose E. Kauachi 57 Chairman of the Board,
President & CEO
William F. Donovan, M.D. 53 Director
Victor M. Rivera, M.D. 54 Director
Thomas M. Conner 51 Director
</TABLE>
JOSE E. KAUACHI, (age 57). Mr. Kauachi has served variously as
President, Chairman of the Board, Chief Executive Officer and Treasurer of the
Company since October 1986. Mr. Kauachi received his degree in Mechanical
Engineering Route to Business Administration in 1965 from the University of
Texas. Mr. Kauachi was an independent top management consultant specializing in
projects in the medical field from 1984 through 1987. During this period he
assisted start-up businesses and in the development of existing businesses,
including the founding of the Company in 1986. As a top management consultant
Mr. Kauachi performed management consulting work for the government of Mexico in
connection with overall organization, strategic planning and finance. He also
provided consulting services for Mexican and Spanish companies interested in
establishing and developing business operations in the Southwestern United
States. From 1974 through 1976, Mr. Kauachi was Director of the Mexico Division
of Financiera de Nuevo Leon, SA de CV a Mexican investment bank; top management
consultant for McKinsey & Company, Inc., a New York based international top
management consulting firm, from 1972 through 1974; Project Manager for
Banamex, a Mexican banking and industrial group from 1971 through 1972; and,
international Credit Manager with the International Bank of America in San
Francisco, California from 1969 to 1971. Mr. Kauachi served as Vice President
and General Manager of Carte Blanche Corporation's credit card operations in
Mexico from 1967 to 1969.
Mr. Kauachi has been a Director of the Company since October 1986,
served as a member of the Audit Committee until June 1, 1990, and has served as
a member of the Compensation Committee since that date. Mr. Kauachi currently
serves as Chairman of the Board, Chief Executive Officer and President.
WILLIAM F. DONOVAN M.D., (age 53). Dr. Donovan has been engaged in
the private practice of orthopedic surgery in Houston, Texas for over 21 years.
Dr. Donovan received his B.S. degree from John Carroll University in 1964 and
his medical degree from Loyola-Stritch Medical School, Chicago, Illinois, in
1968. Dr. Donovan's residency in orthopedic surgery was completed at
Northwestern University in 1973. Dr. Donovan is a member of the American Board
of Orthopedic Surgery, American Academy of Orthopedic Surgery, Houston
Orthopedic Society, Texas Orthopedic Society, Harris County Medical Society,
International Arthroscopy Association, Texas Medical Association, Western
Orthopedic Association, and American Academy of Disability Evaluating
Physicians, and is a Medical Review Officer.
2
<PAGE>
Dr. Donovan has been a Director of the Company since October 1986,
served as a member of the Compensation Committee from election until June 1,
1990, and has served as a member of the Audit Committee since that date. Dr.
Donovan served as Chairman of the Board until May 1992. He has also served as
the Company's Medical Director, its primary advisor regarding strategic and
operational issues related to the Company's orthopedic medicine and occupational
healthcare programs, since inception.
VICTOR M. RIVERA, M.D., (age 54). Dr. Rivera has been engaged in the
practice of neurological medicine for over 24 years. Dr. Rivera received his
medical degree from the National School of Medicine, Mexico in 1965. Dr. Rivera
completed his residency in neurology at Wayne State University, Affiliated
Hospital, Detroit, Michigan and Baylor College of Medicine, Houston, Texas in
1969. Dr. Rivera has served as Director of the Houston Neurological Center
since 1977. He was with the Zimmerman Medical Clinic, Houston, Texas from 1975
to 1977. He served in the Neurology Department of Baylor College of Medicine,
Houston, Texas from 1970 to 1975. Dr. Rivera is a member of the American
Medical Association, American Academy of Neurology, Harris County Medical
Association, Houston Neurological Society, International Rehabilitation Medicine
Association, and the Texas Medical Association.
Dr. Rivera has been a Director since May 1992 and has served as a
member of the Audit Committee since election as a director.
THOMAS M. CONNER (age 51). Mr. Conner has 25 years (20 years in
healthcare) in senior management and consultation positions. He received his
Bachelor of Science Degree in Accounting from California State University at
Northridge in 1969. He attended graduate schools of business at both the
University of Southern California and University of California at Los Angeles.
Mr. Conner has been primarily self-employed since 1987 as an independent
healthcare management and financial consultant and/or board of directors member
working with high growth potential organizations. His services as a board
member have been limited to private, non-public companies. In March 1995 Mr.
Conner formed a new company, J & C Acquisition Corporation (JCAC) which in April
1995, acquired in a private transaction most of the operating assets of Jackson
& Coker, Inc. (d/b/a Jackson & Coker), a national physician recruitment firm
based on Atlanta, Georgia. In September 1995, JCAC sold essentially all of its
assets and liabilities in a private transaction to a group of four venture
capital firms. Mr. Conner owns 100% of JCAC and serves as its President and
Chief Executive Officer. Prior to 1987, Mr. Conner held various senior
management positions with American Medical International, Inc. (1979-1984);
MPDI, Inc. (1984-1985); United States Sales Corporation (1977-1979); Sunn
Classic Pictures, Inc. (1974-1977); and American Hospital Supply Corporation
(1969-1974).
COMMITTEES AND MEETINGS
The Board of Directors held no formal meetings during 1995, however,
the Board took action by unanimous written consent on 14 occasions.
The Board of Directors has standing Audit and Compensation Committees.
The 1996 Audit Committee will be composed of Dr. Rivera. The Compensation
Committee is comprised of only one member, Mr. Jose E. Kauachi.
AUDIT COMMITTEE. The Audit Committee's functions are to monitor and
review the performance of the Company's independent accountants and recommend to
the Board from year to year a firm to be selected as the Company's independent
accountants. The Audit Committee's role also includes reviews of the Company's
policies and procedures with respect to auditing, accounting, and financial
controls, periodic informal meetings with the Company's staff regarding
accounting and financial procedures and recommendations to the Board regarding
methods of control over the audit and accounting functions.
COMPENSATION COMMITTEE. The Compensation Committee's functions are to
recommend to the Board the salary ranges and other remuneration payable to the
officers and the managerial and technical personnel of the Company, to establish
the remuneration payable to officers, to administer the Company's compensation
and option plans designed primarily for the benefit of officers and key
employees, and if it deems appropriate, to recommend the adoption of new plans
or amendments to existing plans. Since Mr. Kauachi was the only member of the
Compensation Committee during 1995,
3
<PAGE>
no formal committee meetings were held. Mr. Kauachi made recommendations
regarding compensation matters as necessary to the Board of Directors and all
matters pertaining to Mr. Kauachi's compensation were approved by unanimous
consent of all other Directors of the Company.
The Company has no nominating committee or any committee serving a
similar function.
DIRECTORS' COMPENSATION
Except for Mr. Conner, no directors receive any compensation for
attendance at Board and Committee meetings. In order to compensate Mr. Conner
for his participation on the Board of Directors, the Company has agreed to issue
to Mr. Conner options to acquire 2,000 shares of the Company's Common Stock at a
price of $3.00 per share, such options to vest one-twelfth per month. All
Directors are entitled to reimbursement for reasonable travel expenses incurred
in attending meetings of the Company's directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ELECTION OF EACH OF THE INDIVIDUALS NOMINATED FOR ELECTION AS DIRECTOR.
ITEM 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
Price Waterhouse has been selected by the Board of Directors to serve
as the Company's independent accountants for the fiscal year ending December 31,
1996. Price Waterhouse is a nationally recognized accounting firm and has acted
as the Company's independent accountants since December 14, 1990. The firm is
familiar with the operations of the Company and has offices easily accessible to
those of the Company.
The Board of Directors recommends that the selection of Price
Waterhouse be ratified by the stockholders. Ratification of the selection of
accountants is not required; however, the Board of Directors is submitting this
matter to the stockholders in order to enhance their participation in this
aspect of the Company's affairs. If the stockholders do not ratify the
selection of Price Waterhouse, this selection of independent accountants will be
reconsidered by the Board of Directors.
A representative of Price Waterhouse is expected to be present at the
Annual Meeting and will have the opportunity to make a statement if he desires
to do so and is expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
RATIFICATION OF THIS APPOINTMENT.
ITEM 3
PROPOSED AMENDMENT TO
ARTICLES OF INCORPORATION TO AUTHORIZE PREFERRED STOCK
The Board of Directors has approved, and recommends to the
shareholders, the adoption of an amendment to the Company's Articles of
Incorporation which would create a new class of 10,000,000 shares of Preferred
Stock, par value, $.01 per share ("Preferred Stock"). The text of Article IV as
it is proposed to be revised is set forth in Appendix A hereto. Shareholders are
urged to carefully review the text of the proposed amendment.
4
<PAGE>
If the proposed amendment is approved, the Board of Directors will be
authorized to establish, designate and issue from time to time one or more
series of Preferred Stock, without further authorization of the Company's
Shareholders, and to fix the number of shares and the relative rights and
preferences of the authorized shares of each such series. Shares of Preferred
Stock may vary by series as to dividend rates, voting powers, conversion or
exchange privileges, redemption obligations or privileges, liquidation
preferences and any other relative rights and preferences determined by the
Board which are consistent with Texas law and the Company's Articles of
Incorporation then in effect.
The Articles of Incorporation do not provide preemptive rights to
holders of any shares or securities, irrespective of when they are issued, so
any Preferred Stock actually issued by the Company will be without preemptive
rights.
The Board of Directors believes that the proposed creation of a class
of Preferred Stock is desirable at this time to permit the Company to readily
take advantage of future business opportunities that may arise which may call
for the use of preferred stock. This amendment will permit the Company, among
other possible uses, to raise additional capital or make stock acquisitions. If
the creation of a class of Preferred Stock is postponed until a specific need
arises, excessive time and expense could be consumed incident to obtaining last
minute shareholder approval, and delays could be to the detriment of the Company
and its Shareholders.
If so determined by the Board of Directors, any series of Preferred
Stock may have full voting rights with the Common Stock or superior or limited
voting rights and may have equal or superior rights to receive dividends or
liquidating distributions. As a result, any series of Preferred Stock could
have rights which could adversely affect the voting power or dividend or
liquidation rights of the Common Stock. It is the present intention of the
Board of Directors not to seek Shareholder approval prior to any issuance of any
series of Preferred Stock, unless otherwise required by applicable law or
regulations, stock exchange rules or pursuant to the Articles of Incorporation.
The Company is currently negotiating the terms of an Investment
Agreement (the "Investment Agreement"), with Chartwell Capital Investors, L.P.
("Investor"), pursuant to which the Company expects to issue to Investor a
promissory note (the "Note") in the original principal amount of $2,500,000.
The Company anticipates using the proceeds of the Note for future acquisitions
and general working capital purposes. Pursuant to the anticipated terms of the
Investment Agreement, upon the requisite approval by the Company's Shareholders
of the amendment described above and filing of the Articles of Amendment (and
Statement of Designations with respect to the Series A Preferred Stock described
below) with the appropriate authorities, subject to certain limited exceptions,
the principal outstanding on the Note, together with accrued interest thereon,
may be converted by either the Company or the Investor into shares of the
Company's Cumulative Convertible Preferred Stock, Series A (the "Series A
Preferred Stock") at a conversion rate of $100 per share. The Series A
Preferred Stock is expected to have substantially the rights and preferences set
forth in Appendix B. Consummation of the transaction is subject to completion
of definitive agreements and due diligence. The Company anticipates that this
transaction will close in April 1996; provided, however, there can be no
assurance that the transaction will close within that time frame or at all.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO AUTHORIZE A NEW CLASS OF PREFERRED STOCK.
ITEM 4
PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
TO DELETE CERTAIN LIMITATIONS ON THE NUMBER OF DIRECTORS
The Board of Directors has approved, and recommends to the
shareholders, the adoption of an amendment to the Company's Articles of
Incorporation to delete the provisions fixing the number of directors of the
Company currently set forth in Article XV of the Articles of Incorporation. The
language to be deleted from Article XV is set forth in Appendix A hereto.
Shareholders are urged to carefully review the text of the proposed
amendment.
5
<PAGE>
Article XV of the Company's Articles of Incorporation, as well as
Section 3.02 of the Company's Bylaws, currently provides that the number of
directors constituting the Company's Board of Directors shall be no fewer than
two (2) nor more than seven (7). As reflected in Appendix A hereto, the Company
proposes to delete this restriction. The Company's Board of Directors currently
consists of four (4) directors. On occasion, the Company enters into financing,
capital raising or other transactions pursuant to which, as a condition to
consummation of such transaction, the other party requests the ability to
designate one or more members of the Company's Board of Directors. Although the
Company does not currently anticipate the need to expand its Board of Directors
to more than seven members, in order to maintain maximum flexibility for the
Company to enter into such transactions, the Company believes that this
restriction should be terminated, so that the Directors can determine the
maximum and minimum size of the Company's Board of Directors without having to
seek shareholder approval in the event that such number exceeds seven or is less
than two.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO DELETE CERTAIN LIMITATIONS ON THE NUMBER OF THE COMPANY'S
DIRECTORS.
EXECUTIVE OFFICERS
The following table lists the present executive officers of the
Company as of the date hereof and the capacities in which they serve.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AGE CAPACITY
- ------------------ --- --------
<S> <C> <C>
Jose E. Kauachi 57 Chairman of the Board, President, and
Chief Executive Officer
Jefferson R. Casey 44 Senior Vice President, Secretary and
Treasurer
Johnny L. Sanders 47 Senior Vice President
Gerardo "Nick" Flores 36 Vice President and Regional
Coordinator
</TABLE>
Biographical information with respect to Mr. Kauachi was previously
described under Item 1. Biographical information with respect to the other
executive officers is as follows:
JEFFERSON R. CASEY (age 44) is presently serving as Senior Vice
President, Secretary, and Treasurer, and has served variously as Executive Vice
President and President since December 3, 1991. Mr. Casey was Vice President,
Chief Financial Officer and on the Board of Directors of Avanti Health Systems,
Inc. from December 19, 1988 until March 15, 1991. Mr. Casey was self-employed as
a management and financial consultant from March 15, 1991 until joining the
Company in December 1991. From November 7, 1979 until December 18, 1988 he
served as Vice President of Finance, Chief Financial Officer with Community
Health Computing, Inc. Mr. Casey was Controller of Arbuckle Electrical
Machinery, Co., Inc. from April 6, 1978 to December 17, 1979, and served as a
Commercial Banking Officer with Houston Citizens Bank & Trust from January 1,
1976 through April 15, 1978. Mr. Casey received a Master of Business
Administration in Finance and a Bachelor of Business Administration in Marketing
from the University of Texas.
JOHNNY L. SANDERS (age 47) has served as the Senior Vice President since
March 31, 1993. Mr. Sanders joined the Company on January 22, 1993 as a result
of the Company's acquisition of Health Testing, Inc. Mr. Sanders served as CEO
and President of Health Testing, Inc., (formerly Hearing Testing, Inc.), a
company founded by him in 1979, providing a range of services to industries
through its six mobile testing units and three occupational medical clinics
which were all based in Houston, Texas. Mr. Sanders was in private audiology
practice from 1970 to 1978. Mr. Sanders received his Masters Degree in Audiology
from the University of Houston and completed his clinical audiology requirements
at UTMB in Galveston. He performed his Clinical Fellowship Year for ASHA
Certification at Baylor College of Medicine in Houston, Texas.
6
<PAGE>
GERARDO "NICK" FLORES (age 36) joined the Company on January 22, 1993
following the acquisition by the Company of Health Testing, Inc. Mr. Flores
began serving as Vice President, Mobile and Clinical Operations on March 31,
1993. From March 1990 to January 1993, Mr. Flores served as General Manager of
Health Testing, Inc. Mr. Flores joined Health Testing, Inc. on February 3, 1986
as an Industrial Health Technician and became responsible for the management of
the mobile testing units in May of the same year. Mr. Flores was promoted to
Manager of one of the medical clinics on May 1, 1989. Mr. Flores received his
education at the University of Milwaukee, Wisconsin and the University of
Houston, majoring in Business Administration. He is certified in Occupational
Hearing Conservation, in Pulmonary Function Testing and in Phlebotomy. Mr.
Flores is a member of the following professional associations: Associate
Builders and Contractors, American Society of Safety Engineers, American
Industrial Hygiene Association, American Society of Phlebotomy, and the Hispanic
Chamber of Commerce.
Each officer has been elected to serve until the 1996 Annual Meeting of
the Board of Directors, which will be held immediately following the Annual
Meeting. The Company anticipates that all of the officers will be re-elected to
their positions at that time.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
On March 15, 1996, there was no person who owned of record, and none
were known to the Company to own beneficially, more than 5% of the Common Stock,
except as set forth below.
<TABLE>
<CAPTION>
Amount and
Nature of
Title of Name and Address of Beneficial Percent
Class Beneficial Owner Owner of Class
<S> <C> <C> <C>
Common Stock Sharon Ann Donovan
Three Riverway, Suite 1430 1,101,500 shares (a) 20.8%
Houston, Texas 77056
Common Stock Jose E. Kauachi
Three Riverway, Suite 1430 1,371,635 shares (b) 25.2%
Houston, Texas 77056
Common William F. Donovan, M.D. 290,250 shares (c) 5.3%
Stock Three Riverway, Suite 1430
Houston, Texas 77056
- -----------------------
</TABLE>
(a) Sharon Ann Donovan, the spouse of William F. Donovan, M.D. (a director of
the Company), disclaims any beneficial ownership with respect to securities
owned by Dr. Donovan.
(b) Represents 1,197,281 shares of Common Stock presently owned, 750 shares of
common stock owned by Mr. Kauachi's wife, and 23,604 shares of common stock
owned by Mr. Kauachi's daughter, 100,000 shares of Common Stock which could
be acquired upon exercise of Warrants by Mr. Kauachi (which warrants are
currently exercisable) and options to purchase 50,000 shares (which options
are currently exercisable). Mr. Kauachi disclaims any beneficial ownership
with respect to securities owned by his wife and daughter.
(c) Represents 140,250 shares of Common Stock presently owned and 100,000
shares of Common Stock which could be acquired upon exercise of a warrant
by Dr. Donovan, (which warrant is currently exercisable) and options to
purchase 50,000 shares (which options are currently exercisable). Dr.
7
<PAGE>
Donovan disclaims any beneficial ownership with respect to shares of
Common Stock owned by Sharon Ann Donovan, his spouse, who has sole voting
and investment power as to such shares.
MANAGEMENT EQUITY OWNERSHIP
Listed in the table below are the equity securities beneficially owned as
of March 15, 1996, by directors, certain executive officers and directors and
executive officers as a group and the percent of class represented by the equity
securities owned by each person or group.
<TABLE>
<CAPTION>
Amount and
Name and Nature
Title of Address of of Beneficial Percent
Class Beneficial Owner Owner (a) of Class
<S> <C> <C> <C>
Common Stock William F. Donovan, 1,391,750 (b) 25.60%
M.D.
3 Riverway, Suite
1430
Houston, Texas 77056
Common Stock Jose E. Kauachi 1,371,635 (c) 25.23%
3 Riverway, Suite
1430
Houston, Texas 77056
Common Stock Victor M. Rivera, 2,037.88 (d) *
M.D.
3 Riverway, Suite
1430
Houston, Texas 77056
Common Stock Johnny L. Sanders 109,823 (e) 2.05%
3 Riverway, Suite
1430
Houston, Texas 77056
Common Stock Directors and 2,963,495.88 (f) 51.42%
Executive Officers
as a group (seven
persons)
</TABLE>
________________________
* Less than one percent
(a) The information as to beneficial ownership has been furnished by
the respective directors and officers. Each person or group has sole
voting and investment power unless otherwise indicated.
(b) Represents 140,250 shares of Common Stock presently owned,
1,101,500 shares of Common Stock owned by Dr. Donovan's wife, and
100,000 shares of Common Stock which could be acquired upon exercise
of a warrant by Dr. Donovan, (which warrant is currently exercisable)
and options to purchase 50,000 shares (which options are currently
exercisable). Dr. Donovan disclaims any beneficial ownership with
respect to shares of Common Stock owned by Sharon Ann Donovan, his
spouse, who has sole voting and investment power as to such shares.
(c) Represents 1,197,281 shares of Common Stock presently owned, 750
shares of common stock owned by Mr. Kauachi's wife, and 23,604 shares
of common stock owned by Mr. Kauachi's daughter, 100,000 shares of
Common Stock which could be acquired upon exercise of Warrants by Mr.
Kauachi (which warrants are currently exercisable) and options to
purchase 50,000 shares (which options are currently exercisable). Mr.
Kauachi disclaims any beneficial ownership with respect to securities
owned by his wife and daughter.
(d) Represents 500 shares of Common Stock presently owned and 1,537.88
shares of Common Stock (after dilution) which could be acquired upon
exercise of warrants by Dr. Rivera.
8
<PAGE>
(e) Represents 22,323 shares of Common Stock, and options to purchase
87,500 share of Common Stock (which options are currently
exercisable).
(f) Represents 2,486,208 shares of Common Stock, options to purchase
275,750 shares of Common Stock, and warrants to purchase 201,537.88
shares of Common Stock (which options and warrants are exercisable
within 60 days).
EXECUTIVE COMPENSATION
********************************************************************************
The following table sets forth all compensation paid, distributed or
accrued for services rendered in all capacities to the Company during the fiscal
years ended December 31, 1995, 1994 and 1993 to the Company's Chief Executive
Officer, and the four most highly compensated executive officers other than the
CEO whose total compensation exceeds $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
LONG-TERM
COMPENSATION
(a) (b) (c) (g) (i)
Securities
Underlying
Options/SARs Other
Name and Principal Position Year Salary (#) Compensation
<S> <C> <C> <C> <C>
Jose E. Kauachi, CEO 1995 $267,885 150,000 4,414/1/
1994 $245,774 100,000 $ 3,230/2/
1993 $278,300 - $33,303/3/
Johnny L. Sanders, 1995 $111,545 87,500 877/4/
Sr. Vice President
</TABLE>
/1/ Comprised of $4,196 in term life insurance premium paid for the benefit of
Mr. Kauachi and $218 paid by the Company into Mr. Kauachi's 401(k) account
as an employer matching contribution.
/2/ Comprised of $2,980 in term life insurance premiums paid for the benefit of
Mr. Kauachi and $250 paid by the Company into Mr. Kauachi's 401(k) account
as an employer matching contribution.
/3/ Comprised of $30,204 of compensation which was used by Mr. Kauachi to repay
previous cash advances made to him by the Company which advances arose
primarily from personal tax liabilities incurred by Mr. Kauachi as a result
of his contribution to the Company of his general partnership interest in
Spectrum Imaging Centers - Houston I, Ltd., $2,320 in term life insurance
premiums paid for the benefit of Mr. Kauachi, and $779 paid by the Company
into Mr. Kauachi's 401(k) account as an employer matching contribution.
/4/ Comprised of $877 paid by the Company into Mr. Sanders' 401(k) account as
an employer matching contribution.
9
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
- ----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
<S> <C> <C> <C> <C>
Jose E. Kauachi 50,000 56.02% $2.50 2/2/2005
Johnny L. Sanders 15,000 16.81% $2.50 1/22/2005
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUE (1995)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
SHARES OPTIONS/SARS HELD AT FY-END ($)
ACQUIRED ON VALUE FY-END (#)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Jose E. Kauachi 0 $0 150,000 0 $168,750 $0
Johnny L. Sanders 0 $0 87,500 0 $ 13,125 $0
</TABLE>
EXECUTIVE EMPLOYMENT CONTRACT
Since founding the Company in 1986 with William F. Donovan, M.D., Jose E.
Kauachi has served in various executive capacities without the security of an
employment agreement. On November 15, 1994, the Company entered into an
employment agreement with Mr. Kauachi, to serve as the Company's President and
CEO for a period of three years (plus optional one year renewals). Compensation
during the term of the agreement includes the Company's standard employee
benefits, dependent healthcare benefits, the use of an automobile and cellular
telephone, long-term disability insurance equal to 50% of his base salary, the
cost of a $1,000,000 term life insurance policy, and a base salary of $260,000
per year (which amount will increase annually based on the Consumer Price Index
and which may also be increased at the discretion of the Board of Directors).
Effective November 1, 1995, the Board of Directors voted to increase Mr.
Kauachi's base compensation to $286,000. If Mr. Kauachi's employment is
terminated without cause, he will receive compensation of $230,000, $200,000 and
$150,000, respectively, in each of the three years following his termination.
The Board of Directors may require him to consult with the Company for up to 40
hours and 20 hours per month in each of the first and second years,
respectively, following termination as a condition to receiving this
compensation. Mr. Kauachi has agreed during the term of his employment and for
a period of one year thereafter not to compete with the Company. The Company
may assign this agreement to any successors or assigns, the definition of which
includes but may not be limited to any person that buys all or substantially all
of the Company's assets or at least 40% of the Company's voting equity, or with
which the Company merges or consolidates. Mr. Kauachi may resign at any time
after giving thirty days written notice to the Company, at the expiration of
which all compensation and benefits payable to him terminate.
On January 22, 1993, the Company entered into an employment agreement with
Johnny L. Sanders, to serve as the Company's Senior Vice President for a period
of three years. Mr. Sanders' employment agreement was amended effective
10
<PAGE>
as of January 22, 1995, and, on January 22, 1995, Mr. Sanders executed a new
employment agreement to be effective on January 22, 1996 (the date upon which
his original employment agreement was to terminate). Pursuant to the terms of
this new employment agreement, Mr. Sanders has agreed to serve as Senior Vice
President for a period of two years (plus optional one year renewals).
Compensation during the term of this agreement incudes the Company's standard
benefits, the use of an automobile and cellular telephone, and a base salary of
$120,000 per year (which amount may increase annually based on the Consumer
Price Index depending upon the Company's performance and which may also be
increased at the discretion of the Board of Directors). If Mr. Sanders'
employment is terminated without cause, he will receive compensation of $40,000
if terminated during the first year of the agreement, and $20,000 if terminated
during the second year of the agreement. Mr. Sanders has agreed during the term
of his employment and for a period on one year thereafter not to compete with
the Company. The Company may assign this agreement to any successor or assigns,
the definition of which includes but may not be limited to any person that buys
all or substantially all of the Company's assets or at least 40% of the
Company's voting equity, or with which the Company merges or consolidates. Mr.
Sanders may resign at any time after giving thirty days written notice to the
Company, at the expiration of which all compensation and benefits payable to him
shall terminate.
REPORT ON REPRICING WARRANTS
On January 10, 1993, the Board of Directors of the Company approved the
amendment of a 100,000 share warrant which was originally issued, in
consideration for his giving personal guarantees of certain of the Company's
debt and lease agreements, to Jose E. Kauachi on February 23, 1989, to expire on
February 22, 1994. Effective February 22, 1994, the Company and Mr. Kauachi
amended the warrant so that the strike price of the warrant was increased from
$1.75 per share to $3.125 per share (the then current market price of each share
underlying the warrant), certain provisions in the warrant which provided Mr.
Kauachi anti-dilution protection upon the issuance of any additional shares of
common stock were removed, and the expiration of the warrant was extended to
February 22, 1999. Effective February 2, 1995, the Company and Mr. Kauachi
further amended the warrant so that the strike price was decreased from $3.125
per share to $2.125 per share (the then current market price of each share
underlying the warrant). In making this decision the Board of Directors
considered Mr. Kauachi's past and present willingness to personally guarantee
corporate obligations for the benefit of the Company and its shareholders. All
things considered, the Board deemed it advisable and in the best interest of the
Company to amend the warrant as indicated above.
Pursuant to the terms of his employment agreement dated January 22, 1993, Mr.
Sanders was granted options to acquire 72,500 shares of the Company's Common
Stock at a price of $4.5625 per share. Effective January 22, 1995, in
connection with an amendment to such employment, the Board of Directors approved
an amendment of the terms of Mr. Sanders' stock options so that the exercise
price was decreased from $4.5625 per share to $3.50 per share (the then current
market price of the Common Stock). In making this decision, the Board
considered the Board's desire to provide incentive for Mr. Sanders' performance
with respect to revenue and profit improvement as a means to enhance shareholder
value. All things considered, the Board deemed it advisable and in the best
interest of the Company to amend the stock options as set forth above.
********************************************************************************
RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
Nature and Amount of
Party Relationship to Company Interest
- --------------------------- ----------------------- --------------------------
<S> <C> <C>
Pacati, Inc. Owned by Dr. William Paid $210,099 in 1995 and
Donovan, a Director $174,763 in 1994 for
and Jose E. Kauachi, rental and/or leasehold
Chairman, President improvement of the 6200
& CEO Gulf Freeway building.
In 1994 paid $26,959 on a
trade note payable to
Pacati, Inc. after
Pacati, Inc. agreed to
defer receipt of
approximately six months
of rental payments due on
the 6200 Gulf Freeway
building in response to
the Company's need to
restructure its cash flow
in 1993.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
William F. Donovan, M.D. Director Purchased a free-standing
medical clinic from the
Company on March 31,
1994, for $240,000
(original cost to the
Company was $190,000).
The Company recorded a
gain on the transaction
of $36,634.
William F. Donovan, M.D. Director Effective February 2,
1995, the Company and Dr.
Donovan agreed to amend
his existing 100,000
share warrant (which
warrant was originally
granted in consideration
for Dr. Donovan's
personal guarantees of
certain of the Company's
debts and lease
agreements) to decrease
the strike price from
$3.125 to $2.125 (the
then current market price
of each share underlying
the warrant).
William F. Donovan, M.D. Director In March 1995, the
Company reorganized its
Houston operations
whereby substantially all
medical and ancillary
services are provided by
a medical group
affiliated with the
Company. In this regard,
the Company assisted in
the formation of a
professional limited
liability partnership
named PhysiCare, L.L.P.
("PhysiCare"). Two of
the partners of
PhysiCare, Northshore
Orthopedics, P.A. ("NSO")
and Occupational Medicine
Associates of Houston,
P.A. ("OMA"), are
controlled by Dr.
Donovan. In connection
with the reorganization,
the Company (i) advanced
PhysiCare a loan for up
to $1,000,000, which loan
is secured by all of the
assets of PhysiCare
(balance at December 31,
1995 was approximately
$261,000), and (ii)
advanced to Dr. Donovan
and NSO collectively a
loan of up to $500,000
which is collateralized
by approximately $1.3
million of the accounts
receivable of NSO and
Donovan (balance at
December 31, 1995 was
approximately $135,000).
The Company, either
directly or through
PhysiCare, paid NSO
$504,878 in 1995 and
$59,324 in 1994 for
medical director's fees
and reimbursement for
contract labor, property
and equipment leases, and
contracted services.
PhysiCare incurred
$4,664,267 in cost
reimbursement and
management fee expenses
to a subsidiary of the
Company in 1995.
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission (the "SEC"). Directors,
executive officers and greater than 10% beneficial owners are required by SEC
regulation to furnish the Company with copies of all Section 16(a) Forms 3, 4
and 5 they file. Based solely upon a review of such Forms 3, 4 and 5 and any
amendments thereto furnished to the Company, and written representations from
certain reporting persons that no Forms 5 were required, the Company believes
that all such applicable filing requirements were complied with by each of the
executive officers, directors and greater than 10% shareholders, except for (I)
three reports relating to three transactions for Mr. Kauachi, (ii) three reports
relating to three transactions for Dr. Donovan, (iii) one report relating to two
transactions for Mr. Sanders, and (iv) one report relating to two transactions
for Mr. Casey.
12
<PAGE>
OTHER MATTERS
Management is not aware of any other matters to be presented for action at
the meeting. However, if any other matter is properly presented, it is the
intention of the persons named in the enclosed form of proxy to vote in
accordance with their best judgment on such matter.
A copy of the Company's Annual Report for the year ended December 31, 1995,
including audited financial statements, as filed with the Securities and
Exchange Commission as its Annual Report on Form 10-KSB, as amended (except for
exhibits thereto), accompanies this proxy statement. The Annual Report does not
form any part of the material for solicitation of proxies, but contains
important information on the Company's business and financial condition. The
Annual Report contains a list describing all the exhibits thereto and any
exhibit is available to a stockholder upon written request to the President of
the Company at the address of the Company set forth on the first page hereof
accompanied by payment to the Company of $35.00 plus $0.25 per page for each
exhibit requested, which amount represents reasonable expenses incurred by the
Company in furnishing a copy of an exhibit.
The Company will bear the costs of the solicitation of proxies from its
stockholders. In addition to the use of mail, proxies may be solicited by
directors, officers and regular employees of the Company in person or by
telephone or other means of communication. The directors, officers and
employees of the Company will not be compensated additionally for the
solicitation but may be reimbursed for out-of-pocket expenses in connection with
the solicitation. Arrangements are also being made with brokerage houses and
also any other nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of the Company, and the Company will reimburse
the brokers, custodians, nominees and fiduciaries for their reasonable out-of-
pocket expenses.
STOCKHOLDER PROPOSALS
Proposals by stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company for inclusion in the
Company's Proxy Statement and form of proxy relating to that meeting not later
than January 9, 1997.
BY ORDER OF THE BOARD OF DIRECTORS
JEFFERSON R. CASEY, Secretary
Houston, Texas
April 12, 1996
13
<PAGE>
APPENDIX A
TEXT OF PROPOSED AMENDMENTS TO THE ARTICLES OF INCORPORATION
AUTHORIZING A NEW CLASS OF PREFERRED STOCK AND DELETING
CERTAIN LIMITATIONS ON THE NUMBER OF DIRECTORS
1. The first amendment alters or changes Article V of the amended Articles
of Incorporation of the Corporation by deleting Article V in its entirety and
replacing it with the following:
"ARTICLE V.
The Corporation is authorized to issue 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 designations 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;
(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 any 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;
A-1
<PAGE>
(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 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."
2. The second amendment alters or changes Article XV of the amended
Articles of Incorporation of the Corporation by deleting the first paragraph of
Article XV in its entirety. The deleted portion of Article XV reads as follows:
"The number of directors of the Corporation shall be no fewer then two nor
more than seven. The exact number of directors shall be fixed from time to
time by this Article or by a controlling bylaw, or by the Board of Directors."
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF THE PROPOSED SERIES A PREFERRED STOCK
Dividends. Holders of shares of Series A Preferred Stock will be entitled
to receive, when, as and if declared by the Board of Directors out of funds of
the Company legally available therefor, cash dividends at eight percent (8%)
annual rate per share (with such rate expected to increase from time to time on
terms still under negotiation between the Company and the Investor) payable
quarterly on March 31, June 30, September 30 and December 31 of each year,
beginning June 30, 1999, except that if any such date is a Saturday, Sunday or
legal holiday, then such dividend shall be payable on the next day that is not a
Saturday, Sunday or legal holiday. Dividends will accrue and be cumulative from
the date of issuance of the Series A Preferred Stock and will be payable to
holders of record as they appear on the stock books of the Company on such
record dates as are fixed by the Board of Directors.
The Series A Preferred Stock will be junior as to dividends to any series
or class of the Company's stock hereafter issued that ranks senior as to
dividends to the Series A Preferred Stock ("senior dividend stock"), and if at
any time the Company has failed to pay or declare and set apart for payment
accrued and unpaid dividends on any senior dividend stock, the Company may not
pay any dividend on the Series A Preferred Stock. The Series A Preferred Stock
will have priority as to dividends over the Common Stock and any other series or
class of the Company's stock hereafter issued that ranks junior as to dividends
to the Series A Preferred Stock ("junior dividend stock"), and no dividend
(other than dividends payable solely in Common Stock or any other series or
class of the Company's stock hereafter issued which ranks junior as to dividends
and as to liquidation rights to the Series A Preferred Stock) may be paid on,
and no purchase, redemption or other acquisition may be made by the Company of,
any junior dividend stock unless all accrued and unpaid dividends on the Series
A Preferred Stock have been paid or declared and set apart for payment. The
Company may not pay dividends on any class or series of the Company's stock
having parity with the Series A Preferred Stock as to dividends ("parity
dividend stock") unless it has paid or declared and set apart for payment or
contemporaneously pays or declares and sets apart for payment all accrued and
unpaid dividends for all prior periods on the Series A Preferred Stock and may
not pay dividends on the Series A Preferred Stock unless it has paid or declared
and set apart for payment or contemporaneously pays or declares and sets apart
for payment all accrued and unpaid dividends for all prior periods on the parity
dividend stock. Whenever all accrued dividends are not paid in full on the
Series A Preferred Stock or any parity dividend stock, all dividends declared on
the Series A Preferred Stock and such parity dividend stock will be declared or
made pro rata so that the amount of dividends declared per share on the Series A
Preferred Stock and such parity dividend stock will bear the same ratio that
accrued and unpaid dividends per share on the Series A Preferred Stock and such
parity dividend stock bear to each other. No interest will be payable in
respect of any dividend payment on the Series A Preferred Stock which may be in
arrears.
Liquidation Rights. In case of the voluntary or involuntary liquidation,
dissolution or winding up of the Company, holders of shares of Series A
Preferred Stock will be entitled to receive the liquidation preference of an
amount equal to $100 per share, plus an amount equal to any accrued and unpaid
dividends to the payment date, before any payment or distribution is made to the
holders of Common Stock or any other series or class of the Company's stock
hereafter issued that ranks junior as to liquidation rights to the Series A
Preferred Stock, but the holders of the shares of the Series A Preferred Stock
will not be entitled to receive the liquidation preference of such shares until
the liquidation preference of any other series or class of the Company's stock
hereafter issued that ranks senior as to liquidation rights to the Series A
Preferred Stock ("senior liquidation stock") has been paid in full. The holders
of Series A Preferred Stock and all series or classes of the Company's stock
hereafter issued that rank on a parity as to liquidation rights with the Series
A Preferred Stock are entitled to share ratably, in accordance with the
respective preferential amounts payable on such stock, in any distribution
(after payment of the liquidation preference of the senior liquidation stock)
which is not sufficient to pay in full the aggregate of the amounts payable
thereon. After payment in full of the liquidation preference of the shares of
the Series A Preferred Stock, the holders of such shares will not be entitled to
any further participation in any distribution of assets by the Company.
Voting Rights. Except as described below or otherwise required by law, the
holder of each share 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 such
share of Series A Preferred Stock could be converted at the record date for
determination of the Shareholders entitled to vote on such matters. Holders of
Common Stock and the Series A Preferred Stock shall be entitled to notice of any
Stockholders' meeting in accordance with the Bylaws of the Company.
If at any time after the fifth anniversary date, the Company shall have
failed to pay the full amount of
B-1
<PAGE>
all accrued dividends, then the number of directors of the Company shall be
increased by one and the holders of the Series A Preferred Stock, voting
separately as a class, will be entitled to elect one additional director to the
Board of Directors at any meeting of Shareholders of the Company at which
directors are to be elected held during the period that such dividends remain
unpaid. Any such director elected by the holders of the Series A Preferred Stock
shall hold office for a term expiring (subject to earlier termination of
arrearages) at the next annual meeting of stockholders, and during such term may
be removed by the holders of the Series A Preferred Stock. Upon payment in full
by the Company of all of its dividend arrearages as well as the dividends for
the current period, then the term of such directors shall cease and number of
directors constituting the Board of Directors shall be reduced by one.
In addition, so long as any Series A Preferred Stock is outstanding, the
Company will not be able, without the affirmative vote or consent of the holders
of at least 66-2/3% of all outstanding shares of Series A Preferred Stock voting
separately as a class, to (i) amend, alter or repeal any provision of the
Articles of Incorporation of the Company so as to affect adversely the relative
rights, preferences, qualifications, limitations or restrictions of the Series A
Preferred Stock, (ii) authorize or issue, or increase the authorized amount of
certain classes or series of the Company's stock, or (iii) sell all or
substantially all of the Company's assets or effect any merger, consolidation,
share exchange or similar transaction, or enter into any other transaction
resulting in the acquisition of a majority of the then outstanding voting stock
of the Company by another entity.
Optional Conversion Rights. The holder of any shares of Series A Preferred
Stock will have the right, at the holder's option, to convert any or all of such
shares into Common Stock. Each share of Series A Preferred Stock is convertible
into such number of shares of Common Stock as is determined by dividing the
amount a holder would receive upon liquidation, dissolution or winding up of the
Company by a conversion price of $3.50 (subject to adjustments as described
below) (the "Conversion Price"). No fractional shares of Common Stock will be
issued upon conversion but, in lieu thereof, an appropriate amount will be paid
in cash by the Company based upon the reported last sales price for the shares
of Common Stock on the day of conversion.
The Conversion Price will be subject to adjustment in certain events,
including (i) the issuance of stock as a dividend on the Common Stock, (ii)
subdivisions or combinations of the Common Stock, (iii) the issuance of any
Common Stock ,options, convertible securities or rights to purchase Common Stock
at a price less than the current Conversion Price, (iv) the distribution to all
holders of Common Stock of evidences of indebtedness of the Company, cash
(excluding ordinary cash dividends paid out of the Company's retained earnings),
other assets or rights or warrants to subscribe for or purchase any securities
(other than those referred to above) or (v) the reclassification, exchange or
substitution of the common stock. No adjustment of the conversion rate will be
required to be made until cumulative adjustments amount to 1% or more of the
conversion rate as last adjusted; however, any adjustment not made is carried
forward. The Company and the Investor are continuing to negotiate additional
terms upon which the Conversion Price may be adjusted.
In case of any reclassification of the Common Stock, any consolidation of
the Company with, or merger of the Company into, any other person, any merger of
any person into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock), any sale or transfer of all or substantially all of the assets of
the Company or any share exchange whereby the Common Stock is converted into
other securities, cash or other property, then provision will be made such that
the holder of each share of Series A Preferred Stock then outstanding shall have
the right thereafter, during the period such share of Series A Preferred Stock
shall be convertible, to convert such share only into the kind and amount of
securities, cash and other property receivable upon such reclassification,
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock into which such share of Series A Preferred
Stock might have been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange.
Mandatory Conversion. The Company may, at its option, require all of the
holders of Series A Preferred Stock to convert their shares into the Company's
Common Stock at any time; provided that the Company's Common Stock price has
achieved, for a period of thirty (30) consecutive trading days, an average
closing trading price on the American Stock Exchange (or an average closing bid
price, if on NASDAQ) of $5.50 with an average daily trading volume of not less
than 16,500 shares (but not less than 33,000 shares, if on NASDAQ, if NASDAQ
continues to count both buys and sells in its calculation of volume) of the
Company's Common Stock. All holders of record of the Series A Preferred Stock
will be given at least ten (10) days prior notice of such mandatory
conversion.
Registration Rights. The Company has granted certain registrations to the
holders of the Series A Preferred Stock with
B-2
<PAGE>
respect to the Common Stock to be obtained upon conversion.
THE FOREGOING IS A DESCRIPTION OF CONTEMPLATED TERMS OF THE SERIES A
PREFERRED STOCK. NEGOTIATIONS REGARDING THE SERIES A PREFERRED STOCK ARE
ONGOING AND SUCH TERMS ARE SUBJECT TO CHANGE. IT IS POSSIBLE THAT THE
TRANSACTION CONTEMPLATED PURSUANT TO THE INVESTMENT AGREEMENT MAY NOT BE
CONSUMMATED AND THAT THE PROPOSED SERIES OF PREFERRED STOCK MAY NOT BE
ADOPTED.
B-3
<PAGE>
DRCA MEDICAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jeff R. Casey and Johnny L. Sanders, each
with full power of substitution, as proxies and authorizes them to vote as
designated below, all shares of Common Stock of DRCA Medical Corporation (the
"Company") owned by the undersigned at the Annual Meeting of Stockholders of
the Company to be held at the Company's corporate offices at 3 Riverway, Suite
1430, Thursday, May 9, 1996 at 12:00 noon (local time) in Houston, Texas, or
any adjournment thereof.
The undersigned hereby revokes any proxies heretofore given to vote upon or
act with respect to such shares and hereby ratifies and confirms all that said
attorneys, agents, proxies, the substitutes or any of them may lawfully do by
virtue hereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM 1 AND "FOR"
ITEM 2, ITEM 3 AND ITEM 4.
1. Election of Directors of the Company
[_] FOR all nominees listed below (except as marked to the contrary).
[_] WITHHOLD AUTHORITY to vote for all
nominees listed below.
William F. Donovan, M.D. Jose E. Kauachi Thomas M. Conner Victor M.
Rivera, M.D.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
SUCH NOMINEE'S NAME ON THE SPACE PROVIDED BELOW:
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2. Appointment of Price Waterhouse as independent accountants of the Company
for the current year.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Amendment of Articles of Incorporation to authorize a new class of
10,000,000 shares of preferred stock.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Amendment of Articles of Incorporation to terminate certain limitations on
the number of Company directors.
[_] FOR [_] AGAINST [_] ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE AS THEY DEEM
APPROPRIATE UPON ANY OTHER MATTER THAT PROPERLY MAY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF.
(Please sign on reverse side)
This Proxy, when properly executed, will be voted in the manner directed
herein by the shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 and 4. If more than one of the proxies designated hereby
shall be present in person or by substitution at the Annual Meeting, or at any
adjournment thereof, the majority of said proxies present and voting, either in
person or by substitution, shall exercise all the powers herein given.
DATED: _____________________, 1996
----------------------------------
(Signature)
----------------------------------
(Signature)
Please date, sign exactly as your
name appears hereon and mail this
proxy card in the enclosed
envelope. No postage is required.
Where there is more than one
owner, each should sign. When
signing as an attorney,
administrator, executor, guardian
or trustee, please add your title
as such. If executed by a
partnership, this proxy should be
signed in the partnership name by
an authorized person. If executed
by a corporation, this proxy
should be signed by a duly
authorized officer.
[_] Please check this box if you
plan on attending the Annual
Meeting.
IMPORTANT: COMPLETE APPROPRIATE FORM ON REVERSE
