<PAGE>
As filed with the Securities and Exchange Commission on December 13, 1996
Registration No. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
MEDCROSS, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Florida 4822 59-2291344
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code No.) Identification Number)
</TABLE>
3227 Bennet Street North, St. Petersburg, Florida 33713 (813) 521-1793
(Address and telephone number of registrant's principal executive offices)
-------------------------
John W. Edwards
President and Chief Executive Officer
Medcross, Inc.
65 East Wadsworth Park Drive, Suite 202
Draper, Utah 84020
(801) 576-5000
(Name, address and telephone number of agent for service)
Copies to:
----------
Ralph V. De Martino, Esquire
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036-2492
Phone: (202) 659-0494
Fax: (202) 659-1290
-------------------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of the registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
(continued overleaf)
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of each Class of Securities to Amount to be Price Per Offering Registration
be Registered Registered Unit Price Fee
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.007 par value/(1)/ 331,126 $1.51 500,000 $151.52
- - --------------------------------------------------------------------------------------------------
Common Stock, $.007 par value/(2)/ 15,614,803 5.50 85,881,417 26,024.67
- - --------------------------------------------------------------------------------------------------
Common Stock, $.007 par value/(3)/ 7,531,468 -- -- --
- - --------------------------------------------------------------------------------------------------
Warrants issued to Commonwealth to
Purchase Common Stock 750,000 -- -- --
- - --------------------------------------------------------------------------------------------------
Common Stock, $.007 par value/(4)/ 750,000 2.50 1,875,000 568.18
- - --------------------------------------------------------------------------------------------------
Warrant issued to E&M RP Trust to
Purchase Common Stock 80,000 -- -- --
- - --------------------------------------------------------------------------------------------------
Warrant issued to Joseph Mandarino
to Purchase Common Stock 40,000 -- -- --
- - --------------------------------------------------------------------------------------------------
Common Stock, $.007 par value/(5)/ 120,000 4.00 480,000 145.45
- - --------------------------------------------------------------------------------------------------
Common Stock, $.007 par value/(6)/ 100,000 1.00 100,000 30.30
- - --------------------------------------------------------------------------------------------------
Total Registration Fee: $26,920.12/(7)/
==================================================================================================
</TABLE>
(1) Represents shares of Common Stock issuable upon exercise of Common Stock
Purchase Warrant issued to J.W. Charles Financial Services. Pursuant to
Rule 416 under the Securities Act, this Registration Statement covers any
additional shares of Common Stock which may become issuable by reason of
the adjustment provisions of such warrants.
(2) Represents (a) 350,000 shares of Common Stock issued upon conversion of
certain principal of 10% Convertible Promissory Notes, (b) 4,000,000 shares
of Common Stock issued in connection with the acquisition of I-Link
Worldwide, Inc., (c) 5,760,000 shares of Common Stock issuable upon
conversion of Class C Convertible Cumulative Redeemable Preferred Stock,
(d) 286,800 shares of Common Stock issuable upon conversion of Class C
Preferred Stock in the event of conversion of Convertible Promissory Notes
issued in September 1996, (e) 3,915,570 shares of Common Stock subject of
options granted by Four M International, Ltd., (f) 183,542 shares of Common
Stock issuable upon conversion of Class B Preferred Stock and exercise of
options granted by R. Huston Babcock, (g) 978,891 shares of Common Stock
held by certain affiliates of Commonwealth Associates and others acquired
pursuant to options granted by Walnut Capital Corp., Windy City, Inc. and
Canadian Imperial Bank, (h) 70,000 shares of Common Stock issued upon
conversion of a portion of the Non-Negotiable 10% Convertible Promissory
Note (Series III) issued to Trident I, LLC., and (i) 70,000 shares of
Common Stock issued upon conversion of a portion of the Non-Negotiable 10%
Convertible Promissory Note (Series II) issued to Joseph Wong. Pursuant to
Rule 416 under the Securities Act, this Registration Statement covers any
additional shares of Common Stock which may become issuable by reason of
the respective adjustment provisions, if any, of such securities. The
offering price per unit is estimated solely for the purpose of calculating
the registration fee in accordance with Rule 457(c). The proposed offering
price is based upon the average of the high and low bid prices reported on
NASDAQ on December 9, 1996.
(3) Represents shares of Common Stock which may be resold by the respective
holders of such shares, including (a) 331,126 shares of Common Stock
issuable upon exercise of Common Stock Purchase Warrant issued to J.W.
Charles Financial Services, (b) 5,760,000 shares of Common Stock issuable
upon conversion of Class C Convertible Cumulative Redeemable Preferred
Stock, (c) 286,800 shares of Common Stock issuable upon conversion of Class
C Preferred Stock in the event of conversion of Convertible Promissory
Notes issued in September 1996, (d) 750,000 shares of Common Stock issuable
upon exercise of Placement Agent's Common Stock Warrant and Consultant's
Warrant issued to Commonwealth Associates, (e)
<PAGE>
183,542 shares of Common Stock issuable upon conversion of Class B
Preferred Stock and exercise of options granted by R. Huston Babcock, (f)
100,000 shares of Common Stock issuable upon exercise of the Cook Option,
(g) 80,000 shares of Common Stock issuable upon exercise of the E&M Warrant
and (h) 40,000 shares of Common Stock issuable upon exercise of the
Mandarino Warrant. Pursuant to Rule 457(g), no additional fee is therefore
payable.
(4) Represents shares of Common Stock issuable upon exercise of Placement
Agent's Common Stock Warrant and Consultant's Warrant issued to
Commonwealth Associates. Pursuant to Rule 416 under the Securities Act,
this Registration Statement covers any additional shares of Common Stock
which may become issuable by reason of the conversion provisions of such
warrants.
(5) Represents 80,000 shares of Common Stock issuable upon exercise of Common
Stock Purchase Warrant No. CS-1 granted to E&M RP Trust and 40,000 shares
of Common Stock issuable upon exercise of Common Stock Purchase Warrant No.
CS-2 granted to Joseph Mandarino. Pursuant to Rule 416 under the
Securities Act, this Registration Statement covers any additional shares of
Common Stock which may become issuable by reason of the adjustment
provisions of such warrants.
(6) Represents shares of Common Stock issuable upon exercise of Common Stock
Purchase Option granted to Scott Cook.
(7) Previously paid.
-------------------------------------
<PAGE>
PROSPECTUS
----------
MEDCROSS, INC.
331,126 shares of Common Stock issuable upon exercise of JW Charles Warrants
9,384,461 shares of previously issued and outstanding Common Stock
6,046,800 shares of Common Stock issuable upon conversion of Class C Preferred
Stock
Warrants to Purchase 750,000 shares of Common Stock
750,000 shares of Common Stock issuable upon exercise of Commonwealth Warrants
183,542 shares of Common Stock issuable upon exercise of Babcock Options
100,000 shares of Common Stock issuable upon exercise of Cook Option
Warrants to Purchase 80,000 shares of Common Stock
80,000 shares of Common Stock issuable upon exercise of E&M RP Trust Warrants
Warrants to Purchase 40,000 shares of Common Stock
40,000 shares of Common Stock issuable upon exercise of Mandarino Warrants
This Prospectus relates to (i) 331,126 shares of Common Stock (the "JW
Charles Shares") issuable upon exercise of a Common Stock Purchase Warrant (the
"JW Charles Warrant") issued to JW Charles Financial Services, Inc. in November
1994; (ii) the offer and sale by the holders thereof of an aggregate of
9,384,461 shares (the "Shares") of common stock, par value $.007 per share (the
"Common Stock") previously issued by Medcross, Inc., a Florida corporation (the
"Company") (a) to the owners of I-Link Worldwide, Inc. ("ILINK") in connection
with the Company's acquisition of ILINK as to 4,000,000 of the Shares; (b) to
the holders of 10% Convertible Notes (the "10% Notes") issued in February 1996
as to 350,000 of the Shares; (c) to the holder of a Non-Negotiable 10%
Convertible Promissory Note (Series III) (the "Series III Note") upon the
conversion of a portion thereof as to 70,000 of the Shares; (d) to the holder of
a Non-Negotiable 10% Convertible Promissory Note (Series II) (the "Series II
Note") upon the conversion of a portion thereof as to 70,000 of the Shares; (e)
the offer and sale of up to 3,915,570 shares (the "Four M Shares") of Common
Stock subject of options (the "Four M Options") issued by Four M International,
Ltd. ("Four M"); and (f) the offer and sale of up to 978,891 shares of Common
Stock acquired by the holders of such shares (the "Kanter Shares") pursuant to
options (the "Kanter Options") granted by Walnut Capital Corp.; Windy City, Inc.
and Canadian Imperial Bank, for which entities Joel Kanter served as
representative; (iii) the issuance to and the offer and sale by the holders
thereof of up to 6,046,800 shares of Common Stock (the "Conversion Shares")
issuable upon conversion of 240,000 shares of outstanding Class C Convertible
Cumulative Redeemable Preferred Stock, $10.00 par value per share (the "Class C
Preferred Stock") and issuable upon conversion of up to 11,950 shares of Class C
Preferred Stock issuable upon conversion by the holders thereof of up to
$717,000 in principal amount of Convertible Promissory Notes (the "Convertible
Notes") assuming certain conditions are met; (iv) the offer and sale of up to
250,000 Placement Agent's Warrants to purchase
(continued overleaf)
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is ______________, 1996
<PAGE>
Common Stock and 500,000 Consultant's Warrants to purchase Common Stock
(collectively, the "Commonwealth Warrants") issued to Commonwealth Associates
("Commonwealth") in connection with the Company's offering in 1996 of the Class
C Preferred Stock and Convertible Notes (the "Class C Offering"); (v) the
issuance to and the offer and sale by the holders thereof of up to 750,000
shares of Common Stock (the "Commonwealth Shares") issuable upon exercise of the
Commonwealth Warrants; (vi) the issuance to and the offer and sale of up to
183,542 shares (the "Babcock Shares") of Common Stock issuable upon conversion
of outstanding shares of Class B Preferred Stock, $10.00 par value (the "Class B
Preferred Stock") and upon exercise of options (the "Babcock Options") by the
holders of such Shares (the "Babcock Shares") issued by R. Huston Babcock, M.D.;
(vii) the issuance to and the offer and sale of up to 100,000 shares (the "Cook
Shares") of Common Stock issuable to Scott Cook upon exercise of the Common
Stock Purchase Option to Purchase Common Stock of Medcross, Inc. (the "Cook
Option"); (viii) the offer and sale of warrants to purchase up to 80,000 shares
of Common Stock issued to E&M RP Trust (the "E&M Warrants"); (ix) the issuance
to and the offer and sale to the holders thereof of up to 80,000 shares of
Common Stock (the "E&M Shares") issuable upon exercise of the E&M Warrants; (x)
the offer and sale of warrants to purchase up to 40,000 shares of Common Stock
issued to Joseph Mandarino (the "Mandarino Warrants"); and (xi) the issuance to
and the offer and sale to the holders thereof of up to 40,000 shares of Common
Stock (the "Mandarino Shares") issuable upon exercise of the Mandarino Warrants.
The JW Charles Shares, the Shares, the Conversion Shares, the Commonwealth
Warrants, the Commonwealth Shares, the Babcock Shares, the Cook Shares, the E&M
Warrants, the E&M Shares, the Mandarino Warrants and the Mandarino Shares are
sometimes collectively referred to as the "Securities." Holders of the JW
Charles Warrants and/or JW Charles Shares, the Shares, the Conversion Shares,
the Commonwealth Warrants and/or the Commonwealth Shares, the Four M Options,
the Babcock Options and/or the Babcock Shares, the Kanter Options, the Cook
Shares, the E&M Warrants, the E&M Shares, the Mandarino Warrants and the
Mandarino Shares may be referred to hereinafter as "Selling Securityholders."
See "Description of Securities" and "1996 Offerings."
On December 10, 1996, the closing sale price of the Company's Common Stock
as reported by the NASDAQ SmallCap Market ("NASDAQ") on such date was $5.50.
So long as the Registration Statement, of which this Prospectus forms a
part, is effective and the disclosure set forth herein is current, the Selling
Securityholders may sell the Securities publicly and may sell their Commonwealth
Warrants, their E&M Warrants and/or their Mandarino Warrants publicly or
exercise such Commonwealth Warrants, E&M Warrants and/or Mandarino Warrants and
either (i) hold the JW Charles Shares and/or the Cook Shares and/or the
Commonwealth Shares and/or the E&M Shares and/or the Mandarino Shares or (ii)
resell the JW Charles Shares and/or the Cook Shares and/or the Commonwealth
Shares and/or the E&M Warrants and/or the E&M Shares and/or the Mandarino
Warrants and/or the Mandarino Shares publicly. The Securities offered by this
Prospectus may be sold from time to time by the Selling Securityholders. The
distribution of the Securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately negotiated
(continued overleaf)
2
<PAGE>
transactions or through sales to one or more dealers for resale of such
securities as principals at market prices prevailing at the time of sale at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Securityholders in connection with sales of such Securities.
The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act") with respect to the securities
offered and any profits realized or commission received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act. The Company will receive the proceeds, if any, from the exercise
of the JW Charles Warrants, the Commonwealth Warrants, the Cook Options, the E&M
Warrants and the Mandarino Warrants, but will not receive any of the proceeds
from the resale of the JW Charles Shares, the Shares, the Conversion Shares, the
Commonwealth Shares, the Babcock Shares, the Cook Shares, the E&M Shares or the
Mandarino Shares by Selling Securityholders. All costs incurred in the
registration of the Securities offered hereby will be borne by the Company. See
"Use of Proceeds" and "Selling Securityholders."
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith, files reports, proxy statements and other information including
annual and quarterly reports on Forms 10-KSB and 10-QSB (File No. 0-17973) (the
"1934 Act Filings") with the Securities and Exchange Commission (the
"Commission"). The Company filed with the Commission in Washington, D.C. a
Registration Statement on Form SB-2 under the Securities Act with respect to the
securities described herein. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information about the Company and the securities described herein,
reference is made to the Registration Statement and to the exhibits filed
therewith. The statements contained in this Prospectus with respect to the
contents of any agreement or other document referred to herein are not
necessarily complete and, in each instance, reference is made to a copy of such
agreement or document as filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by reference to the provisions of
the relevant documents. The Registration Statement, including the exhibits
thereto, and the Company's 1934 Act Filings may be inspected at: (i) the public
reference facilities of the Commission located at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549; and (ii) the offices of the
Commission located at Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, Illinois 60661, and the offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material may
also be obtained upon request and payment of the appropriate fee from the Public
Reference Section of the Commission located at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a website on the Internet that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's website is
http://www.sec.gov.
The Company will provide without charge to each person who receives this
Prospectus, upon written or oral request of such person, a copy of any
information which has been incorporated by reference herein (not including
exhibits to the information incorporated by reference unless the exhibits are
themselves specifically incorporated by reference). Such requests should be made
to Medcross, Inc., 3227 Bennet Street North, St. Petersburg, Florida 33713,
Attention: Secretary.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements and notes thereto appearing elsewhere in this Prospectus. Each
prospective investor is urged to read this Prospectus in its entirety.
The Company
Medcross, Inc., a Florida corporation (the "Company") was formed in 1983.
On February 23, 1996, the Company acquired I-Link Worldwide, Inc., a Utah
corporation ("ILINK"). See "The Company." ILINK is in the business of delivering
business communications services via the emerging worldwide data
telecommunications networks (which includes the Internet). ILINK seeks to
provide business communications solutions and enhanced capabilities to existing
users of traditional telecommunications services, at substantial cost savings to
its customers, through utilization of the Internet and other existing data
communications networks. ILINK's business communication products will be
marketed under the name "Fax4Less./TM/"
Fax4Less is ILINK's core business communications product. It enables the
user to utilize its existing fax machine to send a fax long distance to its
ultimate destination, with significant savings on long distance charges.
Transmission of the data takes place primarily via flat rate-based data lines
such as those found on the Internet. No special fax equipment is required for
the user, the person who receives the fax does not need to be a subscriber to
Fax4Less and does not need to have any equipment other than a conventional fax
machine to receive the fax. The fax arrives in the same form and in the same
amount of time as a conventional fax transmission. The Company believes Fax4Less
significantly reduces costs immediately, while in many cases, providing better
fax service.
ILINK will pursue a multi-tiered infrastructure strategy. In some cases,
ILINK will establish its own Point of Presence ("POP"). In others, ILINK will
partner with national and recognized telephone service resellers and Internet
Service Providers ("ISPs"), incenting those organizations to provide the needed
POP's engines consistent with ILINK service requirements. ILINK will establish
its own POPs incrementally as business needs dictate. Installation of the POP's
engines involves pre-configured Fax Engines (consisting of hardware, modems and
proprietary software) and communications lines. ILINK will also establish
Network Operating Centers ("NOCs") to monitor and maintain the ILINK network.
Successful management of the network is critical to providing the highest level
of support. See "Business of ILINK."
Medcross, Inc. is also an owner and operator of medical diagnostic and
therapeutic facilities and equipment including MRI, kidney lithotripsy, and
ultrasound. The Company is also a joint venture partner with China National
Equipment and Supplies Import and Export Shenyang Corporation, which exports
medical equipment to China. See "Business of Medcross."
The Company's corporate offices are located at 3227 Bennet Street North,
St. Petersburg, FL 33713; telephone: (813) 521-1793. ILINK's corporate offices
are located at 65 East Wadsworth Park Drive, Suite 202, Draper, Utah 84020;
telephone: (801) 576-5000.
5
<PAGE>
Securities Offered
Each share of Common Stock of the Company comprising the JW Charles Shares,
the Shares, the Conversion Shares, the Commonwealth Shares, the Babcock Shares,
the Cook Shares, the E&M Shares and the Mandarino Shares has a par value of
$.007 and entitles the holder thereof to equal ratable rights to dividends from
funds legally available therefor when, as and if declared by the Board of
Directors, to share ratably in all of the assets of the Company available for
distribution to holders of Common Stock upon liquidation, dissolution or winding
up of the affairs of the Company and to have one non-cumulative vote per share
upon all matters which stockholders may vote at all meetings of stockholders.
Holders of shares of Common Stock do not have preemptive, subscription or
conversion rights and there are no redemption or sinking fund provisions
applicable thereto. See "Description of Securities."
The 331,126 JW Charles Shares are issuable by the Company upon the exercise
of the JW Charles Warrants at an exercise price of $1.51 at any time prior to
November 3, 1999 by the holder of the JW Charles Warrants. The JW Charles
Warrants were issued to JW Charles in November 1994 pursuant to a Financial
Consulting Agreement dated as of November 1, 1994 between the Company and
Corporate Management Group, Inc. For a description of litigation commenced by JW
Charles against the Company, see "Legal Proceedings." See "Description of
Securities--JW Charles Common Stock Purchase Warrant."
Of the 9,384,461 Shares 4,000,000 were issued to the holders thereof in
consideration for the Company's acquisition (the "ILINK Acquisition") in
February 1996 of the issued and outstanding shares of common stock of ILINK,
350,000 of such Shares were issued upon conversion in August 1996 of a portion
of the principal amount of 10% Promissory Notes (the "10% Notes") offered and
sold by the Company in February 1996 (the "10% Notes Offering") in conjunction
with the ILINK Acquisition and 70,000 of such Shares were issued to each of
Trident I and Joseph Wong upon conversion of Series III and Series II Notes,
respectively, issued in February 1996. The 3,915,570 outstanding Four M Shares
are owned by Four M and may be acquired by holders of the Four M Options,
including certain affiliates of the Company, Commonwealth and affiliates of
Commonwealth from Four M at a purchase price of $1.79 per share commencing July
1, 1996. The 978,891 Kanter Shares were issued to affiliates of Commonwealth and
others upon exercise of options granted to such persons by Walnut Capital Corp.,
Windy City, Inc. and Canadian Imperial Bank, for which entities Joel Kanter
("Kanter"), a former director of the Company, served as representative. See "The
Company," "1996 Offerings" and "Description of Securities."
Of the 6,046,800 Conversion Shares, an aggregate of 5,760,000 Conversion
Shares are issuable upon conversion of outstanding shares of Class C Preferred
Stock issued in August and September 1996 and an aggregate of 286,800 Conversion
Shares are issuable upon the conversion of Class C Preferred Stock issuable upon
conversion of the aggregate of $717,000 in principal amount of Convertible Notes
issued in September 1996. The Convertible Notes automatically convert into
11,950 shares of Class C Preferred Stock upon the amendment of the Company's
Articles of Incorporation to increase the authorized shares of Common Stock and
Preferred Stock and designation of at least 11,950 shares of Class C Preferred
Stock. See "1996 Offerings," "Description of Securities--Class C Preferred
Stock" and "Description of Securities--Convertible Promissory Notes."
The Commonwealth Warrants were issued to Commonwealth in August 1996
pursuant to a Selling Agent's Agreement and a Consulting Agreement entered into
in connection with the Class C Offering. The Commonwealth Warrants entitle the
holder to purchase an aggregate of 750,000 shares of Common Stock (previously
defined as the "Commonwealth Shares") at an exercise price of $2.50 subject to
adjustment, at any time from March 1, 1997 until August 20, 2001. See
"Description of Securities--Commonwealth Warrants" and "1996 Offerings."
6
<PAGE>
The 183,542 Babcock Shares are issuable upon conversion of Class B
Preferred Stock and may be acquired by Benchmark Equity Group, Inc.
("Benchmark"), the holder of the Babcock Option from R. Huston Babcock, at an
exercise price of $1.79 per share commencing July 1, 1996. See "Description of
Securities--Babcock Options."
The 100,000 Cook Shares are issuable by the Company upon the exercise of
the Cook Option by Scott Cook ("Cook"), the holder of the Cook Option, at an
exercise price of $1.00 per share commencing January 1, 1996 through December
31, 1999. See "Description of Securities--Cook Option."
The 80,000 E&M Shares are issuable by the Company upon the exercise of the
E&M Warrants by the holder thereof at an exercise price of $4.00 per share at
any time prior to June 9, 1999. See "Description of Securities--E&M Warrants."
The 40,000 Mandarino Shares are issuable by the Company upon the exercise
of the Mandarino Warrants by the holder thereof at an exercise price of $4.00
per share at any time prior to June 1999. See "Description of Securities--E&M
Warrants."
Substantially all of the Securities are subject of "lock-up" agreements
with Commonwealth restricting the offer and sale of the Securities without the
prior written approval of Commonwealth. See "Description of Securities" and
"Risk Factors--Consent of Commonwealth."
Common Stock Outstanding Prior to Offering
and Exercise of the JW Charles Warrants,
the Commonwealth Warrants, the Cook
Option, the E&M Warrants and the
Mandarino Warrants 11,466,312/(1)/
Common Stock Outstanding Assuming
Conversion of the Class C Preferred Stock,
including the Class C Preferred Stock issuable
upon Conversion of the Convertible Notes,
Exercise of the JW Charles Warrants and the
Commonwealth Warrants, Conversion
of the Class B Preferred Stock and Issuance
of the Common Stock subject of the Babcock
Option, Exercise of the Cook Option, Exercise
of the E&M Warrants and Exercise of the
Mandarino Warrants 18,777,780/(2)/
Estimated Net Proceeds from the Exercise
of the JW Charles Warrants, the
Commonwealth Warrants, the Cook Option,
the E&M Warrants and the Mandarino Warrants $ 2,805,000/(3)/
NASDAQ Symbol ILNK
7
<PAGE>
- - -----------------------------------
(1) Includes (i) the 4,000,000 shares issued in connection with the ILINK
Acquisition; (ii) the 350,000 shares issued upon conversion of certain
principal of 10% Convertible Promissory Notes; (iii) the 3,915,570 Four M
Shares; and (iv) the 978,891 Kanter Shares. Does not include: (a) 331,126
shares of Common Stock issuable upon exercise of the JW Charles Warrants;
(b) 183,542 shares of Common Stock issuable upon conversion of the Class B
Preferred Stock; (c) any of the 6,046,800 shares of Common Stock issuable
upon conversion of the outstanding Class C Preferred Stock and the shares
of Class C Preferred Stock issuable in the event of conversion of the
Convertible Notes; (d) options to purchase 3,814,000 shares of Common Stock
granted to officers and directors of the Company and options to be issued
to officers of ILINK; (e) 693,315 shares of Common Stock reserved for
issuance pursuant to the Company's stock option and stock purchase plans;
(f) 750,000 shares of Common Stock issuable upon exercise of Commonwealth
Warrants issued to Commonwealth; (g) 30,000 shares of Common Stock issuable
upon exercise of warrants issued or to be issued in connection with recent
bridge loans; (h) 100,000 shares of Common Stock issuable upon exercise of
the Cook Option; (i) 80,000 shares of Common Stock issuable upon exercise
of the E&M Warrants; and (j) 40,000 shares of Common Stock issuable upon
exercise of the Mandarino Warrants.
(2) Does not include: (a) options to purchase 3,814,000 shares granted to or to
be granted to officers and directors of the Company and options issued or
to be issued to officers of ILINK; (b) 693,315 shares of Common Stock
reserved for issuance pursuant to the Company's stock option and stock
purchase plans; and (c) 30,000 shares of Common Stock issuable upon
exercise of warrants to be issued in connection with recent bridge
loans.
(3) Assumes maximum gross cash proceeds of $2,475,000 from the exercise of all
the JW Charles Warrants, the Commonwealth Warrants, the Cook Option, the
E&M Warrants and the Mandarino Warrants, less estimated filing, legal,
printing, accounting and miscellaneous expenses of $150,000, and assumes
that no cashless exercise of the Commonwealth Warrants will occur. See
"Description of Securities--JW Charles Warrants," "Description of
Securities--Commonwealth Warrants," "Description of Securities--Cook
Option," "Description of Securities--E&M Warrants," and "Description of
Securities--Mandarino Warrants."
Use of Proceeds
The Company will not receive any of the proceeds from the offer and sale of
the JW Charles Shares, the Shares, the Conversion Shares, the Babcock Shares,
the Cook Shares, the Commonwealth Shares, the E&M Shares or the Mandarino
Shares. The JW Charles Warrants have been previously issued to JW Charles, the
Commonwealth Warrants have been previously issued to and are being offered for
sale by Commonwealth, the Cook Option has previously been issued to Cook, the
E&M Warrants have been previously issued to and are being offered for sale by
E&M and the Mandarino Warrants have been previously issued to and are being
offered for sale by Mandarino. The Company will receive the proceeds, if any,
from the exercise of the JW Charles Warrants, the Commonwealth Warrants, the
Cook Option, the E&M Warrants and the Mandarino Warrants, which proceeds will be
used for working capital purposes. See "Use of Proceeds."
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RISK FACTORS
THE SECURITIES DESCRIBED HEREIN ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. SUCH SECURITIES SHOULD BE PURCHASED ONLY BY PROSPECTIVE
INVESTORS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. THEREFORE, EACH
PROSPECTIVE INVESTOR SHOULD, PRIOR TO PURCHASE, CONSIDER VERY CAREFULLY THE
FOLLOWING RISK FACTORS, AS WELL AS ALL OF THE OTHER INFORMATION SET FORTH
ELSEWHERE HEREIN AND IN THE INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS
AND THE NOTES THERETO.
Consent of Commonwealth
Substantially all of the Securities subject of the Registration Statement
of which this Prospectus forms a part are subject to restrictions on sale or
transfer without the prior written consent of Commonwealth for a period of one
year through September 6, 1997. There can be no assurance as to which Securities
Commonwealth, in the exercise of its sole discretion, may release from such
restrictions or the timing of any such release. The release by Commonwealth of a
substantial amount of such Securities may have an adverse affect on the market
for the Company's Common Stock.
Ongoing Capital Requirements; Need to Raise Additional Financing
The conduct of the Company's business and the continued implementation of
its business plans and operations (including those of ILINK) will require the
availability of additional funds in the future. While the Company currently has
no material commitments for capital or other expenditures, other than as set
forth herein, it is the Company's intention to continue to implement the growth
of its business and expand its operations (including those of ILINK). The
Company will require additional financing in order to fund the cash flow
operating deficit of ILINK, to expand its business and to discharge outstanding
indebtedness. If needed, there can be no assurance that the Company will be able
to successfully negotiate or obtain additional financing. Nor can there be any
assurance that, if available, such financing will be on terms favorable or
acceptable to the Company or its securityholders. The Company has a line of
credit (the "Line of Credit") with First Union National Bank ("FUNB"). As of
September 30, 1996, there was $310,000 outstanding thereunder. The Company had
been for months in violation of certain financial covenants contained in the
loan agreement governing the Line of Credit, including covenants relating to:
(i) cash balances; (ii) consolidated equity; (iii) debt-to-equity ratios; and
(iv) cash flow coverage ratios. However, FUNB waived such non-compliance through
June 30, 1996. The Company agreed to secure alternative financing to repay
amounts outstanding under the Line of Credit by June 30, 1996. The Company was
unable to secure such financing, so that the Company is obligated to repay
amounts outstanding under the Line of Credit in increments of $10,000 per month
commencing July 1, 1996, pursuant to the Company's agreement with FUNB, subject
to negotiation of the terms of a balloon payment. The Company is currently in
violation of cash flow coverage ratios and past days sales on accounts
receivable covenants. However, FUNB has waived such non-compliance through
December 31, 1996. In the event that the Company needs additional financing, the
absence thereof or the lack of availability thereof on favorable terms could
have a material adverse impact on the Company.
Acquisition of Development Stage Business; Continuing Losses
ILINK is in the development stage and operating at a substantial cash
deficit. ILINK has not achieved its planned level of operations or realized
significant revenues and has incurred significant losses and is expected to
continue to incur losses. A substantial portion of the Company's
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consolidated operating loss during the 1996 fiscal year resulted from the
operations of the Company's subsidiary, ILINK. The Company anticipates that
ILINK and, consequently the Company on a consolidated basis, will incur
significant continuing net operating losses for at least the remainder of the
fiscal year and for a portion of the 1997 fiscal year.
Negative Effect of Amortization Expense on Financial Results
The excess of fair market value of the shares issued in the ILINK
Acquisition over the book value of the assets purchased was recorded by the
Company as intangible assets. In addition, certain amortization expense was also
realized. Upon the release of 1.6 million shares of the Company's Common Stock
held in escrow for the benefit of the former shareholders of ILINK, the Company
recorded additional intangible assets in the amount of $9.8 million. The value
of those intangible assets was determined by multiplying the market value of the
Common Stock times 1.6 million. A substantial portion of the intangible assets
are being amortized over the 24-month period commencing February 1996 and
additional amortization expense of $576,000 for the three months ended September
30, 1996, has been recorded. At September 30, 1996, the aggregate intangible
assets recorded was $14.6 million, and $3.63 million was recorded as
amortization expense. Additional intangible assets will similarly be recorded
upon release of any additional shares from escrow.
Reliance on Key Personnel
The Company's operations including those of ILINK are dependent upon the
continued efforts and employment of its senior management. The officers of the
Company have the principal responsibility for management of the Company and are
responsible for making recommendations to the Board of Directors which exercises
final authority over business decisions. While the Company and ILINK have
entered into employment agreements with senior management, the loss of the
services of any of the officers or directors could be detrimental to the Company
and ILINK.
Furthermore, ILINK's future performance depends in significant part upon
its ability to attract and retain key technical, systems and sales personnel,
none of whom is bound by an employment agreement. Competition for such personnel
is intense and there can be no assurance that ILINK will be able to retain its
key technical, systems and sales personnel or that it will be able to attract
highly qualified personnel in the future.
Growth Strategy and Acquisition Activities
The Company's ability to achieve planned levels of growth and the timing
thereof will be materially impacted by its ability to acquire business
communication companies and related businesses. The Company intends to acquire
such additional companies with cash and equity securities such as common stock
or preferred stock, and/or debt instruments. To the extent that the Company
issues equity securities in connection with acquisitions, the equity interest of
its then current stockholders will be diluted. There can be no assurance,
however, that the Company will be able to acquire such additional companies or
that it will be able to use its securities in connection with such purchases or
that it will have the necessary capital resources to purchase such companies.
Although the Company believes that its acquisition strategy will make it
attractive to acquisition candidates, there can be no assurance that the Company
will successfully implement its acquisition program. See "Business of ILINK."
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Potential Liability in Connection with Acquisitions
The Company could become subject to liabilities arising from any
acquisition which it has effected or may hereafter effect in the event that the
Company assumes unknown or contingent liabilities or in the event that such
liabilities are imposed on the Company under theories of successor liability. If
the Company becomes subject to such a liability of sufficient magnitude, such
liability could have a material adverse effect on the financial condition and
results of operations of the Company. See "Business of ILINK."
Expectation of Growth
The Company plans to expand ILINK's network, which expansion will require
additional capital expenditures. There is no assurance that such capital will be
available or that it will be available on terms beneficial to the Company.
Moreover, the Company's ability to effectively achieve growth will require it to
implement and improve operational, financial and management information systems
and to train, motivate and manage employees, as well as to create new and expand
the number of POPs and successfully market ILINK's product and services. These
demands require the addition of new management personnel and the development of
additional expertise by existing management. Failure to enhance customer support
resources adequately to support increases in subscribers, or to adequately
expand and enhance telecommunications infrastructure, may adversely affect the
Company's ability to successfully conduct ILINK's business in the future. There
can be no assurance that customer support or other resources will be sufficient
to achieve future growth or that the Company will be able to implement in whole
or in part the planned expansion. Any failure to do so could have a material
adverse effect on the Company's future operating results. See "Business of
ILINK."
ILINK Business Competition
The market for business communications services is extremely competitive.
The Company believes that its ability to compete in ILINK's business
successfully will depend upon a number of factors, including the pricing
policies of competitors and suppliers; the capacity, reliability, availability
and security of ILINK's network infrastructure; market presence and channel
development; the timing of introductions of new products and services into the
industry; ease of access to and navigation of the Internet or other such
networks; the Company's ability in the future to support existing and emerging
industry standards; the Company's ability to balance network demand with the
fixed expenses associated with network capacity; and industry and general
economic trends.
While the Company believes there is currently no competitor in the North
American market providing the same type of services in the same manner as the
Company, there are many companies that offer business communications services,
and therefore compete with the Company at some level. These range from large
telecommunications companies and carriers such as AT&T, MCI, Sprint and LDDS, to
smaller, regional resellers of telephone line access. These companies, as well
as others, including manufacturers of hardware and software utilized in the
business communications industry, could in the future develop products and
services that could compete with those of the Company on a more direct basis.
These entities are far better capitalized than the Company and control
significant market share in their respective industry segments. In addition,
there may be other businesses that are attempting to introduce products similar
to the Company's for the transmission of business information over the Internet.
There is no assurance that the Company will be able to successfully compete with
these market participants. See "Business of ILINK."
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Dependence on Suppliers
ILINK relies on other companies to provide data communications capacity via
leased telecommunications lines. A significant portion of the leased
telecommunications lines used by ILINK are currently provided by AT&T. As of
September 30, 1996, the Company owed AT&T $370,000. If AT&T is unable or
unwilling to provide or expand its current levels of service to the Company in
the future, the Company's operations could be materially adversely affected.
Although leased telecommunications lines are available from several alternative
suppliers, there can be no assurance that the Company could obtain substitute
services from other providers at reasonable or comparable prices or in a timely
fashion. The Company is also subject to risks relating to potential disruptions
in such telecommunications services. No assurance can be given that significant
interruptions of telecommunications services to the Company will not occur in
the future. See "Business of ILINK--ILINK's Contractual Obligations."
ILINK is also dependent on certain third party suppliers of hardware
components. Although ILINK currently attempts to maintain a minimum of two
vendors for each required product, certain components used by ILINK in providing
networking services are currently acquired from only one source. ILINK may from
time to time experience delays in the receipt of certain hardware components. A
failure by a supplier to deliver quality products on a timely basis, or the
inability to develop alternative sources if and as required, could result in
delays which could materially adversely affect the Company's ability to
integrate, conduct and implement expansion of ILINK's business.
Software and Service Development; Technological Change
The Company's success in ILINK's business is highly dependent upon its
ability to develop new software and services that meet changing customer
requirements. The market for ILINK's services is characterized by rapidly
changing technology, evolving industry standards, emerging competition and
frequent new software and service introductions. There can be no assurance that
the Company can successfully identify new service opportunities and develop and
bring new software and services to the market in a timely manner, or that
software, services or technologies developed by others will not render ILINK's
software, services or technologies noncompetitive or obsolete in the future. The
Company's pursuit of technological advances may require substantial time and
expense, and there can be no assurance that the Company will succeed in adapting
the services currently provided by ILINK to alternate access devices and
conduits.
Dependence on Network Infrastructure; Risk of System Failure; Security Risks
Key to the quality of ILINK services and the future success of the Company
is the capacity, reliability and security of its network infrastructure to
support the services. The Company must expand and adapt network infrastructure
as the number of users and the amount of information they wish to transfer
increases and to meet changing customer requirements. The expansion and
adaptation of the network infrastructure will require substantial financial,
operational and management resources. There can be no assurance, however, that
the Company will be able to expand or adapt the network infrastructure to meet
additional demand or subscribers' changing requirements on a timely basis, at a
commercially reasonable cost, or at all, or that the Company will be able to
deploy successfully the contemplated network expansion. Any failure of the
Company to expand the network infrastructure, as needed, on a timely basis or to
adapt to changing subscriber requirements or evolving industry standards could
have a material adverse effect on the Company's overall business, financial
condition and results of operations in the future.
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New and Uncertain Business
ILINK is a young business enterprise that is subject to all of the risks
that present themselves to early stage companies, including but not limited to
limited infrastructure, managerial resources, capitalization and market share.
There can be no assurance that ILINK will be able to successfully compete with
larger, more mature, better capitalized enterprises.
In order to realize subscriber growth, the Company must be able to replace
terminating subscribers and attract additional subscribers. However, the sales
and marketing expenses and subscriber acquisition costs associated with
attracting new subscribers are substantial. Accordingly, the Company's ability
to improve operating margins will depend in part on the ability to retain
subscribers. The Company plans to invest significant resources in the
telecommunications infrastructure, customer support resources, sales and
marketing expenses and subscriber acquisition costs. There can be no assurance
that the Company's future efforts in this area will improve subscriber
retention. Since the market for the Company's services is new and the utility of
available services is not well understood by new and potential subscribers, it
is not possible to predict future subscriber retention rates. See "Business of
ILINK."
Government Regulation of Internet-Related Business
ILINK's business is not currently subject to direct regulation by the
Federal Communications Commission or any other agency, other than regulations
applicable to businesses generally. Changes in the regulatory environment
relating to the Internet access industry, including regulatory changes which
directly or indirectly affect telecommunication costs or increase the likelihood
or scope of competition from regional telephone companies or others, could have
an adverse effect on the Company's business. The Company cannot predict the
impact, if any, that future regulation or regulatory changes may have on its or
ILINK's business.
Certain Related Party Transactions
During the first quarter of fiscal 1995, the Company received advances
totalling $218,000 from Mortgage Network International ("MNI"). Henry Y.L. Toh,
a director of the Company, has management control over ("MNI"). Such advances
were previously payable upon demand. Subsequent to the extension of such
advances, the Board of Directors approved delivery of a promissory note
representing the aggregate amount of such advances, which promissory note
matured by its terms on October 1, 1995 and bears interest at one percent over
the prime rate of interest established by Southwest Bank of Texas, N.A.
Subsequently, the Company and MNI modified the Note such that: (i) a principal
payment in the amount of $88,000 is due and payable on December 31, 1996; (ii)
interest thereon is payable monthly at the rate of 10.5%; and (iii) the
remaining principal amount of $130,000 with interest thereon at the rate of
10.5% will be paid in 36 equal monthly payments of $4,225.32. The Company is a
party to a consulting agreement for the period beginning January 1, 1996 and
ending December 31, 1998 with Windy City, Inc. Joel Kanter, a director of the
Company until July 30, 1996, is the President and a director of Windy City, Inc.
Pursuant to such agreement, Windy City, Inc. was engaged to provide such
consulting services as the Company may request in exchange for compensation at
the rate of $6,250 per calendar quarter. ILINK was a party to a 12-month
consulting agreement with Benchmark, dated August 10, 1995 pursuant to which
ILINK was obligated to pay $6,000 per month to Benchmark for consulting services
rendered. Benchmark is also party to certain options to purchase shares of
Common Stock owned by Four M and to options to purchase shares of Common Stock
owned by R. Huston Babcock. Commonwealth and certain affiliates and associates
of Commonwealth purchased certain shares of Common Stock from an affiliate of
the Company, purchased shares of Class C Preferred Stock from the Company and
were granted certain options by Four M. T6-G Limited Partnership and ILINK
entered into a consulting agreement for two years commencing upon the successful
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completion of at least $4,000,000 in funding. The agreement required the payment
of a total of $70,000 payable monthly over 24 months. In addition, ILINK
discharged its promissory note to T6-G Limited Partnership by the payment of
$300,000 from the proceeds of the Class C Offering, which sums were designated
by T6-G Limited Partnership for the purchase of Class C Preferred Stock. In
August 1996, John Edwards and William Flury loaned ILINK $125,000 and $100,000,
respectively, which sums were repaid from the proceeds of the Class C Offering
together with original issue discounts of $6,250 and $5,000, respectively. In
addition, the Company agreed to issue warrants to purchase 25,000 and 5,000
shares to Mr. Edwards and to Mr. Flury exercisable at $4.87 and $2.50 per share,
respectively. In September 1996, the Company advanced the sum of $685,000 to
Family Telecommunications, Inc. ("FTI") to be utilized by FTI to acquire from
Harris Corporation certain items of telecommunications switches known as "Harris
switches." FTI is an authorized Harris reseller and was able to obtain favorable
pricing for these switches than could the Company. These Harris switches are
included in the equipment covered by the IBM operating lease, and IBM will pay
FTI for the switches as a vendor. FTI will then return the funds to the Company.
The majority owner of FTI is Robert W. Edwards, a brother of John Edwards, the
Company's President and CEO. See "Certain Relationships and Related
Transactions."
Litigation
The Company is a defendant in litigation brought by JW Charles, one of the
Selling Securityholders, in connection with rights claimed under the JW Charles
Warrants. JW Charles is seeking damages in excess of $2.7 million and other
relief. While the Company believes it has meritorious defenses to such action,
there can be no assurance that the Company will be able to successfully defend
such action. See "Legal Proceedings" and "Description of Securities--JW Charles
Warrants."
Health Care Industry Competition
It is common for hospitals, physicians, physician groups, and others in the
health care field to form ventures to own and operate medical equipment. The
Company is in competition with such groups. There are many companies offering
general business consulting services. The companies that may compete with the
Company in the future and that currently offer consulting services may be larger
and have far greater financial resources than the Company. Also, if the cost of
a particular medical device is reduced and the utilization by physicians
increases, more hospitals will be able to afford to acquire their own equipment
rather than receive service on a shared basis. See "Business of Medcross."
New Medical Technology and Obsolescence
The medical equipment field is generally characterized by rapidly changing
technology. Early obsolescence of expensive equipment or technological change
could have an adverse effect on the Company. Therefore, the cost of MRI systems
and other medical equipment may be significantly lower in the future, allowing
persons who purchase equipment in the future to charge less for similar services
and therefore compete on a favorable basis.
Government Regulation of Medical Business
Various aspects of the Company's current medical business are subject to
government regulations at the federal, state, and local level. Failure to comply
with existing regulations or the enactment of restrictive laws or regulations
could impair the Company's operations. While the Company believes that its
operations comply with applicable regulations, the Company has not sought or
received interpretive rulings to that effect. Additionally, there can be no
assurance that subsequent
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laws, subsequent changes in present laws or interpretations of such laws will
not adversely affect the Company's operations.
The Company employs radiologic technologists in its operations, each of
whom must be licensed by the appropriate state authority. Many states have a
requirement known as a Certificate of Need ("CON") requirement that impedes a
company's ability to operate without governmental approval.
To the extent that medical facilities rely on Medicare and Medicaid
reimbursement for the services rendered by the Company to their patients,
changes in Medicare and Medicaid reimbursement regulations and policies affect
the Company. During the past several years, there has been increasing pressure
from federal and state regulatory and legislative bodies to prevent physicians
from referring patients to diagnostic imaging facilities in which they have an
ownership interest. Many prominent physicians, legislators, medical ethicists,
and others feel that ownership of imaging facilities can impair a physician's
judgment about the need for a diagnostic test. Studies have shown that
physicians who have ownership interests in imaging facilities tend to refer more
patients for diagnostic testing than physicians who have no ownership interest.
The above-described regulations and dynamics may adversely affect the revenue
per scan obtained by the Company as well as the number of scans performed.
On the federal level, a physician self-referral bill passed Congress and
was signed into law by President Clinton in 1993. The self-referral law bans
physicians from referring Medicare patients to imaging and almost any other type
of diagnostic or therapeutic outpatient medical facility in which they have
ownership or financial interests, effective January 1, 1995. Many states,
including Florida, Illinois, Minnesota, New York, and New Jersey, have passed
laws regarding physician self referral. Some simply require disclosure of
ownership, while others restrict physicians from referring to facilities in
which they have any ownership interest.
The legislature of the State of Florida enacted the Patient Self-Referral
Act of 1992, effective April 8, 1992 (the "Florida SRA"). Such act prohibits
physician self-referral to health care entities in which such physicians have
financial interests, effective October 1, 1994. Management believes these
legislative and regulatory actions have had no material adverse effect upon the
Company's operations to date. However, the Florida SRA also imposes a fee cap,
effective July 1, 1992, limiting the technical and professional fees of all
providers of "clinical laboratory services, physical therapy services,
comprehensive rehabilitative services, diagnostic imaging services, and
radiation therapy services" to no more than 115% of the Medicare limiting charge
for non-participating physicians. The statute specifically excludes hospitals
and physician group practices from the fee cap provision and does not apply to
patients eligible for Medicaid or Medicare reimbursement.
Several lawsuits have been filed by various providers against the State of
Florida in both federal and state court alleging, among other things, that the
fee cap provision violates the Equal Protection Clause of the U.S. Constitution
and seeking to enjoin the State of Florida from enforcing the fee cap provision.
In July 1992, the United States District Court for Northern District of Florida
granted a permanent injunction in a case entitled Panama City Medical Center,
Ltd., et. al vs. Robert B. Williams, et. al (File No. 92-40198-WS). See "Legal
Proceedings."
The ultrasound services provided by the Company are related specifically to
urology. Approximately 80% of the Company's patients are covered by Medicare.
Therefore, changes in Medicare reimbursement rules and regulations may have a
significant impact on the profitability of the Company's ultrasound operations.
Reimbursement rates for procedures are set annually. The 1996 reimbursement
rates for the procedures primarily performed by the Company were increased from
between 1.7% to 2.1% over 1995's reimbursement rates.
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Exposure to Tort Liability in Medical Industry
The Company operates medical equipment utilized to perform procedures on or
diagnose disease in patients. The Company is exposed to tort liability in the
event of harm to patients due to the negligence of the Company, its agents, and
employees. The Company currently maintains professional liability insurance
coverage in the amount of $1,000,000. The Company also maintains an umbrella
policy covering, among other things, workers' compensation, general, and
automobile liability in an amount of $9,000,000 in coverage. Although the
Company has never had a liability claim filed against it, any claims could have
a material adverse effect on the Company. In addition, there is no assurance
that the Company will be able to continue to maintain such insurance coverage in
the future.
The Company acts as general partner of a limited partnership controlled by
the Company that directly owns, controls and operates the Company's medical
facilities. As such, the Company is exposed to general liability for torts
committed by such partnership and its agents and employees and for contracts
entered into by those partnerships. In addition, to the extent that the Company
is a general partner of limited partnerships that offer and sell limited partner
interests, the Company is exposed to liability under the Securities Act, the
Exchange Act and various state securities laws.
Dilution
Holders of Common Stock of the Company will suffer dilution in the event
that any of the Company's outstanding convertible securities, including
outstanding shares of Class B Preferred Stock and Class C Preferred Stock are
converted by the holders thereof. Additional dilution may result in the event of
the exercise of warrants and options, including options granted pursuant to the
Company's stock option and purchase plans, and employment agreements.
Dividends
The Company has not paid any dividends on any of its outstanding securities
to date and, other than as set forth herein, does not anticipate paying any
dividends on its securities in the foreseeable future. As of September 30, 1996,
accrued and unpaid dividends on all shares of Preferred Stock totalled $17,452.
The Company currently intends to retain all working capital and earnings, if
any, to finance the operations of its businesses and to expand its businesses.
Dividends on the Class C Preferred Stock will be payable when, as and if
declared by the Board of Directors, to the extent permissible under the Florida
Business Corporation Act, to the holders of the Class C Preferred Stock in cash
or, at the option of the Company as determined by the Board of Directors, in
shares of Common Stock. Dividends may be paid in shares of Common Stock only if
such shares have been registered under the Securities Act; however, the Dividend
Shares will still be restricted from public sale for 12 months from September 6,
1996, without the prior written consent of Commonwealth. The Company's future
cash flow and legal capital may be insufficient to enable the Company to pay
dividends. See "Description of Securities--Preferred Stock."
Future Issuances of Stock by the Company; Potential Anti-Takeover Effect
The Company has authorized capital stock of 20,000,000 shares of Common
Stock, $.007 par value per share and 500,000 shares of preferred stock, $10.00
par value per share (the "Preferred Stock"). As of September 30, 1996, there
were 11,466,312 shares of Common Stock and 7,500 shares of Class B Preferred
Stock issued and outstanding, 240,000 shares of Class C Preferred Stock issued
and outstanding and an additional 11,950 shares of Class C Preferred Stock are
issuable upon the conversion of the Convertible Notes. On June 28, 1996, 160,000
shares of Class A Preferred Stock were converted into 3,915,570 shares of Common
Stock and on August 21, 1996, a portion
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of the principal of the 10% Notes was converted into 350,000 shares of Common
Stock. Although, other than as disclosed herein, there are no present plans,
agreements or undertakings with respect to the Company's issuance of any shares
of stock or related convertible securities, the issuance of any of such
securities by the Company could have anti-takeover effects insofar as such
securities could be used as a method of discouraging, delaying or preventing a
change in control of the Company. Such issuance could also dilute the public
ownership of the Company. Inasmuch as the Company may, in the future, issue
authorized shares of Common Stock or Preferred Stock without prior stockholder
approval, there may be substantial dilution to the interests of the Company's
stockholders. However, given that the Company is authorized to issue more stock,
there can be no assurance that the Company will not do so. In addition, a
stockholder's pro rata ownership interest in the Company may be reduced to the
extent of the issuance and/or exercise of any options or warrants relating to
the Common Stock or Preferred Stock. The issuance of additional shares of Common
Stock may have the effect of rendering more difficult or discouraging an
acquisition or change in control of the Company. See "Description of
Securities."
The Company proposes to increase its authorized number of shares of Common
Stock to 50,000,000 and its number of authorized shares of Preferred Stock to
2,000,000 and expects to solicit shareholder approval of the same shortly.
Officers and directors of the Company have agreed to vote an aggregate of
6,828,914 shares of Common Stock in favor of such proposal. Pending the
solicitation of the necessary stockholder approval and as a condition to the
first closing of the Class C Offering, securityholders, including officers and
directors of the Company and ILINK, owning options to purchase an aggregate of
4,153,501 shares of Common Stock have agreed not to exercise any options owned
by them unless and until the shareholders of the Company approve an increase in
authorized capital stock.
Future Sales of Stock by Stockholders
As of September 30, 1996, 10,053,795 shares of Common Stock, all of the
shares of Class B Preferred Stock, and all of the shares of Class C Preferred
Stock issued and outstanding were "restricted securities" as that term is
defined under the Securities Act and in the future may only be sold in
compliance with Rule 144 promulgated under the Securities Act or pursuant to an
effective registration statement. Rule 144 provides, in essence, that a person
(including a group of persons whose shares are aggregated) who has satisfied a
two-year holding period for such restricted securities may sell within any
three-month period, under certain circumstances, an amount of restricted
securities which does not exceed the greater of 1% of that class of the
Company's outstanding securities or the average weekly trading volume of that
class of securities during the four calendar weeks prior to such sale. In
addition, pursuant to Rule 144, persons who are not affiliated with the Company
and who have held their restricted securities for at least three years are not
subject to the quantity limitations or the manner of sale restrictions of the
rule. As of September 30, 1996, substantially all of the Company's restricted
securities are available for resale pursuant to Rule 144 or have registration
rights and are included in the Registration Statement of which this Prospectus
forms a part, which will allow such shares to be freely resold into the market.
Certain of the officers, directors and affiliates of the Company, ILINK,
Benchmark and Commonwealth have agreed with Commonwealth to lock up their shares
of Common Stock for twelve months from August 21, 1996. These lock-up agreements
relate to 5,048,891 shares (excluding shares issuable upon exercise of currently
exercisable options). Commonwealth intends to allow certain 10% Noteholders who
used their note repayments to purchase Class C Preferred Stock in the Class C
Offering to sell a sufficient amount of Shares or Conversion Shares following
registration thereof as will equal in value the principal amount of the note
repayments used to purchase such Class C Preferred Stock.
In the event that the shares of Common Stock which are not currently
salable become salable by means of registration, eligibility for sale under Rule
144 or otherwise and the holders of such securities elect to sell such
securities in the public market, there is likely to be a negative effect on
17
<PAGE>
the market price of the Company's securities and on the ability of the Company
to obtain additional equity financing. In addition, to the extent that such
securities enter the market, the value of the Company's securities in the over-
the counter market may be reduced. No predictions can be made as to the effect,
if any, that sales of such securities (or the availability of such securities
for sale) will have on the market price of any of such securities which may
prevail from time to time. Nevertheless, the foregoing could adversely affect
such prevailing market prices.
Authorization of Preferred Stock
The Company's Amended and Restated Articles of Incorporation, as further
amended (the "Articles of Incorporation") authorize the issuance of up to
500,000 shares of Preferred Stock with such rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors may, without stockholder approval, issue shares of Preferred Stock
with dividend, liquidation, conversion, voting or other rights which are senior
to the Shares or which could adversely affect the voting power or other rights
of the holders of outstanding shares of Preferred Stock or Common Stock. In
addition, the issuance of additional shares of Preferred Stock may have the
effect of rendering more difficult, or discouraging, an acquisition of the
Company or changes in control of the Company. Although, other than as set forth
herein, the Company does not currently intend to issue any additional shares of
Preferred Stock, there can be no assurance that the Company will not do so in
the future. See "Risk Factors--Future Issuances of Stock by the Company;
Potential Anti-Takeover Effect," "Risk Factors--Certain Provisions of Articles
of Incorporation and Bylaws" and "Description of Securities--Preferred Stock."
The Company intends to increase its authorized number of shares of Common
Stock to at least 50,000,000 shares and its authorized number of shares of
Preferred Stock to at least 2,000,000 shares. The Company expects to solicit the
necessary shareholder approval to effect such increases as soon as practicable.
Officers and directors of the Company representing 6,828,914 shares (59.5%) of
the outstanding shares of Common Stock have agreed to vote or direct the vote
for the approval of such increases. Immediately upon amendment of the Company's
Articles of Incorporation and designation of additional shares of Class C
Preferred Stock, the Convertible Notes will automatically convert to 11,950
shares of Class C Preferred Stock. Until such shareholders' meeting or a written
consent to action can be effected in accordance with applicable law, the Company
is without sufficient number of authorized shares to accommodate the adjustment
of the Class C Preferred Stock Conversion Price below $2.06 so that no
adjustment will be effected unless and until the Company's authorized shares is
increased. See "Description of Securities."
Continued Nasdaq Listing
The Common Stock commenced quotation on Nasdaq on July 7, 1989, was
subsequently delisted and then resumed listing on March 23, 1993 under the
symbol "MDCR." The "MDCR" symbol was changed to "ILNK" effective March 8, 1996.
While the Common Stock is currently listed for quotation on Nasdaq, there can be
no assurance given that the Company will be able to continue to satisfy the
requirements for maintaining quotation on Nasdaq or that such quotation will
otherwise continue. If, for any reason, the Common Stock becomes ineligible for
continued listing and quotation, holders of the Company's securities may have
difficulty selling their securities should they desire to do so.
Under the rules of the National Association of Securities Dealers, Inc.
("NASD"), in order to qualify for continued listing on Nasdaq, a company must
have, among other things, $2,000,000 in total assets, $1,000,000 in total
capital and surplus, $1,000,000 in market value of public float and a minimum
bid price of $1.00 per share. Although the Company was able initially to satisfy
the requirements for listing of its securities on Nasdaq, the Company may be
unable to continue to satisfy the requirements for maintaining quotation of its
securities thereon, and trading, if any, in the
18
<PAGE>
Company's securities would be conducted in the over-the-counter market in what
are commonly referred to as the "pink sheets" of the National Quotation Bureau,
Inc. or on the NASD OTC Electronic Bulletin Board. As a result, an investor may
find it more difficult to dispose of or to obtain accurate quotations as to the
price of such securities. Furthermore, Nasdaq has proposed more stringent
continued maintenance criteria and there can be no assurance as to whether such
proposal will be adopted or the timing thereof.
"Penny Stock" Regulations
The Commission has adopted regulations which define a "penny stock" to be
any equity security that has a market price (as defined) of less than $5.00 per
share, subject to certain exceptions. For any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities, and information on the limited market in penny stocks. In addition,
the broker-dealer must obtain a written acknowledgement from the customer that
such disclosure information was provided and must retain such acknowledgement
for at least three years. Further, monthly statements must be sent to the
customer disclosing current price information for the penny stock held in the
account. While many Nasdaq-listed securities would otherwise be covered by the
definition of penny stock, transactions in a Nasdaq-listed security would be
exempt from all but the sole marketmaker provision for: (i) issuers who have
$2,000,000 in tangible assets ($6,000,000 if the issuer has not been in
continuous operation for three years); (ii) transactions in which the customer
is an institutional accredited investor; and (iii) transactions that are not
recommended by the broker-dealer. In addition, transactions in a Nasdaq-listed
security directly with a Nasdaq marketmaker for such securities would be subject
only to the disclosure with respect to commissions to be paid to the broker-
dealer and the registered representative. The foregoing rules may materially
adversely affect the liquidity for the market of the Company's securities. Such
rules may also affect the ability of broker-dealers to sell the Company's
securities and may impede the ability of holders of the Company's securities to
sell such securities in the secondary market.
Certain Provisions of Articles of Incorporation and Bylaws
As previously noted, pursuant to the Articles of Incorporation, the Board
of Directors has the authority to issue up to 500,000 shares of Preferred Stock
without action by the stockholders in one or more series having such
preferences, rights and other provisions as the Board of Directors may designate
in providing for the issuance of such series. In addition, the Company intends
to seek shareholder approval of the amendment of the Company's Articles of
Incorporation to increase the authorized Preferred Stock to at least 2,000,000
shares. The Articles of Incorporation and Bylaws contain provisions which may
discourage certain transactions which involve an actual or threatened change in
control of the Company. See "Description of Securities--Anti-Takeover Measures."
Classification of the Board of Directors
The Board of Directors of the Company is classified into three (3) classes.
Members of each class serve for staggered three (3) year terms, with members of
one class coming up for election each year. The classification of the Board of
Directors may make it difficult for shareholders to effect a change in
management. See "Management."
Voting Control
Four M International, Inc. (previously defined as "Four M") owns 3,915,570
shares of Common Stock or approximately 34% of the outstanding voting securities
of the Company. Four M has granted options to sell part or all of its holding in
the Company to affiliates of ILINK and associated persons and/or customers of
Commonwealth. Furthermore, ILINK, Ltd. owns an aggregate of 2,913,344
shares
19
<PAGE>
of Common Stock or approximately 25% of the outstanding voting securities. G Net
Enterprises, Inc. is the general partner of ILINK, Ltd. of which Clay Wilkes, an
officer and director of the Company, is the sole shareholder. In addition, the
officers and directors of the Company own an aggregate of 4,879,390 shares or
approximately 35% of the outstanding voting securities. Therefore, by virtue of
their ownership of the Company's issued and outstanding Common Stock, the
officers and directors of the Company have the ability to substantially
influence the election of directors and, consequently, influence the Company's
business and affairs. See "Security Ownership of Certain Beneficial Owners and
Management."
Lack of Patent Protection
The Company does not currently hold any patents, although ILINK has filed a
patent application for its new product, Fax4Less, sometimes referred to as Fax-
Link. It has also filed a patent application for another technology that allows
for the transmission of voice communications over the Internet ("Phone4Less").
Fax4Less and Phone4Less are patent pending at this time. However, the Company is
not in the position to commercialize Phone4Less technology at this time. To the
extent any technology included in such products is patentable, if any, there can
be no assurance that any patent will in fact be issued or that such patents will
be effective to protect the Company's products from duplication by other
developers. In addition, there can be no assurance that the Company will be able
to afford the expense of any litigation that may be necessary to enforce its
right under any patent.
New Products
New products such as Fax4Less are subject to substantial risks, including
high costs of introduction, market acceptance and duplication by other
developers. However, Fax4Less will compete with other more traditional means of
text transmission such as facsimile over traditional telephone lines, overnight
delivery services and e-mail. Numerous extremely well-capitalized businesses
will be competing with Fax4Less. See "Risk Factors--ILINK Business Competition"
and "Business of ILINK."
Contemplated Issuances of Stock and Options to Employees and Consultants
The Company recently approved the grant to Clay Wilkes, Chairman of the
Board, and Alex Radulovic, Vice President of Technology of ILINK, of options to
purchase up to 2,000,000 shares of Common Stock, the vesting of which would
occur on June 30, 2001; provided that the vesting shall accelerate in increments
of 25% in the event that the average closing bid price per share of Common Stock
for five (5) consecutive trading days equals or exceeds $10, $15, $20 and $25,
respectively, upon the graduated achievement of Common Stock prices of $10, $15,
$20 and $25, and exercisable to the extent vested commencing June 30, 1997 at a
price of $7 per share. The options lapse on June 30, 2002. Previously, the
Company agreed to issue options to purchase 1,000,000 shares of Common Stock to
John Edwards, President of the Company, and in consideration of Mr. Edwards'
salary reduction from $175,000 to $96,000, the Company has agreed to grant to
Mr. Edwards additional options to purchase 250,000 shares of Common Stock at an
exercise price equal to $4.875. In addition, the Company has agreed to issue
options to purchase 64,000 shares of Common Stock at an exercise price of $5.25
to Joseph Cohen, Commonwealth's designee as Director of the Company. Pursuant to
the terms of their employment agreements with ILINK, Karl S. Ryser, Treasurer of
the Company, and William Flury, Vice President, Sales and Marketing of ILINK,
are each entitled to receive options to purchase 250,000 shares of Common Stock
of the Company, subject to approval of the Board of Directors. The Company has
also agreed to issue warrants to purchase 25,000 and 5,000 shares of Common
Stock at an exercise price of $4.875 and $2.50, respectively, to Mr. Edwards and
William Flury, Vice President of Sales and Marketing of ILINK, in connection
with the loan by such persons to ILINK of $125,000 and $100,000,
20
<PAGE>
respectively, in August 1996. See "Management," "Executive Compensation--
Employment Agreements," and "Certain Transactions."
Limited Authorized Capital
The number of shares of the Company's unissued and unreserved shares of
Common Stock is negligible. Management intends to solicit the shareholder
approval necessary to increase the number of the Company's authorized shares of
Common Stock and Preferred Stock, but there can be no assurance that the Company
will be successful. Failure to increase the Company's authorized capital could
significantly impair the Company's ability to raise additional capital and could
limit the effect of the Conversion Price adjustment or reset provisions of the
Class C Preferred Stock insofar as the Company may not have sufficient shares of
available Common Stock issuable upon conversion as a result of a reduction in
the Conversion Price. In addition, certain officers and directors will be unable
to exercise options or receive any value therefrom.
Dilutive Impact of Outstanding Options, Warrants and Convertible Securities
The holders of outstanding options, warrants and convertible securities
have the opportunity to profit from a rise in the market price of the Common
Stock, if any, without assuming the risk of ownership, with a resulting dilution
in the interest of other shareholders. The Company may find it more difficult to
raise additional equity capital if it should be needed for the business of the
Company while such options and warrants are outstanding. At any time at which
the holders thereof might be expected to exercise them, the Company would
probably be able to obtain additional capital on terms more favorable than those
provided by such options and warrants. The holders of such options and warrants
have the right to require registration under the Securities Act of the shares of
Common Stock that are issuable upon exercise of such options and warrants and
have certain demand and/or "piggy-back" registration rights. The cost to the
Company of effecting any such registration may be substantial.
Restrictions on Commonwealth Market-Making Activities
Commonwealth may be precluded in accordance with the Exchange Act from
engaging in market making activities for up to nine days prior to and during the
period in which it is engaged in the exercise of or sale of their warrants. As a
result, Commonwealth may be unable to continue to provide a market for the
Company's Common Stock.
Current Prospectus Requirement; Blue Sky Restrictions on Exercise Options and
Warrants
The holder or holders of the JW Charles Warrants and/or the Commonwealth
Warrants and/or the Cook Option and/or the E&M Warrants and/or the Mandarino
Warrants will have the right to sell or exercise such warrants only if a current
prospectus relating to such securities and/or the shares underlying such
securities is then in effect and only if such securities are qualified for sale
or exempt under applicable state securities or "blue sky" laws of the states in
which the holder or holders of such Warrants reside. There can be no assurance
that the Company will be able to keep this Prospectus or any prospectus covering
any such securities current, although the Company will use its best efforts to
do so. Also, certain exemptions in the blue sky laws of certain states may
permit the holders of such Warrants to transfer such Warrants or holders thereof
may move to states in which the shares underlying such Warrants are not
registered or qualified during the period such Warrants are exercisable. The
Company may decide not to seek or may be unable to obtain qualification of the
issuance of such Common Stock in all of the states in which the ultimate holders
of the JW Charles Warrants, the Commonwealth Warrants, the Cook Options, the E&M
Warrants or the Mandarino Warrants reside. In such event, the JW Charles
Warrants, the Commonwealth
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<PAGE>
Warrants, the Cook Option, the E&M Warrants and/or the Mandarino Warrants may
expire and have no value if they cannot be exercised.
THE COMPANY
Medcross, Inc. (previously defined as the "Company") was incorporated in
Florida on April 21, 1983. On November 30, 1990, the Company closed on its
limited partnership offering of Medcross Imaging, Ltd. ("Medcross Imaging").
Medcross Imaging was formed for the purpose of purchasing a Philips T-5 MRI
mounted in a mobile van to provide services to health care facilities on the
southwest coast of Florida and commenced operations in February 1991. During
May and June 1992, in a series of individual transactions, the Company
acquired an additional 26.75% ownership interest in Medcross Imaging. Prior
to the acquisitions, the Company had ownership interests in Medcross Imaging
of 41.5%, 80.75%, and 81.75%, respectively. In June 1993, the Company
purchased Waters Edge Scanning Associates, Ltd. renamed "Tampa MRI" after the
acquisition. In October 1994, the Company closed on an acquisition of a 75%
ownership interest in Urological Ultrasound Services of Tampa Bay (UUSTB)
from Urology Ultrasound, Inc. Prior to the acquisition, the Company owned
the other 25% ownership interest in UUSTB. The acquisition was accounted for
under the purchase method of accounting. UUSTB was organized on September 9,
1987 and is in the business of providing mobile ultrasound services to
urological patients in west central Florida. The Company immediately
transferred all assets and liabilities of the partnership to Urological
Ultrasound Services of Tampa Bay, Inc., a wholly owned subsidiary of the
Company, formed for the purpose of this acquisition. Prior to the
acquisition, the Company recorded its share of income and loss on its 25%
ownership interest in UUSTB using the equity method. On May 1, 1995, the
Company transferred all of the assets and liabilities of Urological
Ultrasound Services of Tampa Bay, Inc. to Tampa MRI. On February 23, 1996,
the Company closed its acquisition of all of the issued and outstanding
common stock of I-Link Worldwide, Inc., a Utah corporation (previously
defined as "ILINK") from ILINK, Ltd., a Utah limited partnership, in exchange
for the issuance of an aggregate of 4,000,000 shares of Common Stock of the
Company. Prior to the acquisition, the assets and liabilities of ILINK, Ltd.
were transferred to ILINK (which had no prior activity) at their historical
cost. The acquisition was accounted for under the purchase method of
accounting.
Pursuant to the terms of the ILINK Purchase Agreement, 1,400,000 of the
4,000,000 shares of Common Stock of the Company were issued upon closing of
the ILINK Acquisition and 2,600,000 of such shares of Common Stock were
issued and placed in escrow. Subsequently, 80,046 shares were released from
escrow. An additional 1,519,954 were to be and have been released upon the
receipt of the Company of at least $4 million in proceeds from a debt or
equity offering. As a result of the Class C Offering, such shares were
released and the Company recorded additional intangible assets in the amount
of $9.8 million. A substantial portion of the intangible assets are being
amortized over the 24-month period commencing February 1996 and additional
amortization expense of $576,000 for the three months ended September 30,
1996 has been recorded. One million shares remain in escrow and will be
released over a one-year period upon certain conditions being met, including,
without limitation, an increase in the number of subscribers who use ILINK's
services and certain revenue targets. See "Risk Factors--Negative Effect of
Amortization Expense."
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<PAGE>
USE OF PROCEEDS
The Securities subject hereto have been previously issued to or are
issuable to the Selling Securityholders and are being offered for sale by the
Selling Securityholders. Consequently, the Company will not receive any of the
proceeds from the sales of the JW Charles Shares, the Shares, the Conversion
Shares, the Commonwealth Shares, the Babcock Shares, the Cook Shares, the E&M
Shares or the Mandarino Shares. The Company will receive the proceeds, if any,
from the exercise of the JW Charles Warrants, the Commonwealth Warrants, the
Cook Options, the E&M Warrants and the Mandarino Warrants, but will not receive
any of the proceeds from the resale of the Commonwealth Warrants, the E&M
Warrants or the Mandarino Warrants or the sale by the holders of the JW Charles
Shares, the Commonwealth Shares, the Cook Shares, the E&M Shares or the
Mandarino Shares by Selling Securityholders. Proceeds, if any, from the exercise
of the JW Charles Warrants, the Commonwealth Warrants, the Cook Option, the E&M
Warrants and/or the Mandarino Warrants will be used for working capital
purposes.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996.
<TABLE>
<CAPTION>
September 30, 1996
-------------------
<S> <C>
Stockholders' Equity:
Class B Preferred Stock, $10.00 par value;
22,500 shares authorized; and
7,500 shares outstanding/(1)/................ 75,000
Class C Preferred Stock, $10.00 par value;
240,000 shares authorized; and 240,000
shares outstanding/(1)/...................... 2,400,000
Common Stock, $.007 par value;
20,000,000 shares authorized; and
11,466,312 shares outstanding................ 73,264
Additional Paid-In Capital...................... 28,557,766
Accumulated Deficit............................. (10,733,011)
-----------
Total Capitalization.......................... $20,373,019
===========
- - ---------------------------
</TABLE>
(1) As of September 30, 1996, the liquidation value per share of Class B
Preferred Stock was $12.15 and the liquidation value per share of Class C
Preferred Stock was $60.00.
DIVIDEND POLICY
Other than as set forth herein, the Company does not currently anticipate
paying any dividends on its securities in the foreseeable future. As of
September 30, 1996, accrued and unpaid dividends on all shares of Preferred
Stock totaled $17,452. The Company currently intends to retain all working
capital and earnings, if any, to finance the operations of its businesses and to
expand its businesses.
Dividends on the Class C Preferred Stock may be paid in shares of Common
Stock (the "Dividend Shares") at the option of the Company provided that the
Dividend Shares are the subject of
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<PAGE>
a registration statement which has been declared effective under the Securities
Act. See "Description of Securities--Class C Preferred Stock."
MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain statements contained herein are not based on historical facts, but
are forward-looking statements that are based upon numerous assumptions about
future conditions that could prove not to be accurate. Actual events,
transactions and results may materially differ from the anticipated events,
transactions or results described in such statements. The Company's ability to
consummate such transactions and achieve such events or results is subject to
certain risks and uncertainties. Such risks and uncertainties include, but are
not limited to, the existence of demand for and acceptance of the Company's
products and services, regulatory approvals and developments, economic
conditions, the impact of competition and pricing results of financing efforts
and other factors affecting the Company's business that are beyond the Company's
control. The Company undertakes no obligation and does not intend to update,
revise or otherwise publicly release the result of any revisions to these
forward-looking statements that may be made to reflect future events or
circumstances.
Results of Operations
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 31,
1994.
The following table represents the net operating revenue and operating
profit of the Company for each category of service offered. The net operating
revenue and operating profits shown are net of intercompany transactions that
were eliminated in consolidation.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Net Operating Revenue:
Diagnostic Imaging....................... $2,486,708 $2,761,458
Sales and Services of Medical Equipment.. 337,889 504,015
Management and Other..................... 298,356 507,452
---------- ----------
$3,122,953 $3,772,925
========== ==========
Operating Profit (Loss):
Diagnostic Imaging....................... $ 322,314 $ 531,581
Sales and Services of Medical Equipment.. (171,083) (581,856)
Management and Other..................... (644,986) (610,464)
---------- ----------
$ (493,755) $ (531,581)
========== ==========
</TABLE>
Diagnostic Imaging. Net operating revenue from diagnostic imaging services
decreased 10% in 1995 as compared to 1994. MRI revenue of Tampa MRI accounted
for $116,575 of the decrease. This decrease is mainly related to an 8.7%
decrease in the average revenue per procedure. Tampa MRI has been successful in
obtaining several managed care contracts. Managed care contracts provide for
fixed charges per patient, generally lower than the charges obtainable for other
patients, which should be offset by an increase in the number of procedures
performed. MRI revenue of Medcross Imaging, Ltd. decreased $367,101 in 1995 as
compared to 1994. This decrease was caused by a decrease in the number of MRI
procedures performed of 17% and a decrease in the average revenue per procedure
of 8%. The decrease in the average revenue per procedure of Medcross Imaging,
Ltd. is mainly due to the decrease of the per procedure charges to the hospital
clients pursuant to service contracts placed into effect on October 1, 1995.
These contracts extended the service period to the hospitals from February 29,
1996
24
<PAGE>
to February 28, 1997. While the charge per procedure is reduced, each hospital
must meet specific monthly minimum quotas. The decrease in the number of
patients treated by Medcross Imaging, Ltd. was caused by increased competition
in the area. A mobile MRI company began providing service to a local hospital
in the first quarter of 1995. The hospital closed in June 1995 and the mobile
company opened an MRI center in St. Petersburg, Florida which creates direct
competition for Medcross Imaging, Ltd. The two client hospitals to which
Medcross Imaging, Ltd. provides service have recently obtained a large managed
care contract. Management believes that this contract will increase the number
of patients treated in 1996. The decreases of Tampa MRI and Medcross Imaging,
Ltd. were offset by the inclusion of Urological Ultrasound Services of Tampa
Bay, Inc. ("UR") which was acquired and included in the consolidated financial
statements of the Company effective October 1, 1994. On May 1, 1995 the Company
transferred its ultrasound operations to Tampa MRI. The inclusion of the
ultrasound operations resulted in an increase in diagnostic imaging revenue of
$208,926 in 1995 as compared to 1994. The revenue from these operations, as a
wholly owned subsidiary and a joint venture combined, declined 12% in 1995 as
compared to 1994. This decline was due to a decrease in the average revenue per
patient of 24%. This decrease was due to the direct billing by the physicians,
to whom services are provided, of the professional portion of the procedures
performed. In addition, guidelines issued by the American Medical Association
have bundled two of the procedures, whereby in the event procedures are
performed at the same time, reimbursement for only one of those procedures is
made. Management believes that this will not have a material adverse effect on
the operations of the ultrasound services.
Net operating revenue from diagnostic imaging services increased 8% in the
fourth quarter of 1995 as compared to the third quarter of 1995. MRI revenue of
Tampa MRI and the ultrasound operations increased 29% and 27%, respectively,
while MRI revenue of Medcross Imaging, Ltd. decreased 16%. The increase in the
revenue of Tampa MRI and ultrasound operations is due to an increase of the
number of procedures performed of 31% and 20%, respectively. The decrease in
net operating revenue of Medcross Imaging, Ltd. is due to a 26% decrease in
average revenue per procedure, offset by a 14% increase in the number of
procedures performed. This decrease in average revenue per procedure is due to
the renegotiated contract prices to the hospitals that are serviced by Medcross
Imaging, Ltd.
The operating profits from diagnostic imaging services decreased 51% in
1995 as compared to 1994. This decrease included a decline in operating profit
from MRI services of $376,759, slightly offset by the operating profit from
ultrasound services of $38,334. Total operating expenses for diagnostic imaging
services increased $63,675 in 1995 as compared to 1994. Operating expenses from
ultrasound services increased $170,592 in 1995 as a result of only having three
months of operations in 1994. This was offset by a decrease of $106,917 in
total operating expenses for MRI services. The provision for doubtful accounts
for diagnostic imaging services increased $61,202 in 1995 as compared to 1994.
$16,211 of this increase was due to the inclusion of ultrasound services in
1995.
The operating profits from diagnostic imaging services increased from
$21,339 in the third quarter of 1995 to $63,845 in the fourth quarter of 1995.
Tampa MRI and the ultrasound operations showed increased operating profits of
$25,132 and $13,954, respectively, while Medcross Imaging, Ltd. showed decreased
operating profit of $23,238. The net increase in operating profit for
diagnostic imaging services was due to an increase in number of procedures
performed in the fourth quarter of 1995, offset by a decrease in the average
revenue per procedure.
During the past several years, there has been increasing pressure from
federal and state regulatory and legislative bodies to prevent physicians from
referring patients to diagnostic imaging facilities in which they have an
ownership interest. Legislation passed in the State of Florida, where all of
the Company's diagnostic imaging services operate, placed a fee cap on
diagnostic imaging services. An injunction has been obtained preventing the
State of Florida from enforcing the fee cap. See "Legal Proceedings." In
addition, approximately 80% of the patients treated by the Company's ultrasound
operations are Medicare beneficiaries. Medicare has issued final regulations
eliminating reimbursement
25
<PAGE>
to independent physiological laboratories for the procedures the Company
performs. This will have a significant effect on the Company's ultrasound
operations. See "Business of Medcross--Regulatory and Legislative
Developments."
Foreign Sales and Service of Medical Equipment. The Company sells and
services used and refurbished computerized tomography ("CT") scanners in the
People's Republic of China through its own office in Beijing and a joint venture
company, Shenyang Medcross Huamei Medical Equipment Company, Ltd. ("SMHME"), of
which it owns 51%. During the last four months of 1994, the Beijing office
completed the installation of two CT scanners, and SMHME completed the
installation of one CT scanner. In the first quarter of 1995, the Company's
Beijing office completed the installation of two additional CT scanners. On May
31, 1995, the Beijing office was closed and the responsibilities for the parts
depot and the remaining inventory have been transferred to SMHME. Various
issues have been raised by the purchasers in China regarding maintenance of
scanners, parts depot, etc. The Company has received $125,000 in payments
through December 31, 1995. However, the Company has elected to fully reserve
for all amounts due to the Beijing office for the four scanners installed. This
resulted in an expense of $126,910 in 1995 and $188,842 in 1994 and an allowance
for doubtful accounts of $315,753 as of December 31, 1995. In June 1995, the
Company wrote down one of the CT scanners in inventory to what management
believes is fair market value. This resulted in $49,122 of additional cost of
goods sold. The Company has decided to sell its Beijing operations, and has
held discussions regarding the sale of the China operations. No assurance can
be given regarding the outcome of such negotiations.
Management and Other. Net operating revenue from management and other
activities decreased by $209,096 in 1995 as compared to 1994. A significant
portion of the decrease, $106,406 was related to the management contract with
Bay Area Renal Stone Center ("BARSC"). This contract accounted for $133,881 in
management fees in 1994 and $27,475 in management fees in 1995. In 1992 BARSC
sold a 65% ownership interest in its operations to CORAM, a publicly-held
corporation. In August 1994, upon renewal of the Company's management contract,
its responsibilities were reduced to providing financial services. In 1995,
BARSC sold the remaining 35% ownership interest in its operations to CORAM. In
August 1995, the Company's management contract with BARSC was terminated.
UUSTB, the unconsolidated subsidiary, accounted for $81,222 of the decrease in
1995. These management fees were included in the consolidation because this
partnership was recorded on an equity basis. In 1995, any management fees
collected from UR were eliminated in consolidation. The management contract
with International Prostate Partners accounted for $32,100 of the decrease. The
patient case load of International Prostate Partners and its wholly owned
foreign subsidiary was insufficient to support its operating expenditures.
Therefore, in 1994, the operation was closed down and the equipment stored
pending FDA approval of the technology. This resulted in the reduction of the
Company's management fee revenue. In August 1994, upon the sale of the
Company's interest in International Prostate Partners, the management contract
was terminated. The annual management fee revenue based upon contracts
currently in effect is $245,160. The net operating loss for management and
other activities increased $34,522 in 1995 to $644,986. This increased loss is
related to the reduced revenue described above offset by a decrease in corporate
overhead expenses of $174,574. Salaries and benefits decreased $141,417 and
other operating expenses decreased $28,156 in 1995 as compared to 1994.
The operating loss from management and other activities decreased $138,519
in the fourth quarter of 1995 as compared to the third quarter of 1995. This
fourth quarter decrease is due to a decrease in salaries and benefits of
$22,389, a decrease in other operating expenses of $129,359, offset by a
decrease in net operating revenue of $11,675. Total operating expenses for the
fourth quarter of 1995 included consulting expenses that are not expected to
recur in 1996.
Consolidated Operating Results. Net operating revenue of the Company
decreased 17% in 1995 as compared to 1994. This was a result of decreased
revenue of diagnostic imaging services, foreign operations, and management fee
revenue. Cost of goods sold was entirely related to the sale and service
26
<PAGE>
of CT equipment in China. Salaries and benefits decreased by $130,459 in 1995
as compared to 1994. This decrease was in the area of management and other
($141,417) offset by an increase in salaries and benefits for diagnostic imaging
services of $10,492. The decrease in repairs and maintenance expenses and
depreciation and amortization was mainly related to diagnostic imaging services.
The provision for doubtful accounts increased $61,202 for diagnostic imaging
services, offset by a decrease in the provision for doubtful accounts for
foreign operations of $61,932. Other operating expenses decreased $132,379, of
which $126,173 was due to the reduction in expenses of the foreign operations.
Net operating profit of the Company in the fourth quarter of 1995 was $111.
This is an increase of $162,251 over the operating loss of $162,140 in the third
quarter of 1995. This increase is due to increase in the operating profit of
diagnostic imaging and management and other activities. Overall, net operating
revenue increased 5% and total operating expenses decreased 17% in the fourth
quarter of 1995 as compared to the third quarter of 1995. Management expects
the increase in net operating revenue and the decrease in operating expenses to
continue in the first quarter of 1996.
The decrease in interest expense in 1995 as compared to 1994 was due to the
reduction of the long-term debt. The decline in interest income was related to
reduced cash balances. The difference between the decrease from unconsolidated
subsidiaries in 1995 and the loss from unconsolidated subsidiaries in 1994 is
primarily attributable to a $71,250 write down in 1994 of the Company's cost
basis investment in International Prostate Partners, which ceased operations in
1994, and to the recognition of a gain in 1995 from the sale of the Company's
ownership interest in the same partnership.
Three and Nine Months Ended September 30, 1996 Compared to Three and Nine Months
Ended September 30, 1995
The following table represents the net operating revenue and operating
profit (loss) of the Company for each category of service offered. The
historical results of operations for the Company include the acquired operations
of ILINK from February 13, 1996 through September 30, 1996. The net operating
revenue and operating profit (loss) shown are net of intercompany transactions
that were eliminated in consolidation.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net Operating Revenue:
Diagnostic Imaging........................ $ 444,809 $ 534,049 $ 1,496,899 $1,907,911
Sales and Services of Medical Equipment... -- -- -- 337,889
Network Services.......................... 64,297 -- 136,661 --
Management and Other...................... 61,290 72,965 183,870 237,066
----------- ---------- ----------- ----------
$ 570,396 $ 607,014 $ 1,817,430 $2,482,866
=========== ========== =========== ==========
Operating Profit (Loss):
Diagnostic Imaging........................ $( 31,653) $ 21,339 $ 61,280 $ 258,469
Sales and Services of Medical Equipment... ( 4,484) 44,921 (22,582) (197,230)
Network Services.......................... (2,245,133) -- (6,174,533) --
Management and Other...................... ( 152,993) (228,400) (365,399) (555,105)
----------- ---------- ----------- ----------
$(2,434,263) $( 162,140) $(6,501,234) $ (493,866)
=========== ========== =========== ==========
</TABLE>
Diagnostic Imaging. Net operating revenue from diagnostic imaging services
decreased by 16.7% and 21.5% for the three and nine months ended September 30,
1996, respectively, as compared
27
<PAGE>
to the same periods in 1995. Medcross Imaging, Ltd. accounted for $63,901 and
$324,684 of the decrease for the three and nine months ended September 30, 1996,
as compared to the same periods in 1995. This decrease in revenue is primarily
due to the decrease in the average revenue per patient, which was caused by a
decrease in the per patient charge to the hospital clients pursuant to service
contracts placed into effect on October 1, 1995. These contracts extended the
service period to the hospitals from February 29, 1996 to February 28, 1997.
While the charge per procedure is reduced, each hospital must meet specific
monthly minimum quotas. The decrease in average revenue per patient was offset
by an increase of 15% in the number of procedures performed for the three months
ended September 30, 1996, compared to the same quarter in 1995. The number of
procedures performed decreased 2% for the nine months ending September 30, 1996,
compared to the same period in 1995. MRI revenue of Tampa MRI decreased $39,813
and $60,285 for the three and nine months ending September 30, 1996,
respectively, as compared to the same periods in 1995. This decrease is due to
a decrease in the average revenue per patient of approximately 25%, offset by
increases in the number of procedures performed of 11.2% for the three-month
period ending September 30, 1996 and 21.3% for the nine-month period ended
September 30, 1996, compared to the same periods in the prior year. Tampa MRI
has obtained and will continue its efforts to obtain managed care contracts.
The participation in the managed care environment has caused a decrease in the
charges per procedure, however, these decreases have been partially offset by
increases in the number of procedures performed. The revenue of the ultrasound
operations increased 29% for the three-month period ended September 30, 1996 and
decreased 10.8% for the nine-month period ended September 30, 1996, as compared
to the same periods in 1995. This is mainly due to an increase in the number of
procedures performed of 8.7% for the third quarter of 1996 and a decrease in the
number of procedures performed of 7.1% for the nine months ending September 30,
1996, respectively, as compared to the same periods in 1995. Overall, revenue
from diagnostic imaging services has decreased due to a decrease in average
revenue per procedure of 25% and 20.7% for the three and nine months ending
September 30, 1996 as compared to the corresponding periods of 1995. This
decrease has been partially offset by an increase in the number of procedures
performed of 11.1% for the three months and 1% for the nine months ending
September 30, 1996, as compared to the same periods of 1995.
The operating profit from diagnostic imaging services decreased by $52,992
for the three-month period ending September 30, 1996, compared to the same
period in 1995. The decrease was caused by a decline in operating profit from
Medcross Imaging, Ltd. of $53,046, a decrease in operating profit from Tampa
MRI's MRI operations of $19,472, offset by an increase in the operating profit
of the ultrasound operations of $19,526, compared to the corresponding periods
of the prior year. The operating profit from diagnostic imaging services
decreased $197,189 for the nine-month period ending September 30, 1996, compared
to the same period in 1995. The decrease was caused by a decline in operating
profit from Medcross Imaging, Ltd. of $236,011, offset by increases in operating
profit from Tampa MRI's MRI operations of $34,364, and an increase in the
operating profit of the Tampa MRI's ultrasound operations of $2,458, compared to
the corresponding period of the prior year. The decline in the diagnostic
imaging operating profit for the three-month and nine-month periods ending
September 30, 1996 was a result of the decrease in diagnostic imaging revenue,
offset by a decrease in total operating expenses for diagnostic imaging of
$36,248 for the three months ended September 30, 1996 and $213,823 for the nine
months ended September 30, 1996 as compared to the same period in 1995.
The Company is considering the sale of its diagnostic imaging business in
light of the Company's focus on the business of ILINK; however, no final
decision has been made with respect to any such sale and there can be no
assurance that such business will be sold.
During the past several years, there has been increasing pressure from
federal and state regulatory and legislative bodies to prevent physicians from
referring patients to diagnostic imaging facilities in which they have an
ownership interest. Legislation passed in the State of Florida, where all of
the Company's diagnostic imaging services operate, placed a fee cap on
diagnostic imaging services. An
28
<PAGE>
injunction has been obtained preventing the State of Florida from enforcing the
fee cap. See "Legal Proceedings."
Sales and Service of Medical Equipment. The Company sells and services
used and refurbished computerized tomography (CT) scanners in the People's
Republic of China through a joint venture company, Shenyang Medcross Huamei
Medical Equipment Company, Ltd. (SMHME), of which it owns 51%. In the first
quarter 1995, the Company's Beijing office, which was closed on May 31, 1995,
completed the installation of two CT scanners. The responsibilities for the
parts depot and the inventory of the Company's Beijing office were transferred
to SMHME. The Company has elected to fully reserve for all amounts due from the
sale of the CT scanners sold by its Beijing office. This resulted in an
expense of $281,438 in the first quarter of 1995 and an allowance for doubtful
accounts of $315,753 as of September 30, 1996. The Company has held discussions
regarding the sale of its Beijing operations. No assurance can be given
regarding the outcome of such discussions.
Management and Other. Net operating revenue from management and other
activities decreased by $11,675 in the third quarter of 1996 as compared to the
same period in 1995 and by $53,196 for the nine months ended September 30, 1996
as compared to the same period in 1995. The decrease was primarily related to
the management contracts with Bay Area Renal Stone Center ("BARSC"). The BARSC
contract accounted for $11,775 and $27,475 in management fees for the three and
nine month periods in 1995, respectively, and no management fees in 1996. The
net operating loss from management and other activities decreased 33% and 34% in
the three-month and nine-month periods ended September 30, 1996, respectively,
as compared to the same periods in 1995. Corporate overhead expenses decreased
$87,082 and $242,902 for the three-month and nine-month periods ended September
30, 1996, respectively, as compared to the same periods in the prior year.
Telecommunications Network and Related Services - ILINK. The operating
revenue of network and related services from ILINK was $64,297 for the third
quarter of 1996 and $136,661 for the nine months ended September 30, 1996. The
net operating loss from network and related services was $2,245,133 and
$6,174,533 for the three and nine months ending September 30, 1996. The
expenses incurred by ILINK during the third quarter were primarily attributable
to the build-out of the ILINK network. This network is utilized in delivering
ILINK's products and services. The loss was primarily due to the write-off of
research and development costs purchased of $2,034,103 in the first quarter of
1996 and the additional amortization of intangibles of $1,070,257 and $1,594,666
for the three and nine months ending September 30, 1996, respectively. These
intangible assets were recorded pursuant to the purchase of the common stock of
ILINK by the Company. Excluding the purchased research and development costs
written-off and the additional amortization, the operating loss of network and
related services was $1,174,876 and $2,545,764 for the three and nine months
ending September 30, 1996, respectively. ILINK expenditures to date have been
primarily related to the development of its communication product, Fax4Less,
which is to be released in the near future. These expenditures include software
research and development, network equipment, network buildout, operational
facilities and infrastructure. Expenditures also include the formation of a
sales and marketing team, personnel and plan.
Consolidated Operating Results. Net operating revenue of the Company
decreased 6% in the third quarter of 1996 compared to the same quarter of 1995
and 26.8% for the nine months ended September 30, 1996 compared to the same
period in the prior year. This decrease was mainly due to the sale of CT
scanners in China during the first quarter of 1995 and none in 1996 and the
decrease in the net operating revenue of diagnostic imaging services in 1996 as
compared to 1995. Salaries and benefits increased $407,737 and $562,402 for the
three and nine months ending September 30, 1996, respectively, compared to the
same periods in 1995. This increase was due to the inclusion of salaries and
benefits of $410,432 and $783,346 from network and related services during the
third quarter 1996 and the nine months ended September 30, 1996, respectively,
which was offset by a decrease in salaries and benefits for diagnostic imaging,
sales and service of medical equipment and management and other of $2,695 and
29
<PAGE>
$220,944 during such periods. Depreciation and amortization increased
$1,144,519 in the third quarter of 1996 compared to the third quarter of 1995
and increased $1,707,452 for the nine months ended September 30, 1996 compared
to the nine months ended September 30, 1995 due to the inclusion of ILINK, which
consists mostly of the amortization of goodwill, offset by a decrease from
diagnostic imaging. The provision for doubtful accounts increased $48,224 in
the third quarter of 1996 compared to third quarter of 1995 and decreased
$184,558 for the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995. This change is due to the collection, in the
second quarter of 1995 of amounts previously written-off, and the write-off of
the receivables due from the foreign operations in the first quarter of 1995,
none of which occurred in 1996. Other operating expenses increased $117,883 in
the third quarter of 1996 compared to the third quarter of 1995. This increase
is due to the inclusion of $269,475 from network and related services, offset by
a decrease of operating expenses of $134,893 from diagnostic imaging, sales and
service of medical equipment, and management and other activities. In the nine
months ended September 30, 1996, other operating expenses increased $633,235
compared to nine months ended September 30, 1995. This increase is due to the
inclusion of operating expenses from network and related services of $953,793
offset by a decrease in operating expenses of $303,559 from diagnostic imaging,
sales and service of medical equipment, and management and other activities.
Liquidity and Capital Resources
As a consequence of the ILINK Acquisition and concurrent and subsequent
financings, most of the Company's balance sheet items at September 30, 1996 have
significantly increased from their respective levels at September 30, 1995.
Concurrent with the Company's acquisition of the securities of ILINK in February
1996, the Company issued an aggregate of $1 million in 10% Notes and received
net proceeds of $845,000. The proceeds of such offering were used to pay
operating expenses and certain other indebtedness of ILINK. In the second
quarter of 1996, three loans evidenced by promissory notes, totalling $500,000,
were made to the Company. The proceeds of these notes were used to pay
operating expenses and certain outstanding indebtedness of ILINK. Warrants to
purchase up to 150,000 shares of the Common Stock of the Company were issued in
conjunction with these promissory notes.
In September 1996, the Company closed an offering of 240,000 shares of its
Class C Preferred Stock, the gross proceeds of which were $14.4 million. The
net proceeds were earmarked for furthering operations of ILINK and will be used
to repay short-term debt, to pay for software licensing fees and current
payables, to fund network operations, to pay for marketing and advertising
programs, to expand ILINK's network infrastructure and marketing, and for
general working capital purposes. Simultaneous with the closing of the private
placement of the Class C Preferred Stock, the Company issued $717,000 in the
aggregate of 8% Convertible Promissory Notes, the proceeds of which will be used
to further the operations of ILINK and which are due April 1, 1997.
During the first quarter of 1995, the Company received advances totaling
$218,000 from Mortgage Network International, payable on demand. One of the
Company's directors has management control over Mortgage Network International.
The advances were subsequently formalized by the Company issuing a Promissory
Note bearing interest at 1% over prime rate of Southwest Bank of Texas, N.A.
with a maturity of October 1, 1995. Subsequent to October 1, 1995, the Company
and Mortgage Network International modified the note such that: (i) a principal
payment in the amount of $88,000 is due and payable on December 31, 1996; (ii)
interest thereon is payable monthly at a rate of 10.5%; and (iii) the remaining
principal amount of $130,000 with interest thereon at the rate of 10.5% will be
paid in 36 equal monthly payments of $4,225.32 beginning December 10, 1995.
Working capital used by operations was $1,170,855 for the third quarter of
1996 as compared to working capital used by operations of $99,141 in the third
quarter of 1995. The working capital used by operations for the nine months
ended September 30, 1996 was $2,428,489, compared to working capital provided by
operations of $74,071 for the nine months ended September 30, 1995. The working
30
<PAGE>
capital position of the Company was $4,325,256 at September 30, 1996 and a
deficit of $315,573 at December 31, 1995. Cash flow used by operating
activities was $2,149,923 and $3,016,238 for the three and nine months ended
September 30, 1996 compared to cash flow provided by operations of $543 and
$156,525 for the same periods in 1995. Cash flow used by operating activities
includes $1,958,255 and $2,765,408 attributable to the inclusion of ILINK in
1996. Investing activities during the nine-months ending September 30, 1996
related to the purchase of additional computer equipment for ILINK.
During the three and nine months ended September 30, 1996, the Company
reduced a portion of its long term debt and capital lease obligations by $70,836
and $408,941, respectively. The Company increased its capital lease obligations
by $84,936 and $744,824 for the three and nine month periods ended September 30,
1996 due to the purchase of computer equipment for ILINK. Notes payable to
related parties were reduced by $625,500 and $693,333, for the three and nine
months ended September 30, 1996, respectively. Notes payable to others were
reduced by $703,000 and were increased by $557,425, for the three and nine
months ended September 30, 1996, respectively. These reductions include
indebtedness of ILINK. The inclusion of ILINK in the first quarter of 1996
increased capital lease obligations by $99,001, notes payable to related parties
by $693,333, and notes payable to others of $104,575. As of September 30, 1996,
the balance outstanding under the FUNB line of credit was $310,000. The Company
was in violation of loan covenants regarding cash flow coverage ratios and past
days sales in accounts receivable under the line of credit at September 30,
1996. However, FUNB has waived such non-compliance through December 31, 1996.
The Company and FUNB reached an agreement pursuant to which the Company has
agreed to secure alternative financing to repay amounts outstanding under the
Line of Credit by June 30, 1996; however, the Company was unable to secure such
financing, so that the Company is obligated to repay amounts outstanding under
the Line of Credit in increments of $10,000 per month which commenced July 1,
1996, pursuant to the Company's agreement with FUNB, subject to negotiation of
the terms of a balloon payment thereafter.
During the remainder of 1996 and 1997, the Company plans to utilize its
cash to fund the cash flow deficit related to the business of ILINK and to
market Fax4Less and subsequent product offerings. The Company anticipates that
cash requirements in these areas will be at increasingly higher levels than
those experienced in the first three quarters of 1996 in preparation for initial
market penetration of Fax4Less. To a large extent, the Company's ability to
develop and market Fax4Less and other products and the timing thereof is
dependent on the working capital and financing alternatives available to the
Company. The Company expects to fund a significant portion of its equipment
purchases through its arrangement with IBM Credit Corporation or financing
arrangements with other institutions. The Company's working capital may be
derived from several sources, such as cash from operating activities, public or
private financings and asset sales. The Company may sell certain operating or
other assets which are underutilized or deemed not to be a part of its ongoing
operations. There are, however, no definitive arrangements for any such asset
sales. The Company has outstanding warrants to purchase an aggregate of 331,126
shares of Common Stock at $1.51 per share (see "Legal Proceedings"), 750,000
shares of Common Stock at $2.50 per share, 80,000 shares of Common Stock at
$4.00 per share and 40,000 shares of Common Stock at $4.00 per share, subject to
adjustment. In addition, the Company has outstanding options to purchase
100,000 shares of Common Stock at $1.00 per share. The closing sale price of
the Company's Common Stock was $5.50 on December 10, 1996. There can be no
assurance, however, that any of such warrants or options will be exercised.
The Company believes that its anticipated short-term needs for working
capital will be adequately met by the utilization of existing cash balances and
available credit from its arrangement with IBM Credit Corporation or other
institutions. However, the Company anticipates that additional funds will be
necessary from public or private financing markets to successfully integrate and
expand the business of ILINK and to discharge outstanding indebtedness,
including the 8% Notes, the Mortgage Network International advances and the
outstanding balance of the FUNB line of credit. The availability of such
capital sources will depend on prevailing market conditions, interest rates, and
financial position and results of operations of the Company. Therefore, there
can be no assurance that such financing will be
31
<PAGE>
available, that the Company will receive any proceeds from the exercise of
outstanding warrants or that the Company will not be required to issue
significant debt or equity securities in order to obtain additional financing.
BUSINESS OF ILINK
Overview
ILINK is in the business of delivering business communications services via
the emerging worldwide data communication networks (which includes the
Internet). ILINK seeks to provide business communications solutions and
enhanced capabilities to existing users of traditional telecommunications
services, at substantial cost savings to its customers through utilization of
the Internet and other existing data communications networks. ILINK's first
business communications product will be marketed under the name "Fax4Less/TM/."
Fax4Less
The Core Product. Fax4Less is ILINK's core business communications
product. It enables the user to utilize its existing fax machine to send a fax
long distance to its ultimate destination, with a significant savings on long
distance telephone charges. Transmission of the data takes place primarily via
flat rate-based data lines such as those found on the Internet. No special fax
equipment is required for the user, the person who receives the fax does not
need to be a subscriber to Fax4Less and does not need any equipment other than a
conventional fax machine to receive the fax. The fax arrives in the same form
and in the same amount of time as a conventional fax transmission.
The Company believes there are approximately 3.5 million fax machines in
use in the United States today, the users of which incur long-distance charges
of an average of $500 or more per machine, per month, 3.5 million fax machines
that average $200 per month in long distance charges and 11 million fax machines
that average $100 or less per month. Those users represent ILINK's initial
target market. The service is expected to be available at or about the end of
1996. The Company believes Fax4Less significantly reduces costs immediately,
while in many cases, providing better fax service.
ILINK will pursue a multi-tiered infrastructure strategy. In some cases,
ILINK will establish its own POP. In others, ILINK will partner with national
and recognized telephone service resellers and Internet Service Providers
("ISPs"), incenting those organizations to provide the needed POPs consistent
with ILINK service requirements. ILINK will establish its own POPs
incrementally as business needs dictate. Installation of the POPs is a simple
process involving pre-configured Fax Engines and communications lines.
ILINK will use NOCs to monitor and maintain the ILINK network. Successful
management of the network is critical to providing the highest level of support.
The Fax Engine/TM/ represents ILINK's method-patent pending technology.
This technology enables a conventional fax machine to communicate with another
conventional fax machine via a data communication network such as the Internet,
that utilizes the TCP/IP communications protocol. TCP/IP is the communications
protocol that allows a computer to access and communicate over data
communication networks such as the Internet. Fax Engines are located at ILINK
POPs which cover strategic local dialing areas and provide the service
infrastructure. Thus, cost for the transmission is the cost of a local call plus
access to the worldwide inter-network similar to current computer access to the
Internet.
32
<PAGE>
By way of illustration, a subscriber in New York wishing to send a fax from
New York to Houston dials a local Fax Engine located at ILINK's New York POP,
enters a personal identification number and a destination number, and sends the
fax just as he or she normally would via facsimile. The New York Fax Engine
receives the fax, then routes it for delivery by area code and local exchange
prefix to the appropriate Fax Engine in Houston via the ILINK network. A local
phone call to the recipient fax machine is placed by the Houston Fax Engine, and
the fax is delivered. A report of the transaction, including notification of
receipt and/or any error handling, is sent to the New York subscriber.
The Fax4Less Methodology. ILINK services are founded on method-patent
pending technology that allows conventional fax machines to communicate via
TCP/IP driven networks. This means that devices such as fax machines can be
used as they currently are used, but users will no longer need to access
communications lines that charge distance-based rates. A subscriber can
transmit faxes via ILINK outside local dialing areas for the cost of a local
call. This technology is housed in an ILINK "fax engine" (consisting of
computer and networking hardware and proprietary software) at an ILINK POP. In
addition to connecting devices, the engine provides self-diagnostic software
designed to prevent service failure. And, it stores data and statistics on
account information and system usage, allowing ILINK to immediately monitor
capacity and enhance functionality.
Technological Advantages. ILINK's fax transmission method provides several
technological advantages over traditional point-to-point transmission. Some of
these advantages are discussed below.
It maximizes fax machine capabilities. In point-to-point fax
-------------------------------------
methodology, fax transmission speed is limited by the sometimes weak
long-distance connection as well as the slower of the baud rates
between the two fax machines. The Fax Engine allows the transmitting
fax machine to operate at its maximum transmission speed irrespective
of the capabilities of the fax machine receiving the transmission.
It allows for reporting and archiving. Not all fax machines have
-------------------------------------
reporting capabilities. Since the Fax Engine handles the transmission,
it creates and sends reports. Also, it can archive electronic copies
of faxes. If desired, faxes can be retrieved to provide a history of a
fax communication.
It provides a base for other services. Once stored, the electronic
-------------------------------------
data can be sent to a variety of types of (and number of) recipients.
These services are described below.
Market Opportunities
The Company believes there are an estimated 3.5 million fax machines in use
in the United States today, the users of which incur long-distance charges of an
average of $500 or more per machine per month, 3.5 million fax machines that
average $200 per month in long distance charges and 11 million fax machines that
average $100 or less per month. Those users represent ILINK's initial target
market. The long distance fax market has been estimated to be a $30 billion
market in the United States alone.
Opportunity to Provide Substantial Savings to Fax User. Utilization of
Fax4Less will afford the opportunity to substantially reduce the long distance
data transmission charges presently borne by the current user of traditional fax
machines. Charges for the use of land-line networks traditionally utilized by
fax machines are generally based on time and distance, often resulting in
substantial long distance charges. In contrast, the charges associated with the
new data communications networks (such as the Internet) are generally fixed.
33
<PAGE>
Integration of Distinct Networks. There are currently a number of distinct
information-carrying networks. Telephone, cable, wireless, and private and
public networks are primary examples. Technologies supporting these networks
will continue to integrate and evolve, allowing for previously unavailable
opportunities for information distribution and access. The current business
infrastructure presents impediments to the easy use of those networks. For
example, in the fax industry there is a proliferation of fax or fax-like
communication technologies, including fax machines, fax servers, fax software
and e-mail. But these technologies are not well integrated; a party wishing to
send information to others may have to format and send the data several
different ways depending on the messaging equipment and systems available to the
recipients.
Opportunity to Deliver Enhanced Capabilities. The TCP/IP networking
protocol and new transmission media such as are often associated with the
Internet offer the possibility of substantially improved data communication.
However, as highlighted above, telephones and fax machines are not TCP/IP-
enabled. In order to take full advantage of the TCP/IP protocol and the
Internet, users first must own or have access to a computer, and then need
access to the Internet. Therefore, telephones and fax machines utilize
traditional land-line telecommunications networks to transmit their voice and
data. Charges for the use of those traditional networks are generally based on
time and distance, often resulting in high long distance charges. In contrast,
the charges associated with the new data communications networks (such as the
Internet) are generally fixed.
Market Response. Many of the responses seen in the marketplace to the
opportunities discussed above are problematic in that they are often computer-
oriented. Solutions typically require that a user (i) own a personal computer;
(ii) have access to the Internet or an intranet, and (iii) have software
compatible with software other users own. This significantly limits the market
for the solution. Moreover, the responses often follow a product approach rather
than a service approach. The product approach, usually modeled after the same
approach followed by computer software vendors, imposes further requirements on
the user. The approach requires version management, with users required to
ensure that their software is current; it requires training, and re-training as
procedures change; and gives a customer an interface-driven product that often
has more capacity than a user needs.
Target Markets
Management of ILINK categorizes its domestic and international target
facsimile user markets as follows: (i) small and medium sized businesses (less
than 500 employees); (ii) large businesses (500 or more employees); and (iii)
vertical markets. ILINK's primary target market consists of small and medium
sized businesses.
Small and Medium-Sized Businesses. Small and medium-sized businesses often
have a difficult time obtaining and using technology. Typically, they lack the
resources and/or expertise needed to obtain strategic advantage from state-of-
the-art technology. Although ILINK defines small and medium-sized businesses as
businesses with less than 500 employees, it is also important to note that
departments or offices within larger businesses may also be placed in this
category. Larger businesses can dedicate resources and/or funds to technology
customization or even technology development. Smaller businesses often must
accept off-the-shelf solutions designed for general use. Ultimately, per-fax
costs are typically higher for smaller businesses. ILINK believes that its
services are of significant strategic advantage to small businesses. Without
having to adopt new technology or procedures, small and medium-sized businesses
can immediately save money crucial to their bottom line.
Large Businesses and High-End National Accounts. Large businesses and
high-end national accounts (Fortune 2000) have significant fax traffic. These
businesses may utilize equipment and technologies that counter long-distance
costs. However, ILINK expects to profit from targeting such businesses. For
example, the Company believes many of these businesses presently incur monthly
land-
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line long distance telephone charges of $800 to $1,200 per fax machine.
Management believes those businesses could realize substantial savings from
ILINK's services.
Distribution Plan
ILINK will target the following distribution methods: (i) direct sales
utilizing independent sales agents; (ii) reselling through independent telephone
company, or "Telco", resellers; (iii) reselling through Internet service
providers ("ISPs"); (iv) reselling through cable/broadcasting companies; (v)
reselling through direct sales organizations; (vi) direct sales to top national
accounts and vertical market resellers ("VMRs"); (vii) COMDEX channels; (viii)
leveraging OEM channels; and (ix) telemarketing/telesales.
Direct Sales. The Company intends to utilize independent sales agents for
direct sales of the Company's products on a commission basis.
Reselling. It is ILINK's intention to offer telephone service resellers,
cable and broadcast companies, ISPs and direct sales organizations significant
partnering opportunities, but as of the date hereof no formal relationships have
been established. By adding ILINK services to their current list of services,
these potential partners enhance their competitive position in highly
competitive and increasingly fragmented markets. With ILINK incentives, they
also stand to increase their revenue and profit margin by positioning Fax4Less
as a value-added competitive service.
COMDEX Channels. Suppliers of telecommunications equipment, such as office
equipment stores, computer dealers, and office supply superstores represent a
direct interface to many targeted ILINK customers. For example, over 20% of fax
machines are purchased from office equipment dealers or supply superstores.
This represents a significant, well-established channel for ILINK. ILINK can
also create a fax driver that allows a customer to both subscribe to ILINK's
service and interface with existing fax software. This gives ILINK a "fax
service in a box" capability and a shelf presence.
OEM Channel. Market building with OEMs also represents significant
opportunity to ILINK. Sales incentives will motivate OEMs to provide a highly
targeted marketing channel for ILINK campaigns.
Telemarketing. ILINK will utilize the telemarketing and telesales channel
employed by many service providers. As in the example of current business
communications providers, ILINK will directly contact customers in strategic
markets, stressing the significant cost benefits associated with ILINK services
while fielding sales inquiries derived from advertising.
Technology Issues
ILINK intends to establish POPs at strategic locations in the United States
and, eventually, worldwide, to allow subscribers to access ILINK's network
locally. ILINK's fax network will be a high-speed interconnected network of
POPs. ILINK will create its network by leasing high-speed data lines and/or
partnering with existing communications and Internet service entities that
currently provide access to such lines.
Capacity. Capacity, or lack thereof, is a frequently discussed topic with
regard to data transmission via the Internet or worldwide data communications
networks. "Slow service" resulting from inadequate capacity is one of the
common complaints among Internet users. Capacity is a function of "bandwidth"
on the network or the ability of the infrastructure to carry potentially large
amounts of data to and from large numbers of users. Bandwidth is a perceived
threat to communication via non-traditional transportation modes. ILINK's
network is owned and managed by ILINK. In some cases, parts of the network may
be contractually provided by other entities in the future. However, management
believes ILINK has the ability to monitor and manage all of its network
capacity. ILINK Fax Engines
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monitor and store statistical capacity-related data. Transmission locations,
transmission size, and transmission times are easily stored and accessed by the
ILINK system. An ILINK Network Operations Center ("NOC") monitors data and can
immediately detect when utilization levels are high. ILINK can then add
capacity as needed. Because ILINK data is associated with a specific service
(e.g., faxes) and is transmitted between (and encoded and decoded by) ILINK Fax
Engines, the type and purpose of the data is well understood and "overhead"
bandwidth needs are better addressed. Data segmentation gives the Fax Engines
additional ability to maximize capacity. As a result ILINK uses bandwidth up to
four times as efficiently as traditional fax systems do over the same medium.
Security. Security is a major concern associated with Internet data
transmission. ILINK controls the routing of data from one POP to another.
Management believes that ILINK's system provides a measure of security that
actually makes fax transmission more secure than using traditional facsimile
methods.
Competition
The market for business communications services is extremely competitive.
The Company believes that its ability to compete in ILINK's business
successfully will depend upon a number of factors, including the pricing
policies of competitors and suppliers; the capacity, reliability, availability
and security of ILINK's network infrastructure; market presence and channel
development; the timing of introductions of new products and services into the
industry; ease of access to and navigation of the Internet or other such
networks; the Company's ability in the future to support existing and emerging
industry standards; the Company's ability to balance network demand with the
fixed expenses associated with network capacity; and industry and general
economic trends.
While the Company believes there is currently no competitor in the North
American market providing the same type of services in the same manner as the
Company, there are many companies that offer business communications services,
and therefore compete with the Company at some level. These range from large
telecommunications companies and carriers such as AT&T, MCI, Sprint and LDDS, to
smaller, regional resellers of telephone line access. These companies, as well
as others, including manufacturers of hardware and software utilized in the
business communications industry could in the future develop products and
services that could compete with those of the Company on a more direct basis.
These entities are far better capitalized than the Company and control
significant market share in their respective industry segments. In addition,
there may be other businesses that are attempting to introduce products similar
to the Company's for the transmission of business information over the Internet.
There is no assurance that the Company will be able to successfully compete with
these market participants.
ILINK's Material Contractual Arrangements
RSA. ILINK is a party to a master license agreement dated January 9, 1995
with RSA pursuant to which ILINK received a non-exclusive right to develop and
distribute software products that incorporate RSA's data encryption security
software. The agreement requires ILINK to pay $150,000 for the right to
incorporate RSA's software in software products developed and distributed by
ILINK and licensed to up to 150,000 persons. ILINK is also required to pay an
annual maintenance fee of $5,000. The RSA agreement is important to ILINK's
business because RSA's technology allows ILINK to provide substantial security
protection to the users of Fax4Less. However, management believes that data
encryption software is available from other vendors. The loss of RSA as a
vendor would have a material adverse effect on the Company.
AT&T. ILINK leases such number of data network communication lines from
AT&T as ILINK's business demands. Those telephone lines represent part of the
infrastructure over which ILINK conducts its business. Generally, the Company
is billed a fixed amount per circuit, the connection between two
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geographic locations. ILINK is committed to make minimum monthly payments of
$75,000 for such lines over a 5-year period commencing March 1995. The
arrangements with AT&T are presently being renegotiated, and it is not clear
what the outcome of those negotiations will be. As of September 30, 1996, ILINK
owes AT&T $370,000. Data network communication lines are available from other
vendors. The loss of AT&T as a vendor could have a material adverse effect on
the Company.
IBM Credit Corporation. Prior to June 30, 1996 ILINK financed
approximately $672,285 of equipment through IBM Credit Corporation. Under the
terms of those credit arrangements, ILINK is obligated to pay approximately
$60,000 every quarter. As of September 30, 1996, the amount due and payable to
IBM Credit Corporation was $652,012. The Company is current under this
Agreement.
In September 1996, ILINK entered into a 24-month operating lease with IBM
Credit Corporation relating to the financing of an aggregate of $3.5 million
worth of equipment purchases. As a condition of that lease financing
arrangement, ILINK obtained from Zions First National Bank a letter of credit
totaling $1.575 million. These monies are held in an escrow account at Zions
Bank, bear interest which is payable to the Company, and will be released when
the lease expires. At the end of the lease, at ILINK's option, the equipment
secured by the lease can be purchased at its fair market value.
MFS Telecom, Inc. On June 21, 1996, ILINK entered into an Agreement for
Terminal Facility Collocation Space with MFS Telecom, Inc. ("MFS"). Under the
agreement, ILINK has the right, but is not obligated, to elect to occupy certain
office and storage space and utilize MFS co-location services within commercial
buildings at one or more leasehold sites held by MFS for the placement and
operation of ILINK's telecommunications equipment and cabling. The agreement
provides that MFS will make facilities in 21 major cities throughout the U.S.
available to ILINK and expects to have an additional 30 sites in the U.S. and 7
international sites available to ILINK by year end. ILINK may elect to occupy
any of such sites on a location-by-location basis. Although minimum occupancy
terms, rentals and service charges vary somewhat from site to site and will be
set forth in schedules to the agreement, rentals presently range from $500 to
$1,000 per month and an $800 one-time initial charge per site and certain other
additional charges for power, cross-connection fees and the like to be agreed
upon at the time of election to occupy an MFS site. Management of ILINK
believes that the MFS agreement provides ILINK with the opportunity to avail
itself of strategic locations for POPs at competitive rates together with co-
location and administrative services provided by MFS without the burden of long-
term leases.
BUSINESS OF MEDCROSS
Radiological Diagnostic Services
The majority of the Company's revenue in 1995 and 1994 was derived from
owning and operating outpatient diagnostic imaging facilities in Florida. This
revenue was primarily generated from two subsidiaries operating magnetic
resonance imaging ("MRI") facilities. The Company is considering the sale of
such business in light of the Company's focus on the business of ILINK; however,
no final decision has been made with respect to any such sale and there can be
no assurance that such business will be sold.
On November 30, 1990, the Company closed on its limited partnership
offering of Medcross Imaging, Ltd. ("Partnership"). The Partnership was formed
for the purpose of purchasing a Philips T-5 MRI mounted in a mobile van to
provide services to health care facilities on the southwest coast of Florida.
The Partnership commenced operations in February 1991. During May and
June 1992, in a series of individual transactions, the Company acquired an
additional 26.75% ownership interest in Medcross Imaging, Ltd. Prior to the
acquisitions, the Company had a 41.5% ownership interest. The Company increased
its ownership of Medcross Imaging, Ltd. to 80.75% on October 1, 1993 and 81.75%
on October 1, 1994. The Partnership significantly upgraded the MRI to state-of-
the-art performance in
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August 1993 at a cost of over $250,000. The upgraded machine can now produce
better images in less time, thereby increasing the profit potential of the
mobile unit.
In June 1993, the Company purchased Waters Edge Scanning Associates, Ltd.,
renamed "Tampa MRI" after the acquisition. Serving the Tampa, Florida market,
the acquisition of this facility was consistent with Medcross's "cluster
approach of operating multiple MRIs in a single market or adjacent markets.
After the acquisition was complete, this MRI was upgraded for higher efficiency
and better images and the facility was remodeled.
In October 1994, the Company closed on the acquisition of a 75% ownership
interest in Urological Ultrasound Services of Tampa Bay ("UUSTB") from Urology
Ultrasound, Inc. Prior to the acquisition, the Company owned the other 25%
ownership interest in UUSTB. The total consideration given for the 75%
partnership interest was $168,162. The purchase price was determined by arms
length negotiation and was paid in cash at the closing. The acquisition was
accounted for under the purchase method of accounting. UUSTB was organized on
September 9, 1987 and is in the business of providing mobile ultrasound services
to urologic patients in west central Florida. When the Company acquired the 75%
partnership interest in UUSTB from Urology Ultrasound, Inc., the partnership
cased to exist. The Company immediately transferred all assets and liabilities
of the partnership, except cash of $115,603, to Urological Ultrasound Services
of Tampa Bay, Inc., a wholly owned subsidiary of the Company, formed for the
purpose of this acquisition. Prior to the acquisition, the Company recorded its
share of income and loss on its 25% ownership interest in UUSTB using the equity
method. On May 1, 1995, the Company transferred all of the assets and certain
liabilities of Urological Ultrasound Services of Tampa Bay, Inc. to Tampa MRI.
Regulatory and Legislative Developments. The Company's medical diagnostic
businesses are subject to federal law and various federal and state regulations.
While the Company believes that its operations comply with applicable
regulations, the Company has not sought or received interpretive rulings to that
effect. Additionally, there can be no assurance that subsequent laws,
subsequent changes in present laws or interpretation of laws will not adversely
affect the Company's operations.
During the past several years, there has been increasing pressure from
federal and state regulatory and legislative bodies to prevent physicians from
referring patients to diagnostic imaging facilities in which they have an
ownership interest. Many prominent physicians, legislators, medical ethicists,
and others feel that ownership of imaging facilities can impair a physician's
judgment about the need for a diagnostic test. Studies have shown that
physicians who have an ownership interest in imaging facilities tend to refer
more patients for diagnostic testing than physicians who have no ownership
interest.
On the federal level, a physician self-referral bill, introduced by
Representative Fortney "Pete" Stark, passed Congress and was signed by President
Clinton in 1993. The bill bans physicians from referring Medicare patients to
imaging and almost any other type of diagnostic or therapeutic outpatient
medical facility in which they have an ownership or financial interest,
effective January 1, 1995. Many states, including Florida, Illinois, Minnesota,
New York, and New Jersey, have passed laws regarding physician self-referral.
Some simply require disclosure of ownership, while others restrict physicians
from referring to facilities in which they have an ownership interest.
The Florida legislature enacted the Patient Self-Referral Act of 1992,
effective April 8, 1992. This Act prohibits physician self-referral to health
care entities in which such physicians have a financial interest, effective
October 1, 1994. Management believes these legislative and regulatory actions
should have no material adverse effect upon the Company's existing operations.
However, the Self-Referral Act also imposed a fee cap, effective July 1, 1992,
limiting the technical and professional fees of all providers of "clinical
laboratory services, physical therapy services, comprehensive rehabilitative
services, diagnostic imaging services, and radiation therapy services" to no
more than 115% of the Medicare limiting charge for non-participating physicians.
The statute specifically excludes hospitals and physician
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group practices from the fee cap provision and does not apply to patients
eligible for Medicaid or Medicare reimbursement.
Several lawsuits have been filed by various providers against the State of
Florida in both federal and state court alleging, among other things, that the
fee cap provision violates the Equal Protection Clause of the U.S. Constitution
and seeking to enjoin the state from enforcing the fee cap provision. In July
1992, the United States District Court for the Northern District of Florida
granted a permanent injunction in a case entitled Panama City Medical Center,
Ltd., et al. vs. Robert B. Williams, et al. (File No. 92-40198-WS). State of
Florida appealed the decision granting the federal court injunction and, on
February 15, 1994, the U.S. Court of Appeals for the Eleventh Circuit reversed
the decision of the lower court, finding that the fee cap provision did not
violate the Equal Protection Clause and ruling that the entry of the injunction
was in error. A motion for rehearing filed in the action has been denied and a
petition has been filed seeking appeal to the U.S. Supreme Court. On June 30,
1992, the Florida Circuit Court, Second Judicial Circuit, enjoined the State of
Florida from enforcing the fee cap provision. The Company intervened as a party
plaintiff in the state court action. An injunction has been obtained preventing
the State of Florida from enforcing the fee cap. The State of Florida appealed
the issuance of that injunction. However, the Florida Supreme Court has
dismissed the appeal and the Circuit Court action has been dismissed.
The ultrasound services provided by the Company are related specifically to
urology. Approximately 80% of the Company's patients are covered by Medicare.
Therefore, changes in Medicare reimbursement rules and regulations may have a
significant impact on the profitability of the Company's ultrasound operations.
Reimbursement rates for procedures are set annually. The 1996 reimbursement
rates for the procedures primarily performed by the Company were increased from
between 1.7% to 2.1% over 1995's reimbursement rates.
On March 20, 1995, the Florida Medicare Part B carrier issued a Final Local
Medical Review Policy regarding procedures that can be billed by independent
physiological laboratories ("IPL"), the classification of the Company's
ultrasound operations. These changes do not allow the IPL's to receive
reimbursement from Medicare for the procedures performed by the Company after
April 30, 1995. On May 1, 1995, the Company transferred its ultrasound
operations to Tampa MRI.
Health Care Industry Competition. It is common for hospitals, physicians,
physician groups, and others in the health care field to form ventures to own
and operate medical equipment. The Company is in competition with such groups.
There are many companies offering general business consulting services. The
companies that may compete with the Company in the future and that currently
offer consulting services may be larger and have far greater financial resources
than the Company. Also, if the cost of a particular medical device is reduced
and the utilization by physicians increases, more hospitals will be able to
afford to acquire their own equipment rather than receive service on a shared
basis.
Magnetic Resonance Imaging. MRI is a multi-billion dollar industry that
has rapidly gained acceptance by physicians throughout the nation. MRI is the
imaging modality of choice for soft tissue in the head, neck and spine. Over
3,000 MRI units have been installed in hospitals, outpatient diagnostic imaging
centers, physicians' offices, and in mobile vehicles. Over 7 million MRI
procedures were performed in the U.S. in 1991. At an estimated average of $900
per procedure, the MRI market in the United States generates over $6 billion
annually. New uses for MRI are continually being developed. MRI is being used
to a greater degree than ever before to scan shoulders, knees, ankles, elbows,
breasts, and even the cardiac system. Technological improvements should soon
enable MRI to be used effectively in imaging the chest and abdominal areas.
The revenue from MRI services accounted for 70% and 71% of total revenue of
the Company in 1995 and 1994, respectively. Contracts with two hospitals that
accounted for 40% and 46% of the
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revenue from MRI services in 1995 and 1994, respectively, were due to expire on
February 28, 1996. On December 5, 1995, the Company renewed the contracts with
the two hospitals effective October 1, 1995. The agreements are substantially
similar to the prior arrangements except with respect to a change in the minimum
arrangement and a reduction in per patient charges. These contracts expire on
February 28, 1997.
Many of the MRI systems placed into operation in the market area of the
Company's existing MRI centers were purchased and operated by physicians. For
some physicians, it was the only way to gain access to this expensive
technology. For others, it was an opportunity to invest in a technology that
they use to help diagnose their patients' medical problems. The Company
competes for patient referrals from physicians with the other MRI centers
located in its immediate market area. Because physicians can no longer refer to
entities in which they have an ownership interest, the physicians have no
financial predisposition to refer to a given center. The Company's ability to
obtain referrals will be based upon the quality of its service and its ability
to obtain contracts to treat managed care patients. Three new MRI centers have
recently begun operations in the market area of Medcross Imaging, Ltd., which
has reduced the number of procedures performed by Medcross Imaging, Ltd. and has
had a negative impact on revenue. In January 1996, the two hospitals to which
Medcross Imaging, Ltd. provides service recently obtained a major managed care
contract which management believes will significantly increase the number of
patients treated at those two facilities. Tampa MRI has obtained over 40
managed care contracts during 1995. While this has reduced the average per-
patient charges, it has increased the number of patients treated.
Ultrasound. The Company's consolidated revenue did not reflect revenue
from ultrasound services until the fourth quarter of 1994. Prior to that time,
the Company's ultrasound operations were performed by a joint venture in which
the Company had a 25% ownership interest. Income from the joint venture was
reported on the equity method. Effective October 1, 1994, the Company purchased
the other 75% ownership interest in the joint venture, which was primarily owned
by the physicians receiving services from the joint venture. On May 1, 1995,
the Company transferred all of its ultrasound operations to Tampa MRI. The
ultrasound services are provided at each physician's office under the
physician's direction. The Company is not looking to expand its operations
outside of the current market area. There are two main competitors in the
Company's market area. Management believes that it will maintain its referrals
with the physicians offices and may even gain additional physician referrals
through its marketing efforts.
Therapeutic Services
In the late 1980s, the Company was one of the industry leaders, providing
mobile kidney lithotripsy service throughout the southeastern United States.
The Company put the world's first mobile kidney lithotripter into operation in
1986. During the next two years, the Company developed four additional mobile
kidney lithotripsy networks. In 1986, the Company coordinated the development
of one of the leading outpatient lithotripsy centers in the nation which the
Company managed under a management agreement. In 1992, 65% of the ownership in
the facility was sold to CORAM, a publicly held corporation. In 1994, the
Company's responsibilities under the management agreement were reduced to
providing financial services. The annual revenue from this management contract
was also reduced from an average of approximately $180,000 to $47,100 per year.
In 1995, the remaining 35% of the ownership in the facility was sold to CORAM.
In August 1995, the management agreement was terminated. The Company has
management agreements with three other owners of mobile kidney lithotripters
that operate in seven different states. The Company provides turn-key
operations, management, and financial services under its agreements with the
owning entities. The Company also provides the trained technicians who operate
the lithotripters and, when requested, the drivers who transport the equipment
between the using facilities. The Company does not expect any expansion or new
development efforts in the lithotripsy area.
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The Company had a 7 1/2% ownership interest in International Prostate
Partners, formed in 1992. International Prostate Center - Cayman, Ltd., a wholly
owned Cayman Island subsidiary of International Prostate Partners, provided
transurethral microwave therapy ("TUMT") services in Georgetown, Grand Cayman,
for patients with benign prostate hyperplasia ("BPH"). The Company contracted
to provide a full range of management services, beginning in 1993, to
International Prostate Partners and International Prostate Center - Cayman, Ltd.
Operations began in January 1994. The patient case load was insufficient to
support operating expenditures. Therefore, the operations were closed down and
the equipment put in storage pending FDA approval. In August 1, 1995, the
Company sold its interest in the partnership and its Management Agreement was
terminated. In May 1996, the manufacturer received FDA approval. The Company
has proposed this technology to its existing lithotripsy clients; however, any
decisions to be made are pending Medicare reimbursement approval. No assurance
can be given by the Company as to when, or if Medicare reimbursement approval
will be received.
Foreign Sales and Service of Diagnostic Imaging Equipment
In January 1993, the Company formed Medcross Asia, Ltd., a wholly owned
subsidiary headquartered in Hong Kong. This subsidiary was formed to identify
opportunities for the Company to enter the medical field in the Far East.
China is a rapidly expanding market just beginning to be tapped by western
companies, especially in the area of medical equipment. Medcross, Inc. is one
of the few companies, and by far the smallest company, seeking to export
computerized tomography ("CT") equipment to the area. The Company's competitors
include the original equipment manufacturers such as Picker International,
General Electric, Siemens, Toshiba, Hitachi, Elscint, and Shimadzu. In
addition, several companies specializing in the sale and refurbishment of used
CT equipment have entered the China market. These companies include Link
Equipment Services International, Ltd., Medical Science and Technology
International, Inc., Access International, Inc., AJK, Inc., Makers
International, Inc., and U.S. Pacific International Medical Equipment Company,
Ltd. China's hospitals and clinics are in need of virtually every type of
medical imaging equipment, and even outdated American technology is in high
demand.
On January 7, 1994, the Company entered into a joint venture agreement with
China National Medical Equipment and Supplies Import & Export Shenyang
Corporation ("CNMC"). The joint venture company, Shenyang Medcross Huamei
Medical Equipment Company, Ltd. ("SMHME") is located in the People's Republic of
China. SMHME is 51% owned by the Company and 49% owned by CNMC. SMHME imports
used and refurbished CT scanners for resale to hospitals in the province of
Shenyang. SMHME also provides warranty service, including parts and labor, for
the machines it sells and intends to provide warranty service for other machines
already existing in the province. The Company's responsibilities include
locating, purchasing, refurbishing, and shipping used medical equipment to
SMHME. CNMC was required to contribute $380,000 in cash to SMHME of which
$260,417 has been contributed. Medcross contributed CT scanner equipment and
parts with an agreed upon value of $390,000 and a cost basis of $251,972 to
SMHME. The Company opened an office in Beijing to sell and service used CT
scanning equipment in the People's Republic of China outside the province of
Shenyang. In May 1995, the Company closed its Beijing office and is actively
pursuing the sale of such operations.
DESCRIPTION OF PROPERTY
The Company currently occupies approximately 3,400 square feet for its
corporate offices located at 3227 Bennet Street North, St. Petersburg, Florida
on a month-to-month basis. The Company leases approximately 3,600 square feet
for its outpatient MRI center located in Tampa, Florida under two leases. The
lease for the business office expired July 31, 1996 and the Company occupies the
space on a month-to-month basis. The lease for the medical facility expires
May 31, 1998. The Company has the option to extend the medical facility lease
an additional two years.
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ILINK has entered into a ten-month lease for 5,000 square feet of space
in Austin, Texas, which lease expires February 1, 1997. Pursuant to such lease,
ILINK pays rent of $5,000 per month. ILINK also leases several other spaces to
house its POPs throughout the United States. Such spaces vary in size and are
rented on a month-to-month basis.
ILINK currently leases and occupies approximately 6,500 square feet of
office space in Draper, Utah, pursuant to a commercial lease dated May 21, 1996,
with an unrelated third party. The initial lease term is five years commencing
July 8, 1996 at a base rent of $5,451 per month. In addition, ILINK will be
responsible for certain improvements to such facilities above $97,120. In
September 1996, ILINK entered into a second lease for 14,000 square feet of
space from the landlord in an adjacent building pursuant to a commercial lease
dated September 11, 1996. The term of the lease is seven years commencing
November 5, 1996, subject to the right to extend for an additional five years.
The initial base rent is approximately $11,650 per month. ILINK has delivered
$215,000 in certificates of deposit to the landlord as a security deposit under
the lease.
LEGAL PROCEEDINGS
The Florida legislature enacted the Patient Self-Referral Act of 1992,
effective April 8, 1992. The Self-Referral Act imposed a fee cap, effective
July 1, 1992, limiting the technical and professional fees of all providers of
"clinical laboratory services, physical therapy services, comprehensive
rehabilitative services, diagnostic imaging services, and radiation therapy
services" to no more than 115% of the Medicare limiting charge for non-
participating physicians. The statute specifically excludes hospitals and
physician group practices from the fee cap provision and does not apply to
patients eligible for Medicaid or Medicare reimbursement.
On June 30, 1992 in an action brought in the Florida Circuit, Second
Judicial Circuit, in and for Leon County, entitled Physical Therapy
Rehabilitation Center of Coral Springs, Inc. et al. vs. State of Florida, et al.
(File Nos. 92-2736, 92-2751, 92-2785, and 92-2879) the Circuit Court enjoined
the State of Florida from enforcing such fee cap provision. On June 24, 1994,
the Company intervened as a party plaintiff in such state court action in
accordance with an order entered on June 16, 1994. On July 7, 1994, the Circuit
Court granted a motion for Summary Judgment filed by the plaintiffs (including
the Company), ruling that the fee cap provision was unconstitutional insofar as
it related to the business of the Company, due to a defect in the title of the
bill that contains the fee cap provision. The Attorney General of the State of
Florida filed an appeal to the June 16 and July 7 Circuit Court rulings. On
November 1, 1994 the appeal court, namely, the District Court of Appeals, First
District, on its own motion, quashed the July 7 order for lack of jurisdiction
because the appeal of the June 16 order was still pending. An injunction has
been obtained preventing the State of Florida from enforcing the fee cap. The
State of Florida's appeal relating to the injunction has been dismissed by the
Florida Supreme Court. The Circuit Court action has also been dismissed.
A Complaint was filed on April 12, 1996, by JW Charles Financial Services,
Inc. ("JW Charles") against the Company in Palm Beach County Florida Circuit
Court, JW Charles Financial Services, Inc. v. Medcross, Inc., Case No: CL96-
3218. JW Charles was issued a Common Stock Purchase Warrant ("JW Charles
Warrant") on or about November 3, 1994 by the Company. The alleged terms of the
JW Charles Warrant granted JW Charles the right to purchase from the Company
250,000 shares of the Company's Common Stock (the "JW Charles Shares") subject
to adjustment. On or about February 12, 1996, JW Charles made written demand to
the Company to invoke its rights to have the JW Charles Shares registered
pursuant to the terms of the JW Charles Warrant. The Complaint alleges that the
Company breached the terms of the JW Charles Warrant by failing to prepare and
file with the Commission, a registration statement covering such shares. JW
Charles alleges a breach of contract and
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requests specific performance, i.e., registering the shares with the Commission,
against the Company. JW Charles also demands damages in the amount of $2,728,478
plus interest, reasonable attorneys fees, and forum costs. The Company believes
that it has a meritorious defense to the Complaint. On May 6, 1996, the Company
filed an Answer, Affirmative Defenses and Counterclaim to the Complaint filed by
JWC. The Company's Counterclaim seeks damages, cancellation of the JW Charles
Warrant, interest and costs. The matter has been on the five-week trial calendar
commencing November 18, 1996; however, the Company has been advised that the
trial date will be rescheduled by the court. No trial date has been set as of
the date hereof.
1996 OFFERINGS
10% Notes Offering
Simultaneous with the closing of the ILINK Acquisition in February 1996,
the Company completed a private placement of $1,000,000 in aggregate principal
amount of convertible promissory notes (the "10% Notes"). The 10% Notes were
payable upon the earlier of August 31, 1996 (subject to extension) or the
Company's receipt of proceeds of at least $4,000,000 from subsequent debt or
equity offerings. The 10% Notes bore interest payable semi-annually at the rate
of 10%. Up to $1,250 of each $50,000 in principal amount of the 10% Note was
convertible at any time at the option of the holder, into an aggregate of
350,000 shares of Common Stock at the rate of approximately $.0714 per share,
subject to certain anti-dilution adjustments; and such principal amount was
converted in August 1996.
The proceeds of the 10% Notes Offering were used to pay outstanding
accounts payable and other debts of ILINK. Commonwealth served as placement
agent for the 10% Notes Offering and received a placement agent fee equal to 10%
of the purchase price of the 10% Notes sold ($100,000) and a $20,000 expense
reimbursement to cover legal fees.
Class C Offering
On September 6, 1996, the Company closed a private placement of 240,000
shares of Class C Preferred Stock, $10 par value per share, at $60 per share.
Each share of Class C Preferred Stock entitles the holder to receive a quarterly
dividend of $1.20 (8% per annum) payable in cash or, at the option of the
Company, in shares of Common Stock of the Company. Unless previously redeemed,
the Class C Preferred Stock is convertible into shares of the Company's Common
Stock (the "Conversion Shares"), at the option of the holder, commencing
November 21, 1996, into such number of shares of the Company's Common Stock as
shall equal $60 divided by the lower of (i) $2.50 or (ii) the closing bid price
for any five consecutive trading days during the period commencing on September
6, 1996 and ending eighteen months thereafter (the "Conversion Price"). Unless
previously redeemed, the shares of the Class C Preferred Stock are automatically
converted into the Conversion Shares on September 6, 2002 at a Conversion Price
equal to the lower of the then current Conversion Price or 50% of the average
closing bid price of the Company's Common Stock for the 10 trading days
immediately preceding September 6, 2002.
In addition, the Company issued $717,000 of principal amount of Convertible
Promissory Notes payable on April 1, 1997 (the "Maturity Date") and bearing
interest at 8% per annum (previously defined as the "Convertible Notes"). The
Convertible Notes provide for the accrual of interest at the simple annual rate
of 8%, payable quarterly (18% following the Event of Default which remains
uncured). The unpaid principal balance of the Convertible Notes may be prepaid
by the Company without penalty upon 30 days' notice to the holder; provided,
however, that certain conditions be met. The unpaid principal amount of a
Convertible Note will be automatically converted into shares of Class C
Preferred Stock at any time prior to the close of business on the Maturity Date
at the rate of $60 per share of Class C Preferred Stock upon certain conditions
being met. See "Description of Securities--Convertible Promissory Notes."
43
<PAGE>
The Company received net proceeds of approximately $12.8 million from the
Class C Offering, after commissions and other expenses related to the offering.
As a result of the closing of the private placement, 1.6 million shares of
the Company's restricted Common Stock held in escrow for the benefit of the
former shareholders of ILINK have been released from escrow, in accordance with
the terms of the Stock Purchase Agreement between ILINK and the Company. Upon
such release, the Company recorded additional intangible assets of $9.8 million,
which is being expensed over the remaining life of the intangible assets. In
addition, the Company recorded a $9.8 million increase in shareholders' equity.
Commonwealth Associates (previously defined and hereinafter referred to as
"Commonwealth"), acted as the placement agent for the Class C Offering.
Commonwealth received a commission equal to seven percent (7%) of the aggregate
purchase price of the shares of Class C Preferred Stock and Convertible Notes
sold, a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds from the sale of the Class C Preferred Stock and Convertible
Notes and certain other specified offering-related costs.
In addition, the Company granted Commonwealth a right of first refusal to
underwrite or place any future public or private sale of debt or equity
securities or any such sale by certain principal shareholders of the Company,
its subsidiaries and successors, for a period of five years after the closing of
the Class C Offering.
The Company issued to Commonwealth Warrants to purchase up to 250,000
shares of the Company's Common Stock and Consultant's Warrants to purchase up to
500,000 shares of Common Stock (together previously defined as the "Commonwealth
Warrants"). The Commonwealth Warrants will be exercisable for five (5) years
commencing March 1997 at an exercise price of $2.50 per share, subject to
adjustment. See "Description of Securities--Commonwealth Warrants."
The Company also entered into an Consulting Agreement with Commonwealth,
pursuant to which: (i) the Company shall employ Commonwealth as its investment
banker and financial consultant for a period of twelve (12) months; (ii) the
Company paid Commonwealth a fee of $200,000, plus 2% of the gross proceeds of
the Class C Offering in excess of $10,000,000, for such twelve (12) month
period; and (iii) the Company agreed to pay Commonwealth a fee of five percent
(5%) of the first $5,000,000 and two and one-half percent (2-1/2%) of the amount
over $5,000,000 of the consideration paid or received by the Company (or by any
affiliated entity of the Company) in any transaction (including mergers,
acquisitions, joint ventures and other business transactions) consummated by the
Company or any subsidiary or affiliate of the Company introduced to the Company
by Commonwealth.
Certain officers, directors and affiliated persons, including holders of
the 10% Notes, the Four M Options, the Kanter Option Shares and the Babcock
Option, have agreed with Commonwealth not to sell any shares of Common Stock or
options to purchase Common Stock for a period of 12 months from September 6,
1996 without the prior written consent of Commonwealth. In addition, holders of
the 10% Notes who converted a portion of such Notes to Common Stock and who
acquired Class C Preferred Stock in the Class C Offering have agreed with
Commonwealth not to sell any shares of Common Stock or the Conversion Shares for
a period of twelve (12) months from September 6, 1996, without the prior written
consent of Commonwealth; provided, however, Commonwealth has agreed that such
persons will be permitted to sell a sufficient amount of the shares of Common
Stock or Conversion Shares as will equal the principal amount of the 10% Note
previously held by such shareholder. In addition, certain officers, directors
and affiliated persons of the Company have agreed not to exercise any options
owned by them (and to waive reservation of the shares of Common Stock underlying
such options) until shareholders authorize such number of additional shares of
Common Stock necessary to accommodate the lowest Conversion Price of the Class C
Preferred Stock and, finally, all such persons have agreed to vote their shares
of Common Stock for such increase in authorized capital.
44
<PAGE>
Commonwealth designated Joseph Cohen for election to the Board of Directors
of the Company, and designated Michael Falk as a non-voting advisor to the Board
of Directors. In addition, Commonwealth was granted the right to approve the
Company's selection of a second outside director to be nominated for election at
the next annual or special meeting of stockholders. See "Management."
Commonwealth also arranged bridge financings for the Company in the amount
of $375,000 and was paid $37,500 in commissions from the proceeds of the Class C
Offering.
See "Certain Transactions," "Description of Securities" and "Selling
Securityholders" for a description of the acquisition of certain securities by
Commonwealth and associates and affiliates of Commonwealth.
MANAGEMENT
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
Name Age Title
- - -------------------------- --- ---------------------------------------------
<S> <C> <C>
John W. Edwards........... 41 President, Chief Executive Officer, Director
and Acting Chief Financial Officer of the
Company and Chief Executive Officer of
ILINK
Clay Wilkes.............. 36 Chairman of the Board of the Company and
Chief Technology Officer of ILINK
Karl S. Ryser, Jr........ 41 Treasurer of the Company and Chief Financial
Officer of ILINK
Alex Radulovic............ 27 Vice President, Technology of ILINK
Dorothy L. Michon......... 41 Vice President, Operations of the Company
William H. Flury.......... 42 Vice President, Sales and Marketing of ILINK
Henry Y.L. Toh............ 39 Director of the Company
R. Huston Babcock, M.D.... 67 Director of the Company
Joseph A. Cohen........... 49 Director of the Company
</TABLE>
The Company's Articles of Incorporation provide that the number of
directors of the Company shall not be less than five or more than nine.
Currently, the Board of Directors has five members. The Company's Articles of
Incorporation provide that the Board of Directors is divided into three classes.
Messrs. Joel S. Kanter (who resigned in July 1996 for personal reasons) and
Henry Y.L. Toh, Class II Directors, stood for re-election at the annual meeting
of shareholders in 1995. The terms of office of Mr. Toh and Joseph A. Cohen,
who was appointed a Class II Director in September 1996 as the designee of
Commonwealth, will expire at the third succeeding annual meeting of
shareholders. The terms of office of Dr. R. Huston Babcock and John W. Edwards,
Class III Directors, expire at the next annual meeting of shareholders. The
term of office of Clay Wilkes, a Class I Director, expires at the next
succeeding annual meeting of shareholders. Commonwealth has also designated
Michael Falk, President of Commonwealth, to be a non-voting advisor to the
Board. In addition, Commonwealth has the right to approve the Company's
selection of a second outside director to be nominated for election at the next
annual or special meeting of shareholders. See "1996 Offerings."
45
<PAGE>
Biographical information with respect to the present executive officers,
directors, and key employees of the Company are set forth below. There are no
family relationships between any present executive officers and directors.
John W. Edwards, President, Chief Executive Officer and Director of the
Company. Mr. Edwards was selected to fill a vacancy on the Board of Directors as
a Class III director in June 1996. Pursuant to the terms of his employment
agreement with ILINK, Mr. Edwards serves as the Chief Executive Officer of ILINK
and, as of September 30, 1996, serves as the President, Chief Executive Officer
and Acting Chief Financial Officer of the Company. Mr. Edwards served as
President and a director of Coresoft, Inc., a software company developing
object-oriented computer solutions for small business from September 1995 to
April 1996. During the period August 1988 through July 1995, Mr. Edwards served
in a number of executive positions with Novell, Inc., a software company
providing networking software, including Executive Vice President of Strategic
Marketing, Executive Vice President of the Appware and Desktop Systems Groups
and Vice President of Marketing of the NetWare Systems Group. Mr. Edwards was
involved in the development of the NetWare 386 product line. Until May 1996, he
was a visiting faculty member at the Marriott School of Management at Brigham
Young University. Mr. Edwards received a B.S. degree in Computer Science from
Brigham Young University and has taken graduate courses in Computer Science at
Brigham Young University.
Clay Wilkes, Chairman of the Board of the Company and Chief Technology
Officer of ILINK. Mr. Wilkes was elected by the Board of Directors of the
Company as a Class I Director in April 1996. Mr. Wilkes has served as President
of ILINK, Ltd. since its inception. From February 1993 through June 1994, Mr.
Wilkes served as a consultant to IBM in Austin, Texas on the PowerPC project.
From August 1990 through September 1992, he was responsible for UNIX product
development at Novell, Inc. in Provo, Utah, where he managed the networking
server and client development groups. Mr. Wilkes has spent many years in the
management and development of computer communications software. Mr. Wilkes
attended the University of Oregon and Brigham Young University and has done
graduate work in Computer Science at Utah State University.
Karl S. Ryser, Jr., Treasurer of the Company and Chief Financial Officer of
ILINK. Pursuant to the terms of his employment agreement, Mr. Ryser serves as
Chief Financial Officer of ILINK. Mr. Ryser was self-employed as a corporate
financial consultant from May 1995 until September 1996, when he joined the
Company as its Treasurer. From July 1993 through April 1995, Mr. Ryser served
as Vice President of Finance and Treasurer of Megahertz Corporation, a publicly-
held manufacturer of data communication products, in which position he served
until Megahertz was acquired by U.S. Robotics Corporation. After earning his
MBA, Mr. Ryser's work experience was concentrated in the investment banking
field, working first with the Capital Markets Division of First Security
Corporation and later with Dain Bosworth, Inc. Mr. Ryser holds a B.S. degree in
Finance from the University of Utah in 1979, and an MBA from the University of
San Diego in 1982.
Alex Radulovic, Vice President, Technology of ILINK. Mr. Radulovic served
as Director of Technology of ILINK from inception until May 1996 and has served
as Vice President, Technology of ILINK since July 1996. Mr. Radulovic served
as a software consultant to IBM Corporation in Austin, Texas, from December 1992
through June 1994, where his responsibilities included the development and
support of NetWare for AIX and a wide range of AIX communications projects.
From October 1991 through November 1992, Mr. Radulovic served as a software
engineer for development of NetWare 4.0 at Novell, Inc. in Provo, Utah. Mr.
Radulovic also served as a software engineer for development of the RAID
Development at Computer System Architects in Provo, Utah. Mr. Radulovic studied
Computer Science at Brigham Young University, Mechanical Engineering at Belgrade
University (Yugoslavia), and Physics at Beogradski, Skojevici (Belgrade,
Yugoslavia).
William H. Flury, Vice President, Sales and Marketing of ILINK. Mr. Flury
has over 17 years of sales and marketing management experience. From November
1994 to March 1996, Mr. Flury held
46
<PAGE>
the Vice President of Worldwide Sales position at Zebra Technologies, VTI. From
June 1988 to September 1989, Mr. Flury was employed by Novell, Inc., where he
was the Senior Director of National Accounts and Industry Markets. From
November 1989 to July 1992, he worked for Adobe Systems as Director of Market
Development. From August 1992 to October 1994, he was employed by NetLabs as
Vice President of Worldwide Sales and Customer Support. From October 1994 to
March 1996, he was employed by Vertical Technologies. Mr. Flury has established
domestic and international programs in direct sales, multi-tiered channel sales,
and OEM sales. Mr. Flury holds Business and Sociology degrees from the
University of Utah, and is a graduate of the Stanford Executive Program.
Dorothy L. Michon, Vice President, Operations of the Company. Ms. Michon
joined the Company in August 1983 as C.T. Technologist, was promoted to
Technical Director in 1983, and then Associate Director of Operations in 1985.
She was elected as the Company's Vice President - Operations in March 1990. She
holds an Associate Degree in Radiology Technology and a Bachelor of Science
Degree in Professional Management from Nova University.
Stephanie E. Giallourakis, Controller/Secretary of the Company. Ms.
Giallourakis joined the Company as a staff accountant in 1987, was promoted to
Controller of the Company in July 1993 and has been Secretary of the Company
since September 1995. Ms. Giallourakis holds a Bachelor of Arts Degree in
Business Administration and Accounting from the University of South Florida.
Henry Y.L. Toh, Director. Mr. Toh was elected by the Board of Directors as
a Class II Director and as Vice Chairman of the Board of Directors in March
1992. Mr. Toh was elected President of the Company in May 1993, Acting Chief
Financial Officer in September 1995 and Chairman of the Board in May 1996, and
served as such through September 1996. Mr. Toh is a director of Four M. Mr.
Toh served as a senior tax manager in international taxation and mergers and
acquisitions with KPMG Peat Marwick from March 1980 to February 17, 1992. He is
a graduate of Rice University.
Joseph A. Cohen, President of investment firm and Director of the Company.
Mr. Cohen was appointed a Class II Director of the Company in September 1996 as
the designee of Commonwealth. He has been the Chairman, Chief Executive Officer
and director of New Frontier Entertainment, Inc. ("New Frontier") since its
formation in May 1995 and held the same positions since January 1993 in New
Frontier's predecessor company, The Frondelle Company, Inc. He is also President
of Leslie Group, Inc., a diversified company with holdings primarily in the
music, film, home video and other entertainment-oriented businesses. The Leslie
Group is a limited partner of Commonwealth Associates Management Corp., a
limited partnership which is the parent of Commonwealth. He is also a Founder
and President of Leslie/Linton Entertainment Inc., a merchant banking company
that provides investment funds and assists in raising capital and debt for
companies. Mr. Cohen also serves as President of Pickwick Communications, Inc.,
an independent music publishing company. From 1977 to 1986, Mr. Cohen served as
Executive Vice President of the National Association of Recording Merchandisers,
Inc., and Founder and Executive Vice President of Video Software Dealers
Association, Inc., trade associations representing all segments of the recorded
music and home video industries, respectively.
R. Huston Babcock, M.D., Neurosurgeon and Director of the Company. Dr.
Babcock, a Director of the Company, served as Chairman of the Board of Directors
of the Company from its inception in April 1983 until March 1992. He was
President of the Company from inception until November 1987. He was Medical
Director of the Company from November 1987 to February 1993. Dr. Babcock is a
neurosurgeon and has been engaged in the full-time private practice of medicine
on the West Coast of Florida since 1960.
Each officer of the Company is chosen by the Board of Directors and holds
his or her office until his or her successor shall have been duly chosen and
qualified or until his or her death or until he or she shall resign or be
removed as provided by the By-Laws.
47
<PAGE>
There are no material proceedings to which any director, officer or
affiliate of the Company, any owner of record or beneficially of more than five
percent of any class of voting securities of the Company, or any associate of
any such director, officer, affiliate of the Company or security holder is a
party adverse to the Company or any of its subsidiaries or has a material
interest adverse to the Company or any of its subsidiaries.
EXECUTIVE COMPENSATION
The Company did not have any executive officers who served as such at the
end of the last fiscal year that earned more than $100,000 in salary and bonus.
The following table sets forth the aggregate cash compensation paid for services
rendered to the Company during the last three fiscal years by the Company's
Chief Executive Officer.
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------------------------
Annual Compensation Awards Payouts Other
------------------------------------------------ ------------------------ ----------- ----------------
Securities
Other Restricted Underlying
Name and Annual Stock Options/ LTIP All Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) Awards ($) SARs (#) Payouts ($) Compensation ($)
- - ------------------ ---- ---------- --------- ---------------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry Y.L. Toh/(1)/ 1995 $58,051 0 225/(2)/ 0/(3)/ 11,167 0 N/A
President and CEO 1994 $54,362 0 815/(2)/ 0 1,167 0 N/A
1993 $54,000 0 810/(2)/ 0 81,900 0 N/A
</TABLE>
- - ------------------------
(1) Mr. Toh began his employment with the Company in April 1992 and was
appointed President and CEO in May 1993.
(2) Represents Company contributions to 401(k) plan on behalf of Mr. Toh.
(3) Mr. Toh had no restricted stock holdings at the end of the last fiscal
year.
Option/SAR Grants in Last Fiscal Year (1995). The following table sets
forth certain information with respect to the options granted during the last
fiscal year to the Company's Chief Executive Officer.
<TABLE>
<CAPTION>
Number of Securities
Underlying Options/ Options/SARs Granted to Exercise or
Name SARS Granted (#) Employees in Fiscal Year Base Price ($/Sh) Expiration Date
- - -------------------- -------------------- ------------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
Henry Y.L. Toh... 1,167/(1)/ 100% $0.875 6/29/2005
10,000/(1)/ 100% $ 1.25 10/16/2005
</TABLE>
- - ------------------------
(1) Does not reflect options to purchase 160,000 shares of Common Stock granted
subsequent to the end of the 1995 fiscal year.
48
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values. The following table sets forth certain information with
respect to options exercised during fiscal 1995 by the Company's Chief Executive
Officer.
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised in the
Acquired on Value Underlying Unexercised Money Options/SARs
Name Exercise (#) Realized ($) Options/SARs at FY-End (#) at FY-End ($)/(1)/
- - ---------------- ------------ ------------ -------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Henry Y.L. Toh... -- -- 36,904/(2)/ 58,497 -- 146
</TABLE>
- - -----------------------
(1) The calculations of the value of unexercised options are based on the
difference between the closing bid price on Nasdaq of the Common Stock on
December 31, 1995, and the exercise price of each option, multiplied by the
number of shares covered by the option.
(2) Subsequent to the 1995 fiscal year end, 24,570 and 57,330 of the
Exercisable and Unexercisable Options, respectively, were relinquished, and
150,000 options exercisable at $1.125 through February 7, 2006 were issued
to Mr. Toh.
No awards were made under any long-term incentive plans during 1995 or 1994.
Director Compensation
Directors are compensated $100 for each meeting of the Board of Directors
attended. In addition, directors have been automatically granted options under
the Company's 1992 Director Plan to purchase 1,167 shares of Common Stock on the
last Friday in June each year until adoption of the 1995 Director Stock Option
Plan. Pursuant to the 1995 Director Stock Option Plan which was approved at the
annual meeting of stockholders held in October 1995, directors receive options
in accordance with the following formula: (i) on October 17, 1995; (ii) on the
first business day of January 1996; and (iii) on the first business day of each
January thereafter, each member of the Board of Directors then serving will
receive options to purchase 10,000 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock on the date of the grant.
The Company's compensation committee may also grant options at its discretion to
reward directors for extraordinary service to the Company.
Employment Agreements
In February 1996, the Company entered into two-year employment agreements
with Henry Toh, then President and Chief Executive Officer; Dorothy Michon, Vice
President, Operations; and Stephanie Giallourakis, Controller and Secretary.
The Employment Agreements are each for an initial period ending on December 31,
1997 and are automatically renewable for successive one-year periods unless
written notice to the contrary is given by the Company not less than 120 days
prior to expiration of the term. Pursuant to the terms of the employment
agreements, each such officer is required to devote such of his or her time to
the business and affairs of the Company as is required to fulfill the duties and
responsibilities of his or her office. Mr. Toh is entitled under his employment
agreement to receive compensation at the rate of $54,000 per year. Ms. Michon
is entitled to compensation at the rate of $63,000, and Ms. Giallourakis is
entitled to compensation at the rate of $53,000 per year. Each such officer is
entitled to an annual bonus at the discretion of the Board of Directors and may
participate in fringe benefits, deferred compensation, stock benefits and option
plans of the Company. In the event of termination of his employment by the
Company other than for "cause" (as defined in the agreement) or by Mr. Toh upon
"good reason" (as defined in the agreement), the Company is required to pay
Mr. Toh, as liquidated damages or severance pay, monthly termination payments
equal to the base salary in effect for a period of six months after such
termination and, with respect to Ms. Michon and Ms. Giallourakis, each such
officer is entitled to monthly termination payments equal to the base salary for
periods of three
49
<PAGE>
months after any such termination. Each of the employment agreements contains
confidentiality and non-solicitation provisions.
ILINK entered into three-year employment agreements on February 21, 1996
with each of Clay Wilkes, Chief Technology Officer of ILINK, and Alex Radulovic,
Vice President, Technology of ILINK. Under his employment agreement, Mr. Wilkes
is employed as Chairman of the Board and Chief Technology Officer of ILINK at a
salary of $95,000 per annum, subject to adjustment upon satisfaction of
performance criteria. Under his employment agreement, Mr. Radulovic is employed
as Executive Vice President of ILINK at a salary of $90,000 per annum, subject
to adjustment upon satisfaction of performance criteria. In the event of
termination by the Company not involving "Just Cause" (as defined in the
agreement), or upon a material breach by the Company which is unremedied for 30
days after written notice, each of Mr. Wilkes and Mr. Radulovic is entitled to
receive, as liquidated damages or severance pay, an amount equal to the Monthly
Compensation (as defined in the agreement) for the remaining term of the
Agreement and, in addition, all options shall vest and all Common Stock of
Medcross held in escrow shall be released. Each of the agreements contain non-
competition and confidentiality provisions. On July 1, 1996, the Company
approved the grant of options to purchase 1,500,000 and 500,000 shares of Common
Stock at $7.00 per share for five years, to Messrs. Wilkes and Radulovic,
respectively. To the extent vested, the options may be exercised commencing
June 30, 1997. The options vest on June 30, 2001; provided however, that
vesting will accelerate in 25% increments at such time as the average closing
bid price of a share of Common Stock equals or exceeds $10, $15, $20 and $25,
respectively.
On April 8, 1996, subject to the approval of the ILINK Board of Directors,
ILINK entered into a three-year employment agreement with John Edwards,
President, Chief Executive Officer and Director of the Company. Pursuant to the
terms of the employment agreement, Mr. Edwards is employed as the Chief
Executive Officer and a Director of ILINK, and is required to devote
substantially all of his working time to the business and affairs of ILINK. Mr.
Edwards is entitled under his employment agreement to receive compensation at
the rate of $175,000 per year and is entitled to a profitability bonus in the
discretion of the ILINK Board of Directors and to participate in fringe benefits
of the Company as are generally provided to executive officers. In addition,
Mr. Edwards is entitled to receive an option to purchase one million shares of
Common Stock of Medcross, Inc. at an exercise price of $7.00. Of such options,
83,333 vested immediately and 83,333 vest and become exercisable on the first
calendar day of each quarter after April 8, 1996. In the event of termination
by ILINK or in the event of a violation of a material provision of the agreement
by ILINK which is unremedied for thirty (30) days and after written notice or in
the event of a "Change in Control" (as defined in the agreement), Mr. Edwards is
entitled to receive, as liquidated damages or severance pay, an amount equal to
the Monthly Compensation (as defined in the agreement) for the remaining term of
the agreement. The agreement contains non-competition and confidentiality
provisions. Mr. Edwards agreed to amend his contract, effective August 21,
1996, to reduce his annual salary from $175,000 to $96,000; and in consideration
of the salary reduction, the Company has agreed to grant him options to purchase
250,000 shares of Common Stock at an exercise price of $4.875 per share.
In October 1996, ILINK entered into three-year employment agreements with
Karl S. Ryser, Jr., Treasurer of the Company and ILINK's Chief Financial
Officer, and with William Flury, ILINK's Vice President, Sales and Marketing,
subject to approval of the Board of Directors of the Company. Pursuant to the
terms of the employment agreements, each such officer is required to devote all
of his time to the business and affairs of the Company except for vacations,
illness or incapacity. Mr. Ryser is entitled under his employment agreement to
receive compensation at the rate of $125,000 per year and a bonus in the sole
discretion of the Chief Executive Officer and Mr. Flury is entitled to
compensation at the rate of $137,500 per year and a bonus commensurate with his
performance and that of ILINK. Each such employee may participate in fringe
benefits, deferred compensation, stock benefits and option plans of the Company.
In addition, each of Mr. Ryser and Mr. Flury is entitled to options to purchase
250,000 shares of Common Stock exercisable at an exercise price equal to the
closing bid price on the date of the
50
<PAGE>
employment agreement. Options issuable to Mr. Ryser to purchase 25,000 shares
vest immediately and the remaining options will vest in quarterly increments of
20,455 commencing January 1, 1997. Options issuable to Mr. Flury to purchase
41,666 shares vest six months from the date of the employment agreement and the
remaining options will vest in quarterly increments of 20,833. In the event of
a change of control or upon termination of the employment agreement by the
Company without cause all options shall thereupon be fully vested and
immediately exercisable. In the event of termination by the Company other than
for "cause" (as defined in the agreement), the Company is required to pay
Mr. Ryser or Mr. Flury, as the case may be, a lump sum severance payment equal
to one year's then current salary. Each of the employment agreements contains
confidentiality and non-competition provisions.
Consulting Agreements
The Company is a party to a consulting agreement for the period beginning
January 1, 1996 and ending December 31, 1998 with Windy City, Inc. Joel Kanter,
a director of the Company until July 30, 1996, is the President and a director
of Windy City, Inc. Pursuant to such agreement, Windy City, Inc. was engaged to
provide such consulting services as the Company may request in exchange for
compensation at the rate of $6,250 per calendar quarter.
ILINK was a party to a 12-month consulting agreement with Benchmark dated
August 10, 1995 pursuant to which ILINK was obligated to pay $6,000 per month to
Benchmark for consulting services rendered. Those payments accrued and were
deferred pending the Company's attaining stockholder's equity of at least $2.5
million. The sums due were paid and the agreement has not been renewed.
ILINK entered into a consulting agreement with T6-G Limited Partnership for
two years commencing upon the successful completion of at least $4 million in
funding. The agreement required the payment of a total of $70,000 payable
monthly over 24 months. ILINK discharged the entirety of the sums due in
September 1996 and T6-G Limited Partnership designated such sums to be allocated
to its purchase of Class C Preferred Stock. See "Selling Securityholders."
The Company entered into a consulting agreement for the three-month period
ended October 23, 1995 with Bijan Taghavi, formerly an officer and director of
the Company. Pursuant to such agreement, Mr. Taghavi was engaged to provide
such consulting services as requested by the Company in exchange for
compensation at the rate of $5,208 per month. Mr. Taghavi's consulting
agreement contains certain mutual release, non-competition and confidentiality
provisions.
The Company entered into a consulting agreement with Timothy R. Barnes,
formerly an officer of the Company (the "Barnes Agreement"), which agreement
expired February 6, 1996. The Barnes Agreement provided for the issuance to Mr.
Barnes of warrants to purchase 36,858 shares of Common Stock exercisable at a
purchase price equal to the fair market value of the Common Stock at the date of
grant. The Barnes Agreement also contained standard non-competition and
confidentiality provisions.
The Company also entered into two consulting agreements with Jason H.
Pollak, the initial term of one of which expired on January 31, 1996 and the
second of such agreements commenced thereafter. The term of the second
agreement was for a period of three years, subject to earlier termination by
the Company. Pursuant to the terms of the first of such agreements
(collectively, the "Pollak Agreements"), Mr. Pollak received 50,000 shares of
Common Stock. The second of the Pollak Agreements provided Mr. Pollak with an
option to purchase up to 50,000 shares of Common Stock each year at prices of
$1.50, $2.50 and $3.50, respectively. The second of the Pollak Agreements was
terminated by the Company on March 5, 1996 (upon thirty days' advance notice
which renders such termination effective April 4, 1996). The shares of Common
Stock subject to the Barnes Agreement and Pollak Agreement have been included in
registration statements on Form S-8 recently filed by the Company with the
Commission (Registration Nos. 33-63751, 33-63749 and 33-01525, respectively).
51
<PAGE>
Committees of the Board of Directors
Audit Committee. The Company's audit committee (the "Audit Committee") is
responsible for making recommendations to the Board of Directors concerning the
selection and engagement of the Company's independent certified public
accountants and for reviewing the scope of the annual audit, audit fees, and
results of the audit. The Audit Committee also reviews and discusses with
management and the Board of Directors such matters as accounting policies and
internal accounting controls, and procedures for preparation of financial
statements. Dr. Babcock, Chairman of the Audit Committee, Clay Wilkes and
Joseph A. Cohen are members of the Audit Committee.
Compensation Committee. The Company's compensation committee (the
"Compensation Committee") approves the compensation for executive employees of
the Company. Dr. Babcock, John Edwards, and Joseph A. Cohen are members of the
Compensation Committee.
Executive Committee. The Company's executive committee (the "Executive
Committee") is vested with all the powers of the Board of Directors, subject to
the limitations set forth in the Florida Business Corporation Act. Mr. Toh
is a member of such committee and there are two vacancies.
Director Stock Option Plan
The Company's Director Stock Option Plan (the "DSOP") authorizes the grant
of stock options to directors of the Company. Options granted under the DSOP
are non-qualified stock options exercisable at a price equal to the fair market
value per share of Common Stock on the date of any such grant. Options granted
under the DSOP are exercisable not less than six (6) months nor more than ten
(10) years after the date of grant.
As of September 30, 1996, options for the purchase of 10,503 shares of
Common Stock at prices ranging from $.875 to $3.875 per share were outstanding.
As of September 30, 1996, options to purchase 8,169 shares of Common Stock have
been exercised. In connection with adoption of the 1995 Director Plans (as
hereinafter defined) the Board of Directors authorized the termination of future
grants of options under the DSOP; however, outstanding options granted under the
DSOP will continue to be governed by the terms thereof until exercise or
expiration of such options.
Stock Purchase Plan
In accordance with the Employee Qualified Stock Purchase Plan (the
"Purchase Plan"), employees may contribute up to ten percent of their base wages
toward the purchase of Common Stock. The exercise price of options granted
under the Purchase Plan is the lesser of 85% of the market value on the first
business day of the payment period (September 1) or the last business day of the
payment period (August 31). As of September 30, 1996, the Company had 35,146
shares of Common Stock reserved for issuance on exercise of the purchase rights
granted under the Purchase Plan.
1995 Director Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Director Stock Option and Appreciation Rights Plan, which plan
provides for the issuance of incentive options, non-qualified options and stock
appreciation rights (the "1995 Director Plan").
The 1995 Director Plan provides for automatic and discretionary grants of
stock options which qualify as incentive stock options (the "Incentive Options")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as options which do not so qualify (the "Non-Qualified Options") to be
issued to directors. In addition, stock appreciation rights (the "SARs") may be
granted in conjunction with the grant of Incentive Options and Non-Qualified
Options. No SARs have been granted to date.
52
<PAGE>
The 1995 Director Plan provides for the grant of Incentive Options, Non-
Qualified Options and SARs to purchase up to 250,000 shares of Common Stock
(subject to adjustment in the event of stock dividends, stock splits and other
similar events). To the extent that an Incentive Option or Non-Qualified Option
is not exercised within the period of exercisability specified therein, it will
expire as to the then-unexercised portion. If any Incentive Option, Non-
Qualified Option or SAR terminates prior to exercise thereof and during the
duration of the 1995 Director Plan, the shares of Common Stock as to which such
option or right was not exercised will become available under the 1995 Director
Plan for the grant of additional options or rights to any eligible employees.
The shares of Common Stock subject to the 1995 Director Plan may be made
available from either authorized but unissued shares, treasury shares, or both.
The 1995 Director Plan also provides for the grant of Non-Qualified Options
on a non-discretionary basis pursuant to the following formula: each member of
the Board of Directors then serving shall receive a Non-Qualified Option to
purchase 10,000 shares of Common Stock at an exercise price equal to the fair
market value per share of the Common Stock on that date. Pursuant to such
formula, directors received options to purchase 10,000 shares of Common Stock as
of October 17, 1995, options to purchase 10,000 shares of Common Stock on
January 2, 1996, and will receive options to purchase 10,000 shares of Common
Stock on the first business day of each January. Each option is immediately
exercisable for a period of ten years from the date of grant. The Company has
250,000 shares of Common Stock reserved for issuance under the 1995 Director
Plan. As of September 30, 1996, options exercisable to purchase 230,000 shares
of Common Stock at prices ranging from $1.00 to $1.25 per share have been
granted under the 1995 Director Plan. As of September 30, 1996, options to
purchase 40,000 shares have been exercised under the 1995 Director Plan.
1995 Employee Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Employee Stock Option and Appreciation Rights Plan (the "1995
Employee Plan"), which plan provides for the issuance of Incentive Options, Non-
Qualified Options and SARs.
Directors of the Company are not eligible to participate in the 1995
Employee Plan. The 1995 Employee Plan provides for the grant of stock options
which qualify as Incentive Stock Options under Section 422 of the Code, to be
issued to officers who are employees and other employees, as well as Non-
Qualified Options to be issued to officers, employees and consultants. In
addition, SARs may be granted in conjunction with the grant of Incentive Options
and Non-Qualified Options. No SARs have been granted to date.
The 1995 Employee Plan provides for the grant of Incentive Options, Non-
Qualified Options and SARs of up to 400,000 shares of Common Stock (subject to
adjustment in the event of stock dividends, stock splits and other similar
events). To the event that an Incentive Option or Non-Qualified Option is not
exercised within the period of exercisability specified therein, it will expire
as to the then-unexercised portion. If any Incentive Option, Non-Qualified
Option or SAR terminates prior to exercise thereof and during the duration of
the 1995 Employee Plan, the shares of Common Stock as to which such option or
right was not exercised will become available under the 1995 Employee Plan for
the grant of additional options or rights to any eligible employee. The shares
of Common Stock subject to the 1995 Employee Plan may be made available from
either authorized but unissued shares, treasury shares, or both. The Company
has 400,000 shares of Common Stock reserved for issuance under the 1995 Employee
Plan. As of September 30, 1996, options to purchase 75,000 shares of Common
Stock with exercise prices of $1.125 per share have been granted under the 1995
Employee Plan. To date, no options have been exercised under the 1995 Employee
Plan.
53
<PAGE>
Other Options
The Company has committed to issue an aggregate of 3,250,000 shares to
certain officers and directors. Management intends to propose the adoption of a
Stock Option and Appreciation Rights Plan providing for the issuance of
Incentive Options, Non-Qualified Options and SARs, subject to approval of
stockholders and an increase in the number of authorized shares of Common Stock,
in order to make a plan available and provide for such further options as the
Board of Directors may determine to issue.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the first quarter of fiscal 1995, the Company received advances
totaling $218,000 from Mortgage Network International ("MNI"). Henry Y.L. Toh,
a Director of the Company, has management control over MNI. Such advances were
previously payable upon demand. Subsequent to the extension of such advances,
the Board of Directors approved delivery of a promissory note representing the
aggregate amount of such advances, which promissory note matured by its terms on
October 1, 1995 and bears interest at one percent over the prime rate of
interest established by Southwest Bank of Texas, N.A. Subsequently, the Company
and MNI modified the note such that: (i) a principal payment in the amount of
$88,000 is due and payable on December 31, 1996; (ii) interest thereon is
payable monthly at the rate of 10.5%; and (iii) the remaining principal amount
of $130,000 with interest thereon at the rate of 10.5% will be paid in 36 equal
monthly payments of $4,225.32.
ILINK was indebted to T6-G Limited Partnership ("T6-G") in the amount of
$300,000, which sums were repaid in full from the proceeds of the Class C
Offering. T6-G owns a 9.5% interest in ILINK, Ltd. See "1996 Offerings" and
"Selling Securityholders."
In January 1996, certain associates and affiliates of Commonwealth
purchased an aggregate of 878,891 shares of Common Stock upon conversion of
Class A Preferred Stock held by Walnut Capital Corp. ("WCC"), Windy City, Inc.
("WCI") and Canadian Imperial Bank of Commerce Trust Company (Bahamas) Limited
at a cost per share of approximately $0.49. Joel Kanter, a director of the
Company at the time of the transaction, is affiliated with WCC and WCI. See
"Description of Securities--Kanter Shares."
On February 21, 1996, Four M International, Ltd. ("Four M"), a principal
shareholder of the Company, granted certain options exercisable commencing
July 1, 1996 (subject to the satisfaction of certain conditions) to purchase
3,915,570 shares of Common Stock. Henry Toh, a director of the Company, is one
of the two directors of Four M. The exercise price of $1.79 per share
represents the lesser of 200% of the average of the closing bid and ask price
per share of Common Stock for the ten (10) business days preceding July 1, 1996
or $1.79 per share. Commonwealth and affiliates or associates thereof received
the right to purchase 545,285 shares of Common Stock prior to December 31, 1996
and 537,500 shares of Common Stock prior to December 31, 1997. Benchmark
received the right to purchase 545,285 shares of Common Stock prior to
December 31, 1996 and 537,500 shares prior to December 1997. Certain members of
management of ILINK, namely, Clay Wilkes, Floyd Wilkes and Alex Radulovic, have
the right to purchase an aggregate of 825,000 shares of Common Stock prior to
December 31, 1996 and 825,000 shares prior to December 31, 1997. Scott Cook
received the right to purchase 100,000 shares prior to December 31, 1996. On
February 21, 1996, ILINK agreed to pay an aggregate of $1,275 to Four M by
Mr. Cook on or before July 1, 1996. On April 24, 1996, the Four M Options
issued to Mr. Cook were cancelled and options were issued as of that date by
Four M to Mr. Cook (50,000 Options), R.C. Culbreth (25,000 Options) and John
Beardmore (25,000 Options).
In August 1996, the Four M Options were amended to provide that in the
event that $200,000 in principal amount (i.e., exercise proceeds) of the Four M
Options have been exercised prior to December 31, 1996, the exercise period of
the remaining Four M Options exercisable during 1996 (the "1996 Four M Options")
will be extended to September 6, 1997 and the exercise price would be increased
by four percent (4%) of the then current exercise price for each 30 day period
or portion
54
<PAGE>
thereof commencing January 1, 1997 in which the remainder of the 1996 Four M
Options are not exercised. See "Description of Securities--Four M Options."
The shares of Common Stock owned by Four M are subject of a lockup
agreement with Commonwealth from and after the termination of the option
agreements and until 12 months from September 6, 1996; provided, however, that
to the extent Commonwealth releases more than 300,000 shares in the aggregate on
behalf of any affiliate or associated person of Commonwealth, any officer or
director of the Company or its subsidiaries or Benchmark, Commonwealth shall
release a number of Four M Shares equal to the same percentage as the number of
shares owned by such person. In addition, the Company has been informed that
the holders of the Four M Options have executed lockup agreements with
Commonwealth for 12 months after September 6, 1996.
On February 21, 1996, R. Huston Babcock, M.D., a director of the Company,
granted certain options to Benchmark exercisable commencing July 1, 1996
(subject to the satisfaction of certain conditions) to purchase 183,542 shares
of Common Stock issuable upon conversion of outstanding Class B Convertible
Preferred Stock. The exercise price is equal to the lesser of 200% at the
average of the closing bid and ask price per share of Common Stock for the ten
(10) business days preceding July 1, 19996 or $1.79 per share. Benchmark
received the right to purchase 91,771 shares of Common Stock prior to December
31, 1996 and 91,771 shares prior to December 1997. See "Description of
Securities--Babcock Options."
Certain shares of Common Stock owned by Dr. Babcock are subject to a lock-
up agreement with Commonwealth for a period of twelve (12) months from
September 6, 1996.
In August 1996, William Flury, Vice President, Sales & Marketing of
ILINK, loaned ILINK the sum of $100,000, with $105,000 (including a loan
origination fee of $5,000) due and payable the earlier of September 6, 1996 or
upon the closing of a debt or equity offering by the Company. In connection
with such loan, the Company agreed to issue Mr. Flury a warrant to purchase
5,000 shares of Common Stock for two years at $2.50 per share. The Company
recorded additional interest expense of $11,875 in connection with the
transaction. The funds from the loan were used for general working capital
purposes of ILINK. The loan was repaid in September 1996 and the sums directed
by Mr. Flury to purchase 1,666 shares of Class C Preferred Stock.
In August 1996, John Edwards, President and Chief Executive Officer of
ILINK, loaned ILINK the sum of $131,250 (including a $6,250 original issue
discount) due and payable the earlier of September 6, 1996, or upon the receipt
of proceeds from a debt or equity financing of the Company. In connection with
such loan, the Company agreed to issue Mr. Edwards a warrant to purchase 25,000
shares of Common Stock for two years at $4.87 per share. Funds from the loan
were used to pay a $100,000 payment due to AT&T and for general working capital
purposes. The loan was repaid in September 1996.
In September 1996, the Company advanced the sum of $685,000 to Family
Telecommunications, Inc. ("FTI") to be utilized by FTI to acquire from Harris
Corporation certain items of telecommunications switches known as "Harris
switches." FTI is an authorized Harris reseller and was able to obtain
favorable pricing for these switches. These Harris switches are included in the
equipment covered by the IBM operating lease, and IBM will pay FTI for the
switches as a vendor, and lease them to ILINK. FTI WILL then return the funds to
ILINK. The majority owner of FTI is Robert W. Edwards, a brother of John
Edwards, the Company's President and Chief Executive Officer.
Clay Wilkes, the sole shareholder of G Net Enterprises, Inc. ("G Net"), the
general partner of ILINK, Ltd. pledged all of the issued and outstanding shares
of G Net to secure the Company's guarantee of $100,000 of the principal amount
of a loan on October 19, 1995 from Scott Cook to ILINK. The loan was repaid in
September 1996 from the proceeds of the Class C Offering.
Certain officers and directors of the Company and/or ILINK have agreed to
vote shares over which they exercise voting power in an aggregate amount of
6,828,914 shares of Common Stock in favor
55
<PAGE>
of a proposal to increase the authorized shares of Common Stock and Preferred
Stock of the Company. In addition, pending the solicitation of the necessary
stockholder approval and as a condition to the first closing of the Class C
Offering, securityholders, including officers and directors of the Company
and/or ILINK, have agreed not to exercise any options owned by them unless and
until the shareholders of the Company approve an increase in authorized capital
stock.
See "Executive Compensation--Employment Agreements" and "Executive
Compensation --Consulting Agreements" for descriptions of the terms of
employment and consulting agreements between the Company or ILINK and certain
officers, directors and other related parties.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Common Stock constitutes the only voting securities of the Company.
Each share of Class B Preferred Stock is convertible, at the option of the
holder thereof, into approximately 24.47 shares of Common Stock, subject to
adjustment upon the occurrence of certain events. Each share of Class C
Preferred Stock is convertible, at the option of the holder thereof, into such
number of shares of the Company's Common Stock as shall equal $60 divided by the
lower of (i) $2.50 or (ii) the closing bid price for any five consecutive
trading days during the period commencing on September 6, 1996 and ending on
March 5, 1998. The table below sets forth information, to the best of the
Company's knowledge, with respect to the total number of shares of the Company's
Common Stock, Class B Preferred Stock and Class C Preferred Stock beneficially
owned by each director, the Company's Chief Executive Officer, each beneficial
owner of more than five percent of the Common Stock, and all directors and
executive officers as a group, as reported by each such person, as of September
30, 1996. On that date, there were 11,466,312 shares of the Company's Common
Stock issued and outstanding, no shares of the Company's Class A Preferred Stock
issued and outstanding, 7,500 shares of the Company's Class B Preferred Stock
issued and outstanding, and 240,000 shares of the Company's Class C Preferred
Stock issued and outstanding.
<TABLE>
<CAPTION>
% of Outstanding
Shares of
Number of Shares Common Stock
Name and Address Title of Beneficially Owned Beneficially
of Beneficial Owner /(1)/ Class Prior to Offering Owned/(2)/
- - -------------------------- ---------- ------------------- ---------------
<S> <C> <C> <C>
Four M International, Common Stock 3,915,570/(4)/ 34.1%
Inc./(3)/
Casa Fortuna, S.A./(3)/
Linkcost, Ltd./(3)/
1980 Post Oak Boulevard
Houston, TX 77056
ILINK, Ltd./(5)/ Common Stock 2,913,344 25.4%
c/o Clay Wilkes
65 East Wadsworth Park
Drive
Draper, UT 84020
Clay Wilkes/(6)/ Common Stock 2,426,263/(7)/ 21.2%
65 East Wadsworth Park
Drive
Draper, UT 84020
Benchmark Equity Group Inc. Common Stock 2,190,945/(10)/ 18.8%
700 Gemini Class C 752
Houston, TX 77058 Preferred Stock
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
% of Outstanding
Shares of
Number of Shares Common Stock
Name and Address Title of Beneficially Owned Beneficially
of Beneficial Owner /(1)/ Class Prior to Offering Owned/(2)/
- - -------------------------- ---------- ------------------- ---------------
<S> <C> <C> <C>
R. Huston Babcock, M.D. Common Stock 667,173/(11)/ 5.8%
741 12th Street North Class B 7,500
St. Petersburg, FL 33705 Preferred
Stock
Henry Y.L. Toh/(3)/ Common Stock 173,501/(12)/ 1.5%
3227 Bennet Street North
St. Petersburg, FL 33713
John W. Wards Common Stock 608,332/(13)/ 5.0%
65 East Wadsworth Park
Drive
Provo, UT 84020
T6-G Limited Partnership Common Stock 720,083/(8)(9)/ 6.2%
185 South State Street
Salt Lake City, UT
William A. Baquet Common Stock 785,284/(14)/ 6.8%
c/o Commonwealth Associates
733 Third Avenue
New York, NY 10017
Commonwealth Associates Common Stock 1,911,392/(15)/ 15.5%
733 Third Avenue Class C 3,750
Suite 700 Preferred
New York, NY 10017 Stock
Alex Radulovic/(16)/ Common Stock 769,824/(17)/ 6.7%
65 East Wadsworth Park
Drive
Provo, UT 84020
Joseph A. Cohen Common Stock 96,000/(18)/ *
1370 Avenue of the Americas Class C 3,000/(18)/
New York, NY 10019 Preferred
Stock
All Executive Officers and Common Stock 4,879,390/(20)/ 35.4%
Directors as a Group Class C 4,666
(9 Persons) Preferred
Stock
</TABLE>
- - ---------------------------------
* Represents less than 1%.
(1) Unless noted, all of such shares are owned of record by each person or
entity named as beneficial owner and such person or entity has sole voting
and dispositive power with respect to the shares of Common Stock owned by
each of them.
(2) As to each person or entity named as beneficial owners, such person or
entity's percentage of ownership is determined by assuming that any options
or convertible securities held by such person or entity which are
exercisable or convertible within 60 days from the date hereof have been
exercised or converted, as the case may be. Does not give effect to the
agreement of certain holders of outstanding options not to exercise such
options pending shareholder approval of an increase in the authorized
capital of the Company.
(3) Mr. Toh, a director of the Company and one of two directors of Four M, has
disclaimed beneficial ownership of the shares of the Common Stock owned by
Four M.
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<PAGE>
(4) Represents the number of shares of Common Stock subject to options granted
by the noted shareholders. As set forth hereinbelow, Four M has granted
certain options exercisable commencing July 1, 1996 (subject to the
satisfaction of certain conditions) to purchase 3,915,570 shares of Common
Stock. The exercise price is equal to the lesser of 200% of the average of
the closing bid and ask price per share of Common Stock for the ten (10)
business days preceding July 1, 1996 or $1.79 per share. Commonwealth and
affiliates or associates thereof received the right to purchase 545,285
shares of Common Stock prior to December 31, 1996 and 537,500 shares of
Common Stock prior to December 31, 1997. Benchmark Equity Group, Inc.
received the right to purchase 545,285 shares of Common Stock prior to
December 31, 1996 and 537,500 shares prior to December 1997. Certain
members of management of ILINK have the right to purchase 825,000 shares of
Common Stock prior to December 31, 1996 and 825,000 shares prior to
December 31, 1997.
(5) G Net Enterprises, Inc. ("G Net") is the General Partner of ILINK, Ltd. and
Clay Wilkes, an officer and director of the Company, is the sole
shareholder of G Net.
(6) ILINK, Ltd., a limited partnership, owns an aggregate 2,913,344 shares.
Mr. Wilkes, an officer and director of ILINK, owns a 61.6424% interest in
ILINK, Ltd.; pursuant to Rule 13d-1 under the Exchange Act, he may be
deemed to indirectly beneficially own 1,646,263 of the shares owned by
ILINK, Ltd.
(7) Includes 1,646,263 shares of Common Stock held of record by ILINK, Ltd.
See previous footnote. Also includes 780,000 shares of Common Stock
purchasable upon exercise of an option exercisable commencing on July 1,
1996 granted by Four M. Excludes an option granted by the Company on July
1, 1996 to purchase 1,500,000 shares of Common Stock at an exercise price
of $7.00 per share, vesting in 25% increments in the event that the average
closing bid price of a share of the Company's Common Stock for five
consecutive trading days exceeds $10, $15, $20 and $25, respectively. Such
option becomes exercisable (to the extent vested) on June 30, 1997, vests
in its entirety on June 30, 2001 and lapses on June 30, 2002.
(8) ILINK, Ltd., a limited partnership, owns an aggregate 2,913,344 shares.
T6-G Limited Partnership owns a 9.5% interest in ILINK, Ltd.; pursuant to
Rule 13d-1 under the Exchange Act, it may be deemed to indirectly
beneficially own 548,891 of the shares owned by ILINK, Ltd.
(9) Includes 171,192 shares of Common Stock which are issuable upon conversion
of 7,133 shares of Class C Preferred Stock.
(10) Includes 183,542 shares of Common Stock issuable upon conversion of Class B
Preferred Stock subject of an option exercisable commencing July 1, 1996
granted by R. Huston Babcock to the noted shareholder and 1,082,785 shares
of Common Stock which may be purchased upon exercise of an option
exercisable commencing July 1, 1996 granted by Four M to the noted
shareholder. Also includes (a) 18,048 shares of Common Stock issuable upon
conversion of 752 shares of Class C Preferred Stock, and (b) 145,000 shares
of Common Stock, all of which 163,048 shares are beneficially owned by
Trident I, LLC, of which the noted shareholder is the manager with the
power to exercise investment, dispositive and voting control.
(11) Includes: (a) 183,542 shares of Common Stock into which the 7,500 shares of
Class B Preferred Stock owned by the noted stockholder are convertible; and
(b) 23,501 shares of Common Stock issuable pursuant to options exercisable
within 60 days of the date hereof. The shares of Common Stock issuable
upon conversion of such shares of Class B Preferred Stock are subject to an
option granted by the noted stockholder to Benchmark Equity Group, Inc.
(12) Represents shares of Common Stock issuable pursuant to options exercisable
within 60 days of the date hereof.
(13) Includes 333,332 shares of Common Stock subject to the vested portion of
Mr. Edwards' option to purchase 1,000,000 shares of Common Stock. Also
includes 250,000 shares of Common Stock subject to another option held by
Mr. Edwards, and 25,000 shares of Common Stock subject to a warrant held by
Mr. Edwards. See "Executive Compensation--Employment Agreements," "Use of
Proceeds" and "Certain Relationships and Related Transactions."
(14) Includes 541,393 shares of Common Stock issuable pursuant to options
exercisable commencing July 1, 1996 granted by Four M and 243,891 Kanter
Shares. Does not include shares issued or issuable to Commonwealth, of
which Mr. Baquet is an associated person, or to certain affiliates or
control persons of Commonwealth. See next footnote.
(15) Includes 541,392 shares of Common Stock issuable pursuant to options
exercisable commencing July 1, 1996 granted by Four M to Commonwealth and
530,000 shares of Common Stock owned by certain affiliates and control
persons of the named shareholder. Also includes 750,000 shares of Common
Stock subject to a warrant held by the named stockholder and 90,000 shares
of Common Stock issuable upon conversion of 3,750 shares of Class C
Preferred Stock which are held by certain affiliates of the named
stockholder. Does not include shares of Common Stock which may be held by
Commonwealth from time to time in its trading account in connection with
ordinary market-making activities.
(16) ILINK, Ltd., a limited partnership, owns 2,913,344 shares. Mr. Radulovic
owns 4.67% interest in ILINK, Ltd.; pursuant to Rule 13d-1 under the
Exchange Act, he may be deemed to indirectly beneficially own 269,824 of
the shares owned by ILINK, Ltd.
(17) Includes 269,824 shares of Common Stock held of record by ILINK, Ltd. See
previous footnote. Also includes 500,000 shares of Common Stock issuable
pursuant to options exercisable commencing July 1, 1996 granted by Four M
but excludes an option granted by the Company on July 1, 1996, to purchase
500,000 shares of Common Stock at an exercise price of $7.00 per share,
vesting in 25% increments in the event that the average closing bid price
of a share of the Company's Common Stock for five consecutive trading days
exceeds $10, $15, $20 and $25, respectively. Such option becomes
exercisable (to the extent vested) on June 30, 1997, vests in its entirety
on June 30, 2001 and lapses June 30, 2002.
58
<PAGE>
(18) The Company has agreed to issue options to purchase 64,000 shares of Common
Stock to Mr. Cohen, to be exercisable at the fair market value thereof on
September 30, 1996. Of such options, 24,000 shall vest and become
exercisable immediately upon grant, 20,000 shall vest and become
exercisable on the first anniversary of the grant, and 20,000 shall vest
and become exercisable on the second anniversary of the grant. Represents
shares to become immediately issuable upon exercise of such options.
Includes 72,000 Conversion Shares, subject to adjustment, issuable to the
Leslie Group upon conversion of Class C Preferred Stock. Mr. Cohen is
President of the Leslie Group, Inc., which is a limited partner of the
parent of Commonwealth, and which holds 3,000 shares of Class C Preferred
Stock.
(19) Represents 1,350,000 shares of Common Stock issuable upon conversion of
56,250 shares of Class C Preferred Stock.
(20) Includes 924,789 shares of Common Stock issuable pursuant to options
exercisable within 60 days of the date hereof, 183,542 shares of Common
Stock into which the 7,500 shares of Class B Preferred Stock are
convertible and 111,984 shares of Common Stock, into which 4,666 shares of
Class C Preferred Stock are convertible. Also includes 1,280,000 shares of
Common Stock subject of an option exercisable commencing on July 1, 1996
granted by Four M, and excludes certain unvested options granted by the
Company.
SELLING SECURITYHOLDERS
The following table assumes that each Selling Stockholder is offering for
sale securities previously issued or issuable by the Company and/or shares of
Common Stock issuable in the event of conversion or exercise of outstanding
securities. The Company has agreed to pay all expenses in connection therewith
(other than brokerage commissions and fees and expenses of their respective
counsel). None of the Selling Securityholders has ever held any position with
the Company or had any other material relationship with the Company except that
Clay Wilkes, the owner of G Net, the general partner of ILINK, Ltd., is an
officer and director of the Company; certain other beneficial owners of ILINK,
Ltd. are presently officers of ILINK, namely, Alex Radulovik and Floyd Wilkes.
See "The Company," "1996 Offerings," and "Certain Transactions."
The following table sets forth the beneficial ownership of the Securities
by each person who is a Selling Stockholder. The Company will not receive any
proceeds from the sale of such securities by the Selling Stockholders.
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------ ----------------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering(1) Offering(2)
- - ----------------------------------- ---------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
J. W. Charles Financial Services, Inc. -- 331,126 (3) 2.8% 0%
980 North Federal Highway
Boca Raton, FL 33432
Joseph Mandarino 40,000(4) 165,988 (5) 1.4% 0%
280 Watchogue Road
Staten Island, NY 10314
Joseph P. Ingarra -- 36,988 (6) * 0%
120 Kensington Road
Garden City, NY 11530
Robert M. Fuller -- 45,992 (7) * 0%
2302 Kenley
Fort Worth, TX 76107
Leonard M. Schiller -- 36,988 (6) * 0%
17323 Bridleway Trail
Boca Raton, FL 33496
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------ ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Maurice J. Gallagher -- 110,988 (8) 1.0% 0%
c/o Gallagher Investment Corp.
6900 Westcliff Drive
Suite 505
Las Vegas, NV 89128
Gallagher Investment Corp. -- 84,000 (9) * 0%
6900 Westcliff Drive
Suite 505
Las Vegas, NV 89128
Robert L. Priddy -- 182,988 (10) 1.6% 0%
1800 Phoenix Boulevard
Suite 126
Atlanta, GA 30349
Richard G. David -- 74,000 (11) * 0%
David & Hagner
1120 19th Street, N.W.
Washington, DC 20036
Phillip J. Schiller -- 36,988 (6) * 0%
17323 Bridleway Trail
Boca Raton, FL 33496
Montague Securities International, Ltd. -- 70,000 (12) * 0%
Saffrey Square
P.O. Box N.7474
Nassau, Bahamas
Watts Texas Limited Partnership -- 50,000 (13) * 0%
525 17th Street
Rock Island, IL 61201
S.C. Culbreth -- 75,000 (14) * 0%
10 Tidewater Drive
Ormond Beach, FL 32174
John R. Beardmore -- 75,000 (14) * 0%
P.O. Box 457
Alexandria, MN 56308
ILINK, Ltd. -- 2,913,344(15) 25.4% 0%
c/o GNET Enterprises, Inc.
c/o Clay Wilkes
65 East Wadsworth Park Drive
Draper, UT 84020
Clay Wilkes -- 2,426,263 (16) 21.2% 0%
65 East Wadsworth Park Drive
Draper, UT 84020
Alex Radulovic -- 769,823 (17) 6.7% 0%
65 East Wadsworth Park Drive
Draper, UT 84020
Floyd C. Wilkes -- 403,511 (18) 3.5% 0%
65 East Wadsworth Park Drive
Draper, UT 84020
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
---------------------------------- ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Benchmark Equity Group, Inc. -- 2,120,945 (19) 18.8% 0%
700 Gemini
Houston, TX 77058
Scott A. Mednick -- 100,000 (20) * 0%
7972 Mulholland Drive
Los Angeles, CA 90046
Scott Cook -- 230,078 (21) 2.0% 0%
1700 Pacific Avenue
Suite 500
Dallas, TX 75201
Trident I, LLC -- 163,048 (22) 1.4% 0%
c/o Benchmark Equity Group, Inc.
700 Gemini
Houston, TX 77058
Joseph Wong -- 88,096 (23) * 0%
c/o Grand Fur Trading Company, Ltd.
10 A Humphreys Avenue
1/F Kowloon, Hong Kong
Republic New York Securities -- 36,000 (9) * 0%
American Equities Overseas
1 Hanson Place
Brooklyn, NY 11243
Fred and Ann Margolin -- 36,000 (9) * 0%
10515 Lennox Lane
Dallas, TX 75229
George W. Smith -- 18,000 (9) * 0%
4049 Darby Lane
Seaford, NY 11783
The British Life Office Limited -- 180,000 (9) 1.5% 0%
Reliance House
Tunbridge Wells
Kent TN4 8B1
England
Orbis Pension Trustees Limited -- 540,000 (9) 4.5% 0%
1 Connaught Place
London W2 2DY England
Bondstreet Partners Limited -- 72,000 (9) * 0%
64 West 12th Street
New York, NY 10011
Robert C. Donaldson & -- 18,000 (9) * 0%
Kathleen T. Donaldson
7780 Boot Hill Drive
Park City, UT 84098
Phillip C. Lockwood -- 18,000 (9) * 0%
11 Kendall Drive
Northborough, MA 01532
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------ ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
S. Marcus Finkle -- 54,000 (9) * 0%
117 AABC
Aspen, CO 81611
Paul D. Goldenheim -- 9,000 (9) * 0%
4 Bald Hill Pl.
Wilton, CT 06897
James A. Cardwell, Jr. -- 18,000 (9) * 0%
1105 Los Jardines
El Paso, TX 79912
Monroe H. Schenker and -- 18,000 (9) * 0%
Barbara P. Schenker
22604 Caravelle Circle
Boca Raton, FL 33433-6309
Mario Marsillo, Jr. -- 18,000 (9) * 0%
23 Ebey Lane
Staten Island, NY 10312
Ned Gilleland, Sr. -- 36,000 (9) * 0%
232 S. Sea Pines Dr.
Hilton Head, SC 29928
Ronald Piasecki -- 180,000 (9) 1.5% 0%
17854 W. Spring Lake Rd.
Spring Lake, MI 49456
H. Eugene Graves -- 72,000 (9) * 0%
313 West Moreno Street
Pensacola, FL 32502
Richard G. Dahlen & -- 54,000 (9) * 0%
Pricilla A. Dahlen
16467 Horseshoe Ridge Rd.
Chesterfield, MO 63005
Joyce N. Westmoreland -- 36,000 (9) * 0%
6946 Moniteau Ct.
Baton Rouge, LA 70809
Lawrence Genin -- 18,000 (9) * 0%
61 English Turn
New Orleans, LA 70131
Daniel R. Lee -- 36,000 (9) * 0%
500 Skokie Blvd.
Suite 200
Northbrook, IL 60062
Alvin Siegel -- 18,000 (9) * 0%
1530 Palisade Avenue
Fort Lee, NJ 07024
Keyvan Novinkakht -- 36,000 (9) * 0%
433 N. Palm Dr., #403
Beverly Hills, CA 90210
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------ ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Edward Dallin Bagley -- 36,000 (9) * 0%
8 Shadow Wood Lane
Sandy, UT 84092
Mansour Khayyam -- 36,000 (9) * 0%
27 Harbour Road
Kings Point, NY 11024
J. Michael Wolfe -- 36,000 (9) * 0%
403 Greenwood Avenue
Clarksville, TN 37040
David L. Yeager -- 72,000 (9) * 0%
2881 S. 98th Street
West Allis, WI 53227
Douglas Levine -- 36,000 (9) * 0%
88 University Place
New York, NY
Frederick J. Oswald -- 9,000 (9) * 0%
3312 Bic Horn Trail
Plano, TX 75075
Rush Family Revocable Trust -- 9,000 (9) * 0%
TR DTD 4-13-93
335 N. Maple Drive
Beverly Hills, CA 90210
Lawrence Seftel and -- 12,000 (9) * 0%
Sandra Bernstein
7620 Dorchester Rd.
Boynton Beach, FL 33437
Sandra Bernstein -- 24,000 (9) * 0%
10 Carriage Drive
Old Westbury, NY 11568
Joel A. Stone -- 54,000 (9) * 0%
2839 Woodmere Dr.
Northbrook, IL 60062
Maxwell Lang Elliott -- 36,000 (9) * 0%
27271 Ridge Lake Court
Bonita Springs, FL 34134
Zachary Gomes -- 36,000 (9) * 0%
155 Perry Street
New York, NY 10014
William Joe Jackson and -- 54,000 (9) * 0%
Ann Street Jackson
2919 West Autumn Run Circle
Sugar Land, TX 77479
Theodore Stern & -- 72,000 (9) * 0%
Elizabeth Stern
1943 Wightman Street
Pittsburgh, PA 15217
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------ ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Herbert Meislich -- 36,000 (9) * 0%
338 Lacey Drive
New Milford, NJ 07646
Thomas C. Smith -- 36,000 (9) * 0%
1817 Sacramento Terrace
Plano, TX 75075
Chatri Jhynjhnuwala -- 36,000 (9) * 0%
Lourdes Jhynjhnuwala
25 Harbor Drive
Corona Del Mar, CA 92635
Schneider Fuel Oil Inc. Pension Plan -- 36,000 (9) * 0%
Edward T. Schneider, Trustee
275 E. 7th Street
Mt. Vernon, NY 10550
Entermedia Growth Partners LP -- 120,000 (9) 1.0% 0%
1900 Wazee Street
Suite 106
Denver, CO 80202
Peggy Jordan -- 36,000 (9) * 0%
610 Wingspread
Peachtree City, GA 30369
Ronald B. Booth -- 18,000 (9) * 0%
Marew L. Booth
6900 Westcliff Drive
Suite 505
Las Vegas, NV 89128
A.T. Jagman, Trustee -- 36,000 (9) * 0%
Anthony T. Jagman
1415 Renson Street
Lansing, MI 48910
Arnold R. Meyer, Trustee -- 36,000 (9) * 0%
Arnold R. Meyer Estate Trust
19707 Turnberry Way
Aventura, FL 33180
Flynn Investment Corporation -- 90,000 (9) * 0%
6900 Westcliff Drive
Suite 505
Las Vegas, NV 89128
Fiducie Desjardins -- 36,000 (9) * 0%
A/C 744766-7-59
c/o Commonwealth Assoc.
733 Third Avenue
New York, NY 10017
Fiducie Desjardins -- 36,000 (9) * 0%
A/C 900595-0-59
c/o Commonwealth Assoc.
733 Third Avenue
New York, NY 10017
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------ ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Savings and Investment Trust -- 36,000 (9) * 0%
c/o Commonwealth Assoc.
733 Third Avenue
New York, NY 10017
Cantrade Privatbank A.G. -- 396,000 (9) 3.3% 0%
Postfach
8039 Zurich
c/o Commonwealth Assoc.
733 Third Avenue
New York, NY 10017
Robert L. Burr & -- 18,000 (9) * 0%
Catherine W. Burr
5168 Renaissance Avenue
San Diego, CA 92122
George L. Smith -- 18,000 (9) * 0%
403 Dater Hill Road
Troy, NY 12186
J.A. Cardwell -- 18,000 (9) * 0%
5467 Upper Valley Road
El Paso, TX 79932
Paul R. Alter -- 18,000 (9) * 0%
1111 Park Avenue
New York, NY 10128
Steve M. Barnett -- 36,000 (9) * 0%
666 Dundee Road
Suite 1704
Northbrook, IL 60062
John Luck -- 18,000 (9) * 0%
1 Marsh Bird Lane
Savannah, GA 31411
John A. Catsimatidis -- 36,000 (9) * 0%
817 Fifth Avenue
14th Floor
New York, NY 10021
William R. Schoen -- 9,000 (9) * 0%
5 Kenilworth Court
Novato, CA 94945
Alfred Yau -- 18,000 (9) * 0%
13111 Brooks Drive #A
Baldwin Park, CA 91706
J-Mark Computer Corp. -- 36,000 (9) * 0%
13111 Brooks Drive #A
Baldwin Park, CA 91706
Mel Harris -- 36,000 (9) * 0%
10800 Biscayne Blvd.
Penthouse
Miami, FL 33161
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------ ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Angelo Vivolo -- 18,000 (9) * 0%
140 East 74th Street
New York, NY
Christiana Bank Luxembourg, S.A. -- 36,000 (9) * 0%
16 Avenue Pasteur
1-2015 Luxembourg
Harold S. Blue -- 36,000 (9) * 0%
2501 David Road, #230
Ft. Lauderdale, FL 33317
Dr. Philip Freedman -- 18,000 (9) * 0%
1365 York Avenue
Apt. 28A
New York, NY 10021
Michael S. Falk -- 253,000 (24) 2.2% 0%
One Beekman Place
Apt. 15A
New York, NY 10022
Edith G. Gampel TTEE -- 36,000 (9) * 0%
Edith G. Gampel Irrevocable Tr.
Dtd. 9/1/92
19495 Biscayne Blvd.
Suite 906
Aventura, FL 33180
Intergalactic Growth Fund, Inc. -- 36,000 (9) * 0%
Post Office Box N-341
Nassau, Bahamas
Robert B. Kimball III -- 36,000 (9) * 0%
107 Wood Street
Groveland, MA
George Hodor -- 36,000 (9) * 0%
15 Pleasantville Road
Ossining, NY 10562
Drew Carmi -- 18,000 (9) * 0%
8216 Skyline Drive
Los Angeles, CA 90046
Hercules Systems, Inc. -- 18,000 (9) * 0%
2900 Hearne
Shreveport, LA 71103
Manny Fink IRA Rollover -- 36,000 (9) * 0%
c/o Oppenheimer & Co., Custodian
ATTN: Jeremy Deleski
Oppenheimer Tower
1 World Financial Center
New York, NY 10281
Sidney Deutsch -- 36,000 (9) * 0%
17214 Ryton Lane
Boca Raton, FL 33496
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------ ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Cramer Taos Partners -- 36,000 (9) * 0%
707 Westchester Avenue
White Plains, NY 10604
Gerald B. Cramer -- 36,000 (9) * 0%
707 Westchester Avenue
White Plains, NY 10604
Jonathan R. Cohen -- 9,000 (9) * 0%
50 East 42nd Street
Suite 200
New York, NY 10017
Milton A. Teplin -- 18,000 (9) * 0%
31 Rogers Drive
New Rochelle, NY 10504
James Crandall & Claudia -- 18,000 (9) * 0%
Crandell JTTEN
6045 Serene Drive
Las Vegas, NV 89130
Maerki, Baumann & Co. -- 336,000 (25) 2.8% 0%
A.G.
8002 Zurich, Switzerland
Bernard Kirsner TTEE -- 24,000 (9) * 0%
Bernard Kirsner Trust-DTD
6196 Vista Linda Lane
Boca Raton, FL 33433
Jack Ehrenhaus - IRA -- 14,400 (9) * 0%
Rollover
c/o Smith Barney Shearson, Inc.
2 World Trade Center
New York, NY 10048
Robert A. Bryson -- 18,000 (9) * 0%
2982 Castro Lane
Holladay, UT 84117
Fredrik Grunewald -- 36,000 (9) * 0%
Herrviksvagen 21
13940 Varindo, Sweden
David L. Cohen -- 36,000 (9) * 0%
923 Harvard Ct.
Woodmere, NY 11598
Zane R. and Debbie J. Doyle -- 18,000 (9) * 0%
2966 Acorn Lane
Sandy, UT 84093
Gary R. Perrine & -- 18,000 (9) * 0%
Rebecca C. Perrine JTWRS
2470 Tarpon Road
Naples, FL 34112
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------- ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering(1) Offering(2)
- - ------------------------------------- ---------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Anasazi Partners, Limited Partners -- 36,000 (9) * 0%
108 Charles Street
Boston, MA 02114
John J. Giuffrida IRA -- 18,000 (9) * 0%
Bear Stearns Securities Co.
Custodian
245 Park Avenue
New York, NY 10167
Andrew B. Hart -- 9,000 (9) * 0%
12570 Skyline Boulevard
Oakland, CA 94619
The Yorkin Trust -- 36,000 (9) * 0%
345 N. Maples Drive, #206
Beverly Hills, CA 90210
David L. Stellway -- 9,000 (9) * 0%
10400 SW Riverside Drive
Portland, OR 97219
John Becker -- 18,000 (9) * 0%
2709 Monte Creston Drive
Belmont, CA 94002
Gerald S. Royal -- 18,000 (9) * 0%
Mary E. Royal
8111 84th Street, NE
Marysville, WA 98270
Peter M. Scotto -- 18,000 (9) * 0%
33 Tharp Lane
Marlboro, NJ 07746
Richard Corbin -- 9,000 (9) * 0%
2000 Broadway, #21A
New York, NY 10023
Charles L. Wisseman -- 9,000 (9) * 0%
805 La Salle Drive
Champaign, IL 61820
Edward L. Wilson, Jr. -- 18,000 (9) * 0%
1900 McFarland
Baytown, TX 77520
Lawrence J. Rodler -- 18,000 (9) * 0%
1 Victoria Street
Cumberland House
Fifth Floor
Hamilton Bermuda HM11
Leslie Group, Inc. -- 72,000 (9) * 0%
1370 Avenue of the Americas
26th Floor
New York, NY 10019
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
---------------------------------- ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering(1) Offering(2)
- - ------------------------------------- ------------ ------------------ ------------- -----------
<S> <C> <C> <C> <C>
David Morley -- 9,000 (9) * 0%
2 Longbeach
Grey Grouville
Jersey CI, UK
Richard L. Bazelon & -- 36,000 (9) * 0%
Eileen A. Bazelon, JT TEN
3009 Foxx Lane
Philadelphia, PA 19144
DLJSC IRA -- 12,000 (9) * 0%
F/B/O Sandy Flury
Pershing Division of DLJSC
Post Office Box 2060
Jersey City, NJ 07303-9917
DLJSC IRA -- 12,000 (9) * 0%
F/B/O William H. Flury
Pershing Division of DLJSC
Post Office Box 2060
Jersey City, NJ 07303-9917
William H. Flury -- 39,984 (9)(35) * 0%
2824 Lucky John Road
Park City, UT 84060
E & M RP Trust 80,000 (26) 251,984 (27) 2.2% 0%
655 Brea Canyon Road
Walnut, CA 91789
Kenneth R. Falchuk -- 36,000 (9) * 0%
126 Cottage Street
Brookline, MA 02146
Patrick H. Miller, Jr. & -- 54,000 (9) * 0%
Lee Miller JTWROS
1266 W. Paces Ferry Road, N.W.
Atlanta, GA 30327
Kenneth J. Zises -- 36,000 (9) * 0%
c/o Zises Associates
20 William Street
Wellesley, MA 02181
Robert H. Cole -- 9,000 (9) * 0%
5102 Los Alamitos Ct.
Midland, TX 79705
David H. Zises -- 36,000 (9) * 0%
20 Patten Circle
Newton Centre, MA 02159
Jens Duborg -- 18,000 (9) * 0%
19 Sterling Road
N. Billenco, MA 01862
Michael P. Curtis -- 18,000 (9) * 0%
14 Stonehedge Drive
Wilmington, MA 01887
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
-------------------------------- ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
William A. Rosser & -- 36,000 (9) * 0%
Karen S. Westrell
Tenants in Common
2946 Robinson Hill Road
Golden, CO 80403
Michael J. George -- 18,000 (9) * 0%
19 Hale Street
Haverhill, MA 01830
Faisal Finance (Switzerland), S.A. -- 100,800 (9) * 0%
84 Au Louis-Casai
Post Office Box 42
CH-1216 Cointrin, Geneva
Switzerland
Daniel M. Libby -- 9,000 (9) * 0%
333 East 68th Street
New York, NY 10021
Bartlesville Wesleyan College -- 13,584 (9) * 0%
2201 Silver Lake Road
Bartlesville, OK 74006
Vikki K. Schorlenner -- 9,000 (9) * 0%
Post Office Box 57
Beeville, TX 78104
David J. Dercher -- 9,000 (9) * 0%
6801 Ludlow Street
Upper Darby, PA 19082
SJG Management Inc. -- 9,000 (9) * 0%
4934 Sable Pine Circle, #920C
West Palm Beach, FL 33417
Carl Shaifer -- 18,000 (9) * 0%
8515 Seminole Street
Philadelphia, PA 19118
Jeffries International -- 22,800 (28) * 0%
46 New Broad Street
London EC2M 1JD England
Commonwealth Associates 750,000 (29) 1,911,392 (30) 15.5% 0%
733 Third Avenue
New York, NY 10017
T6-G Limited Partnership -- 720,083 (31) 6.2% 0%
185 South State Street
Salt Lake City, UT
William Baquet -- 785,284 (32) 6.8% 0%
33 Libby Avenue
Hicksville, NY 11801
Marc Siegel -- 100,000(33)(34) * 0%
2 Bridle Way
Fort Lee, NJ 07024
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Percent of
Securities Being Offered Common Stock Owned
------------------------------ ---------------------------
Name and Common Prior to After
Address of Beneficial Owner Other Stock Offering (1) Offering (2)
- - ------------------------------------- ------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Michael Stranahan -- 100,000(33) * 0%
21 Hedgerow W.
Swedesboro, NJ 08085
Alvin Mirman -- 55,000(33)(34) * 0%
4183 Shell Road
Sarasota, FL 34242
Vincent Labarbara -- 40,000(33)(34) * 0%
1266 Ocean Boulevard
Sea Bright, NJ 07760
Basil Asciutto -- 40,000(33)(34) * 0%
82 Haywood Street
Staten Island, NY 10307
Eric Rand -- 30,000(33)(34) * 0%
345 Rumson Road
Little Silver, NJ 07391
Sheldon Kraft -- 20,000 (33) * 0%
H2 Downing Street #1
New York, NY 10014
Murray Segal -- 20,000(33)(34) * 0%
300 East 56th Street
New York, NY 10022
Oded Berkowitz -- 15,000 (33) * 0%
200 East 58th Street #15H
New York, NY 10021
Rich Galtierri -- 15,000 (33) * 0%
400 Carriage Lane
Wyckoff, NJ 07481
Richard Rosenbloom -- 15,000 (33) * 0%
42 Chicopee Drive
Wayne, NJ 07470
Richard Campanella -- 10,000 (33) * 0%
5 Lower Overlook Road
Gillette, NJ 07933
Joseph Wynne -- 10,000(33)(34) * 0%
10 Crest Road East
North Merrick, NY 11566
Evan Gartenberg -- 10,000 (33) * 0%
143-03 Cronston Avenue
Neponsh, NY 11694
Ronald Moschetta -- 10,000 (33) * 0%
122 Genessee Boulevard
Atlantic Beach, NY 11509
Zachary Carmi -- 10,000 (33) * 0%
1365 York Avenue
New York, NY 10021
</TABLE>
71
<PAGE>
- - -------------------------
* Less than one percent.
(1) As to each person or entity named as beneficial owners, such person or
entity's percentage of ownership is determined by assuming that any options
or convertible securities held by such person or entity which are
exercisable or convertible within 60 days from the date hereof have been
exercised or converted, as the case may be.
(2) Assumes the conversion and/or sale of the entirety of the securities being
offered by the noted shareholder. Does not give effect to the agreement of
certain holders of outstanding options not to exercise such options pending
shareholder approval of an increase in the authorized capital.
(3) Represents the shares of Common Stock issuable upon exercise of the JW
Charles Warrant, as adjusted.
(4) Represents the Mandarino Warrant to purchase Common Stock.
(5) Includes 52,500 shares of Common Stock issued pursuant to the conversion of
a portion of the principal of a 10% Note, 73,488 shares of Common Stock
(previously defined as the "Conversion Shares") issuable upon conversion of
Class C Preferred Stock, and 40,000 shares of Common Stock issuable upon
exercise of the Mandarino Warrant. The conversion price of the Class C
Preferred Stock assumes that the closing bid price of the Common Stock is
not lower than $2.50 during any five consecutive trading days during the
period commencing August 21, 1996 and ending 18 months thereafter. To the
extent that the closing bid price of the Common Stock is lower than $2.50
for such period, the holder of the Class C Preferred Stock would be
entitled to a lower conversion rate and the number of Conversion Shares
issuable would be proportionately higher.
(6) Includes 17,500 shares of Common Stock issued pursuant to the conversion of
a portion of the principal of a 10% Note and 19,488 Conversion Shares
issuable upon conversion of Class C Preferred Stock (see also FN5).
(7) Includes 35,000 shares of Common Stock issued pursuant to the conversion of
a portion of the principal of a 10% Note and 10,992 Conversion Shares
issuable upon conversion of Class C Preferred Stock (see also FN5).
(8) Includes 52,500 shares of Common Stock issued pursuant to the conversion of
a portion of the principal of a 10% Note and 58,488 Conversion Shares
issuable upon conversion of Class C Preferred Stock (see also FN5).
(9) Represents Conversion Shares issuable upon conversion of Class C Preferred
Stock (see also FN5).
(10) Includes 52,500 shares of Common Stock issued pursuant to the conversion of
a portion of the principal of a 10% Note and 130,488 Conversion Shares
issuable upon conversion of Class C Preferred Stock (see also FN5).
(11) Includes 35,000 shares of Common Stock issued pursuant to the conversion of
a portion of the principal of a 10% Note and 39,000 Conversion Shares
issuable upon conversion of Class C Preferred Stock (see also FN5).
(12) Represents shares of Common Stock issued pursuant to the conversion of a
portion of the principal of a 10% Note.
(13) Includes 25,000 shares of Common Stock issued in connection with the ILINK
Acquisition and 25,000 shares of Common Stock issuable upon exercise of the
Cook Option.
(14) Includes 25,000 shares of Common Stock issued in connection with the ILINK
Acquisition, 25,000 Kanter Shares held by the named shareholder and 25,000
shares of Common Stock issuable upon exercise of the Cook Option.
(15) Represents shares of Common Stock issued in connection with the ILINK
Acquisition. Of such amount, 925,000 shares of Common Stock are held in
escrow until certain conditions to the release thereof are met. See "The
Company."
(16) Includes 780,000 shares of Common Stock which may be purchased upon
exercise of Four M Options and 1,646,263 shares of Common Stock which
represent the named shareholder's beneficial interest in shares of Common
Stock issued by the Company to ILINK, Ltd. in connection with the ILINK
Acquisition.
(17) Includes 500,000 shares of Common Stock which may be purchased upon
exercise of Four M Options and 269,823 shares of Common Stock which
represent the named shareholder's beneficial interest in shares of Common
Stock issued by the Company to ILINK, Ltd. in connection with the ILINK
Acquisition
(18) Includes 370,000 shares of Common Stock which may be purchased upon
exercise of Four M Options and 33,511 shares of Common Stock which
represent the named shareholder's beneficial interest in shares of Common
Stock issued by the Company to ILINK, Ltd. in connection with the ILINK
Acquisition
(19) Includes 761,570 shares of Common Stock issued in connection with the ILINK
Acquisition and 183,542 shares of Common Stock issuable upon conversion of
Class B Preferred Stock subject of an option exercisable commencing July 1,
1996 granted by R. Huston Babcock to the noted shareholder and 1,082,785
shares of Common Stock which may be purchased upon exercise of Four M
options. Also includes (a) 18,048 shares of Common Stock issuable upon
conversion of 752 shares of Class C Preferred Stock, and (b) 145,000 shares
of Common Stock beneficially owned by Trident I, LLC, of which the noted
shareholder is the manager with the power to exercise investment,
dispositive and voting control.
(20) Represents shares of Common Stock issued in connection with the ILINK
Acquisition. Of such amount, 75,000 shares of Common Stock are held in
escrow until certain conditions to the release thereof are met. See "The
Company."
(21) Includes 75,086 shares of Common Stock issued in connection with the Ilink
Acquisition, 79,992 Conversion Shares issuable upon conversion of Class C
Preferred Stock (see also FN5), 25,000 shares of Common Stock issuable upon
exercise of the Cook Option and 50,000 shares of Common Stock which may be
purchased upon exercise of Four M Options.
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(22) Includes 75,000 shares of Common Stock issued in connection with the Ilink
Acquisition, 18,048 Conversion Shares issuable upon conversion of Class C
Preferred Stock (see also FN5) and 70,000 shares of Common Stock issued
upon conversion of a promissory note in February 1996.
(23) Includes 18,096 Conversion Shares issuable upon conversion of Class C
Preferred Stock (see also FN5) and 70,000 shares of Common Stock issued
upon conversion of a promissory note in February 1996.
(24) Includes 18,000 Conversion Shares issuable upon conversion of Class C
Preferred Stock (see also FN5) and 235,000 Kanter Shares held by the named
shareholder. The Company has been advised that the named shareholder is an
affiliate or associated person of Commonwealth. Does not include shares of
Common Stock held by Commonwealth or other affiliates or associates of
Commonwealth or shares of Common Stock which may be held by Commonwealth
from time to time in its trading account in connection with ordinary
market-making activities.
(25) Includes 72,000 Conversion Shares issuable upon conversion of Class C
Preferred Stock (see also FN5) and 264,000 shares of Common Stock issuable
upon conversion of Class C Preferred Stock issuable in accordance with and
upon conversion of the Convertible Notes in the event of the amendment of
the Company's Articles of Incorporation to increase its authorized capital
stock and designation of Class C Preferred Stock. See "Description of
Securities-Convertible Promissory Notes."
(26) Represents the E&M Warrant to purchase Common Stock.
(27) Includes 171,984 Conversion Shares issuable upon conversion of Class C
Preferred Stock (see also FN5) and 80,000 shares of Common Stock issuable
upon exercise of the E&M Warrant.
(28) Represents shares of Common Stock issuable upon conversion of Class C
Preferred Stock issuable in accordance with and upon conversion of the
Convertible Notes in the event of the amendment of the Company's Articles
of Incorporation to increase its authorized capital stock and designation
of Class C Preferred Stock. See "Description of Securities-Convertible
Promissory Notes."
(29) Represents the Commonwealth Warrant to purchase Common Stock.
(30) Includes 541,392 shares of Common Stock which may be purchased upon
exercise of Four M options and 530,000 shares of Common Stock owned by
certain affiliates and control persons of the named shareholder. Also
includes 750,000 shares of Common Stock issuable upon exercise of the
Commonwealth Warrant and 90,000 shares of Common Stock issuable upon
conversion of 3,750 shares of Class C Preferred Stock, which are held by
certain affiliates of the name stockholder. Does not include shares of
Common Stock which may be held by Commonwealth from time to time in its
trading account in connection with ordinary market-making activities.
(31) Includes 171,192 Conversion Shares issuable upon conversion of Class C
Preferred Stock (see also FN5) and 548,891 shares of Common Stock which
represent the named shareholder's beneficial interest in shares of Common
Stock issued by the Company to ILINK, Ltd. in connection with the ILINK
Acquisition
(32) Includes 243,891 Kanter Shares held by the named shareholder and 541,393
shares of Common Stock which may be purchased upon exercise of Four M
Options.
(33) Represents Kanter Shares held by the named shareholder.
(34) The Company has been advised that the named shareholder is an affiliate or
associated person of Commonwealth. Does not include shares of Common Stock
held by Commonwealth or other affiliates or associates of Commonwealth or
shares of Common Stock which may be held by Commonwealth from time to time
in its trading account in connection with ordinary market-making
activities.
(35) Does not include 12,000 Conversion Shares issued in the name of the IRA
accounts for the benefit of each of the named shareholder and his wife.
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MARKET FOR THE COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The Common Stock commenced quotation on Nasdaq on July 7, 1989, was
subsequently delisted and resumed listing on March 23, 1993 under the symbol
"MDCR." The "MDCR" symbol was changed to "ILNK" effective March 8, 1996.
Although the Common Stock is currently listed for quotation on Nasdaq, there can
be no assurance given that the Company will be able to continue to satisfy the
requirements for maintaining quotation of such securities on Nasdaq or that such
quotation will otherwise continue. The Company has no current plans to apply
for listing of any of the shares of Class B Preferred Stock, Class C Preferred
Stock, the Commonwealth Warrants or any of its other securities for quotation on
Nasdaq. See "Risk Factors--Continued Nasdaq Listing."
The range of high and low bid information for the Common Stock for
each full quarterly period during 1996 and within the two prior fiscal years is
as follows:
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
------------------ -------- -------
<S> <C> <C>
March 31, 1994 $5.00 $3.75
June 30, 1994 4.00 3.00
September 30, 1994 3.13 2.75
December 31, 1994 3.13 2.00
March 31, 1995 $2.13 $1.13
June 30, 1995 1.13 0.63
September 30, 1995 1.13 0.88
December 31, 1995 1.25 1.00
March 31, 1996 $7.63 $1.00
June 30, 1996 9.75 6.13
September 30, 1996 7.50 4.06
</TABLE>
These quotations reflect interdealer prices, without retail markup,
markdown, or commission and may not represent actual transactions.
As of November 1, 1996, there were approximately 234 stockholders of
record and approximately 1200 beneficial owners. In addition, as of the same
date, there were approximately 68 individual participants in security position
listings furnished by Cede & Co., New York, New York, registered clearing agency
and depository.
On December 10, 1996, the closing bid price for a share of Common
Stock was $5.50.
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<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company is currently authorized to issue 20,000,000 shares of Common
Stock, having a par value of $.007 per share. The Company proposes to increase
the number of authorized shares of Common Stock to at least 50,000,000; and the
Company expects to solicit shareholder approval for the same in the near future.
As of September 30, 1996, there are 11,466,312 shares of Common Stock issued and
outstanding and there are approximately 234 holders of record of the Common
Stock, and approximately 1,200 beneficial owners. Each share of Common Stock
entitles the holder thereof to one vote on each matter submitted to the
stockholders of the Company for a vote thereon. The holders of Common Stock: (i)
have equal ratable rights to dividends from funds legally available therefor
when, as and if declared by the Board of Directors; (ii) are entitled to share
ratably in all of the assets of the Company available for distribution to
holders of Common Stock upon liquidation, dissolution or winding up of the
affairs of the Company; (iii) do not have preemptive, subscription or conversion
rights, or redemption or sinking fund provisions applicable thereto; and (iv) as
noted above, are entitled to one non-cumulative vote per share on all matters
submitted to stockholders for a vote at any meeting of stockholders. Prior to
any payment of dividends to the holders of Common Stock, all accrued and unpaid
dividends on any outstanding shares of Preferred Stock must be paid. Other than
as set forth herein, the Company anticipates that, for the foreseeable future,
it will retain earnings, if any, to finance the operations of its businesses.
The payment of dividends in the future will depend upon, among other things, the
capital requirements and the operating and financial conditions of the Company.
Preferred Stock
The Articles of Incorporation authorize the issuance of up to 500,000
shares of preferred stock, $10.00 par value per share (previously defined as the
"Preferred Stock"). The Company proposes to increase the number of authorized
shares of Preferred Stock to at least 2,000,000 and to solicit shareholder
approval for the same in the near future. The Board of Directors is authorized
to issue shares of Preferred Stock from time to time in one or more series and,
subject to the limitations contained in the Articles of Incorporation and any
limitations prescribed by law, to establish and designate any such series and to
fix the number of shares and the relative conversion rights, voting rights and
terms of redemption (including sinking fund provisions) and liquidation
preferences. New issuances of shares of Preferred Stock with voting rights can
affect the voting rights of the holders of outstanding shares of Preferred Stock
and Common Stock by increasing the number of outstanding shares having voting
rights, and by the creation of class or series voting rights. Furthermore,
additional issuances of shares of Preferred Stock with conversion rights can
have the effect of increasing the number of shares of Common Stock outstanding
up to the amount of Common Stock authorized by the Articles of Incorporation and
can also, under certain circumstances, have the effect of delaying or preventing
a change in control of the Company and/or otherwise adversely affect the rights
of holders of outstanding shares of Preferred Stock and Common Stock. To the
extent permitted by the Articles of Incorporation, such shares of Preferred
Stock may have preferences over the Common Stock (and other series of Preferred
Stock) with respect to dividends and liquidation rights. As of September 30,
1996, 22,500 shares of Preferred Stock had been designated Class B Preferred
Stock (of which 7,500 shares are issued and outstanding), 240,000 shares of
Preferred Stock had been designated Class C Preferred Stock (of which 240,000
are issued and outstanding), and 7,500 shares of Preferred Stock had been
designated 12% Cumulative Convertible Preferred Stock (no shares of which are
issued and outstanding).
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<PAGE>
Class B Preferred Stock
There are 22,500 shares of Class B Preferred Stock authorized to be
issued, 7,500 of which are issued and outstanding. Each share of Class B
Preferred Stock entitles the holder thereof to receive cumulative dividends.
The initial dividend rate for the Class B Preferred Stock was 5.5%. Effective
April 1, 1992, the rate has been adjusted monthly, to be equal to the published
rate paid by Texas Commerce Bank, N.A., Houston, Texas, on 30-day certificates
of deposit in effect on the first day of each such month, plus 2%. As of
December 1, 1995, the Class B Preferred Stock dividend rate was 5.0%. Dividends
are payable in cash quarterly on the first day of July, October, January and
April of each year that any shares of Class B Preferred Stock are outstanding.
Dividends accrue on each share of Class B Preferred Stock whether or not earned
or declared and whether or not there are funds of the Company legally available
for payment thereof. Each share of Class B Preferred Stock is convertible at
the option of the holder thereof into shares of Common Stock. The number of
shares of Common Stock into which shares of Class B Preferred Stock are
convertible is derived by multiplying the number of shares of Class B Preferred
Stock to be converted by a fraction, the numerator of which is $10.00 and the
denominator of which is the conversion price ("Conversion Price"), which is
adjustable. The initial Conversion Price was $0.058375. As of September 30,
1996, the Conversion Price was $0.408625; therefore the number of shares of
Common Stock issuable if all 7,500 outstanding shares of Class B Preferred Stock
were converted as of such date would be 183,542. Except as otherwise provided
by law, shares of Class B Preferred Stock have no voting rights.
The Class B Preferred Stock is subject to redemption by the Company at
any time. If called for redemption, the right to convert Class B Preferred
Stock to Common Stock shall terminate on the close of business on the day before
the date fixed for actual payment of the redemption price. No shares of Class B
Preferred Stock designated for redemption pursuant to any notice of redemption
shall be entitled to any dividends after the applicable redemption date. On the
redemption date, all rights of the holders of such shares as stockholders of the
Company by reason of the ownership of such shares shall cease, except the right
to receive the redemption price of such shares upon presentation and surrender
of the certificate representing such shares. No Class B Preferred Stock
designated for redemption shall be deemed to be outstanding after the redemption
date. The redemption price is $10.00 per share of Class B Preferred Stock, plus
the amount of any accrued and unpaid dividends on such share on the date payment
of such redemption price is paid.
In the event of the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, the holders of the Class B
Preferred Stock shall be entitled to liquidation rights identical to the holders
of the Class A Preferred Stock; however, such liquidation rights are subordinate
to the Class A Preferred Stock, but superior to any other series of Preferred
Stock and to the Common Stock.
Class C Preferred Stock
There are 240,000 shares of Class C Preferred Stock designated and
issued and outstanding. The holders of the Class C Preferred Stock are entitled
to cumulative preferential dividends, when, as and if declared by the Board of
Directors, on a quarterly basis on November 15, February 15, May 15 and August
15 each year in an amount equal to 8% per annum of the liquidation preference
per share of $60.00. Dividends will be paid, to the extent permissible under
the Florida Business Corporation Act, to the holders of the Class C Preferred
Stock in cash or, at the option of the Company, as determined by the Board of
Directors, in shares of Common Stock (the "Dividend Shares") (based upon the
last sale price of a share of Common Stock for the five trading days preceding
the record date for a particular
76
<PAGE>
dividend), provided that such Dividend Shares are covered by an effective
registration statement. Except as otherwise provided by law, shares of Class C
Preferred Stock have no voting rights.
Conversion Rights. Unless previously redeemed, the Class C Preferred
Stock is convertible into shares of the Company's Common Stock, at any time
commencing November 21, 1996, at the option of the holder, into such number of
shares of the Company's Common Stock as shall equal $60 divided by the lower of
(i) $2.50, or (ii) the closing bid price for any five consecutive trading days
during the period commencing on September 6, 1996 and ending on March 5, 1998
(previously defined as the "Conversion Price"), subject to certain anti-dilution
adjustments including adjustments for (a) the sale or issuance of Common Stock
by the Company at a price less than the Conversion Price (except for shares
issuable upon exercise or conversion of securities outstanding or issuable by
the Company as of the date hereof), (b) the failure of the Company to register
the Conversion Shares, as defined below, within twelve months from the date of
the final closing of the Offering contemplated hereby and a readjustment in the
Conversion Price in the event the closing bid price is less than $2.50 at any
time during the period commencing on the Final Closing and ending eighteen (18)
months thereafter (the "Adjustment Period") or (c) in the event the closing bid
price is less than $2.50 for five consecutive trading days during the Adjustment
Period, the Conversion Price shall be reduced to the lower of the then current
Conversion Price or the lowest of the average closing bid price for five
consecutive trading days during the Adjustment Period. In no event shall the
Conversion Price be adjusted below $1.25 on account of the adjustments described
in (a), (b) or (c); however, the Conversion Price is subject to adjustment under
certain other circumstances. As of the date hereof, none of the shares of
Class C Preferred Stock has been converted. Although the Company contemplates
obtaining shareholder approval for the amendment of the Company's Articles of
Incorporation to accommodate such adjustment provision, in the event that all
240,000 Shares are sold, the Company is without sufficient shares of Common
Stock to accommodate an adjustment of the Conversion Price below $2.06.
Therefore, no adjustment will be effected unless and until the Company's
authorized shares is increased. See "Risk Factors--Authorization of Preferred
Stock."
Automatic Conversion. Unless previously redeemed, the Class C
Preferred Stock shall be automatically converted into the Conversion Shares on
September 6, 2001 at a Conversion Price equal to the lower of the then current
Conversion Price or 50% of the average closing bid price of the Company's Common
Stock for the ten (10) trading days immediately preceding the fifth anniversary
of the Final Closing.
Redemption. The Class C Preferred Stock is redeemable at any time
prior to September 6, 2000, at the option of the Company, as determined by the
Board of Directors, on not less than thirty (30) nor more than sixty (60) days
written notice to registered holders at a redemption price equal to $60 per
share plus accrued and unpaid dividends, provided (i) the Conversion Shares are
covered by an effective registration statement; and (ii) during the immediately
preceding thirty (30) consecutive trading days ending within fifteen (15) days
of the date of the notice of redemption, the closing bid price of the Company's
Common Stock is not less than $8.00 per share.
The Class C Preferred Stock is redeemable at any time after September
6, 2000, at the option of the Company, on not less than thirty (30) nor more
than sixty (60) days written notice to registered holders at a redemption price
equal to $90 plus accrued and unpaid dividends, provided the Conversion Shares
are covered by an effective registration statement or the Conversion Shares are
otherwise exempt from registration.
Registration Rights. Within 12 months of September 6, 1996, the
Company shall file a registration statement under the Securities Act covering
the Common Stock underlying the Class C
77
<PAGE>
Preferred Stock (previously defined as the "Conversion Shares"). If the
registration statement is not declared effective within such 12 month period,
the Conversion Price shall be subject to an additional reduction of 10% for each
90 day delay in the effective date of the Registration Statement and the
dividend rate shall be increased to 12%; provided, however, that in the event
the Company files any registration statement prior to the expiration of 12
months from September 6, 1996, the Conversion Shares shall be likewise
registered at such time; and further provided that the Conversion Price shall
not be reduced below $1.25 per share.
Lockup. The holders of the Conversion Shares and Dividend Shares may
not publicly sell their Conversion Shares or Dividend Shares, if any, for a
period of 12 months from September 6, 1996, without the prior written consent of
Commonwealth.
The 10% Notes
The Company issued $1,000,000 in principal amount of 10% Notes on
February 23, 1996. Commonwealth acted as the placement agent of the 10% Notes.
Each 10% Note has a minimum face amount of $50,000 and provides for the accrual
of interest at the simple annual rate of 10%, payable at maturity. The 10%
Notes were due upon the earlier of August 31, 1996 (the "Maturity Date") or the
Company's receipt of proceeds of at least $4 million from an equity or debt
financing (the "Accelerated Maturity Date"). The Company had the right to
extend the Maturity Date of some or all of the 10% Notes until February 28, 1997
upon payment to the holder(s) of the 10% Note(s) of a cash payment equal to two
and one-half percent (2.5%) of the then outstanding principal amount of such 10%
Note(s). In the event of extension by the Company, the interest rate with
respect to the unpaid principal balance would have increased to the simple
annual rate of thirteen percent (13%). The unpaid principal balance of the 10%
Notes was prepayable by the Company without penalty upon 30 days notice to the
holder.
Up to $1,250 of each $50,000 (i.e., 2.5%) of unpaid principal amount
of a 10% Note was convertible at the option of the holder into 17,500 shares of
Common Stock (or $.0714 per share) (subject to adjustment) at any time after
March 31, 1996 but prior to the Maturity Date or Accelerated Maturity Date.
Upon the occurrence of an Event of Default (as defined in the 10% Note), the
conversion right in the 10% Note shall be amended such that the remaining unpaid
principal balance shall be convertible into shares of Common Stock at 40% of the
fair market value (the average of the closing bid and ask prices on the last ten
trading days of the prior calendar month) per share of Common Stock. Effective
as of August 21, 1996, holders of an aggregate of $1,000,000 in principal of the
10% Notes elected to convert $25,000 in principal to 350,000 shares of Common
Stock.
The non-convertible portion of the principal of the 10% Notes was
repaid from the proceeds of the Class C Offering. Simultaneous with the
Company's repayment, holders of the 10% Notes instructed the Company to allocate
an aggregate of $709,900 in the principal amount of the 10% Notes to purchase an
aggregate of 11,018 shares of Class C Preferred Stock.
The holders of the 10% Notes who converted a portion of such notes to
purchase Common Stock and/or purchased Class C Preferred Stock have agreed with
Commonwealth not to publicly sell their shares of Common Stock or Conversion
Shares for a period of 12 months from September 6, 1996; however, Commonwealth
has agreed with such stockholders who used a portion of the repayment of the 10%
Notes to purchase Class C Preferred Stock in the Class C Offering to permit such
person to sell a sufficient amount of Conversion Shares following registration
thereof as will equal in value the principal amount of the note repayment used
to purchase Class C Preferred Stock.
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<PAGE>
The 10% Notes provide for demand registration rights for the shares of
Common Stock issued or issuable upon conversion of the 10% Note on one occasion
at any time after March 1, 1996 but prior to February 28, 1999, upon the written
request from the holders of at least fifty percent (50%) of the shares of Common
Stock issued or issuable upon conversion of the 10% Notes. In addition the
shares of Common Stock issued or issuable upon conversion of the 10% Notes shall
have piggy-back registration rights in the event that the Company proposes to
register any of its securities under the Act in connection with the public
offering thereof solely for cash. (other than any registration statement on the
Forms S-4, S-8 or a similar form); provided however, that the Company shall have
no such obligation after three (3) years from the date of issuance of the 10%
Notes or if the managing underwriter of the subject proposed offering expresses
its objection thereto. Holders of an aggregate of $1,000,000 in the principal
amount of the 10% Notes demanded registration of the shares of Common Stock on
September 9, 1996.
Convertible Promissory Notes
The Company issued an aggregate of $717,000 in principal amount of
Convertible Promissory Notes (previously defined as the "Convertible Notes") on
September 6, 1996 in connection with the Class C Offering. Commonwealth acted
as the placement agent for such notes. Each Convertible Note is due on April 1,
1997 with interest at the rate of eight percent (8%) per annum. The Convertible
Notes are prepayable by the Company without penalty upon 30 days notice provided
that the Company has effected an amendment to its Articles of Incorporation to
increase its authorized capital stock and designated sufficient Class C
Preferred Stock to accommodate conversion of the Convertible Notes.
The entirety of the unpaid principal amount of the Convertible Notes
will be automatically converted into shares of Class C Preferred Stock at the
rate of $60 per share of Class C Preferred Stock upon the amendment of the
Company's Articles of Incorporation to increase the number of shares of
Preferred Stock to at least 2,000,000 and the authorized number of shares of
Common Stock to at least 50,000,000 shares (the "Articles Amendment") and the
designation of sufficient shares to accommodate conversion. The Convertible
Notes are convertible into an aggregate of 11,950 shares of Class C Preferred
Stock.
Each of the following shall constitute an event of default (an "Event
of Default") under the Convertible Notes: (i) the failure to pay when due any
principal or interest thereunder; (ii) the failure of the Company to effect the
Articles Amendment within seven (7) months of issuance of the Convertible Note;
(iii) the violation by the Company of any covenant or agreement contained in the
Convertible Note and the continuance of such violation for a period of thirty
(30) days after written notice to the Company of such failure; (iv) any change
in control of the Company which the Board of Directors of the Company deems to
be hostile or unfriendly; (v) the assignment for the benefit of creditors by the
Company; (vi) the application for the appointment of a receiver or liquidator
for the Company or for property of the Company; (vii) the filing of a petition
in bankruptcy by or against the Company; (viii) the issuance of an attachment or
the entry of a judgment against the Company in excess of $500,000; (ix) a
default by the Company with respect to any other material indebtedness or
obligation; (x) the making or sending of a notice of an intended bulk sale by
the Company; or (xi) the termination of existence, dissolution or insolvency of
the Company. There is no sinking fund or other security for the payment of the
Convertible Notes.
JW Charles Common Stock Purchase Warrant
As of November 3, 1994, the Company issued a Common Stock Purchase
Warrant (previously defined as the "JW Charles Warrant") to J.W. Charles
Financial Services, Inc. (previously defined as
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<PAGE>
"JW Charles") pursuant to the terms of a Financial Consulting Agreement dated as
of November 1, 1994 between the Company and Corporate Management Group, Inc.
The JW Charles Warrant entitled the holder to purchase an aggregate of 250,000
shares of Common Stock at an initial exercise price of $2.00 per share, subject
to adjustment, at any time through November 3, 1999. Pursuant to the adjustment
provisions, the JW Charles Warrant presently entitles the holder to purchase an
aggregate of 331,126 shares of Common Stock at an exercise price of $1.51 per
share. The JW Charles Warrant contains demand registration rights during the
exercise period and piggyback registration rights for a period of five years.
For a description of pending litigation commenced against the Company by JW
Charles, see "Legal Proceedings."
Commonwealth Warrants
On August 21, 1996, in connection with the Company's Class C Offering,
the Company entered into the Placement Agent's Common Stock Warrant Agreement
and the Consultant's Common Stock Warrant Agreement with Commonwealth Associates
(previously defined as "Commonwealth"). (Together, the Placement Agent's Common
Stock Warrant Agreement and the Consultant's Common Stock Warrant Agreement are
collectively referred to as the "Commonwealth Warrant Agreements"). The
Commonwealth Warrant Agreements are substantially identical except that the
Commonwealth Placement Agent's Common Stock Warrant Agreement and related
Warrant Certificate entitle Commonwealth to purchase 250,000 shares of Common
Stock and the Consultant's Warrant Agreement and related Warrant Certificate
entitle Commonwealth to purchase 500,000 shares of Common Stock (previously
defined as the "Commonwealth Warrants"). The Commonwealth Warrants entitle
Commonwealth to purchase up to an aggregate of 750,000 shares of Common Stock at
any time from March 1, 1997 until August 20, 2001 at any exercise price per
share of $2.50, subject to adjustment. At its option, Commonwealth may effect a
"cashless exercise" during the warrant exercise period by exchanging the
Commonwealth Warrants for a specified number of shares of Common Stock (the
"Total Share Number") less a number of shares of Common Stock equal to the
quotient obtained by dividing (i) the produce of the Total Share Number and the
then-applicable exercise price by (ii) the market price (as defined) of a share
of Common Stock. The holders of the Commonwealth Warrants and/or shares
issuable upon exercise of the Commonwealth Warrants (the "Commonwealth Shares")
have piggyback registration rights through August 20, 2003 and demand
registration rights from August 20, 1997 through August 1, 2003; provided,
however, that in the event the Company does not file a registration statement
covering the shares of Common Stock issued upon conversion of the 10% Notes
within ninety-five (95) days of a request of a majority of the 10% Noteholders,
the demand registration rights accelerate from August 20, 1997 to the 96th day
following such demand. In the event the Company has not used its best efforts
to file a registration statement within ninety-five (95) days of receipt of
demand therefor by the 10% Noteholders or within thirty (30) days after demand
by Commonwealth upon acceleration of its demand registration rights, the Company
will be required to repurchase any Commonwealth Shares at the higher of the
market price (as defined) on the date of notice of demand for registration or
the expiration of the period by which the Company must have filed the
registration statement and must repurchase any outstanding Commonwealth Warrants
at the market price of the Common Stock less the exercise price of the
Commonwealth Warrants.
80
<PAGE>
Four M Options
On February 21, 1996, Four M International, Ltd. ("Four M"), a
principal shareholder of the Company granted certain options exercisable
commencing July 1, 1996 (subject to the satisfaction of certain conditions) to
purchase 3,915,570 shares of Common Stock. Henry Toh, a director of the
Company, is one of the two directors of Four M. The exercise price of $1.79 per
share represents the lesser of 200% of the average of the closing bid and ask
price per share of Common Stock for the ten (10) business days preceding July 1,
1996 or $1.79 per share. Commonwealth and affiliates or associates thereof
received the right to purchase 545,285 shares of Common Stock prior to December
31, 1996 and 537,500 shares of Common Stock prior to December 31, 1997.
Benchmark received the right to purchase 545,285 shares of Common Stock prior to
December 31, 1996 and 537,500 shares prior to December 1997. Certain members of
management of ILINK, namely, Clay Wilkes, Floyd Wilkes and Alex Radulovic, have
the right to purchase an aggregate of 825,000 shares of Common Stock prior to
December 31, 1996 and 825,000 shares prior to December 31, 1997. Scott Cook
received the right to purchase 100,000 shares prior to December 31, 1996. On
February 21, 1996, ILINK agreed to pay an aggregate of $1,275 payable to Four M
by Mr. Cook on or before July 1, 1996. On April 24, 1996, the Four M Options
issued to Mr. Cook were cancelled and options were issued as of that date by
Four M to Mr. Cook (50,000 Options), R.C. Culbreth (25,000 Options) and John
Beardmore (25,000 options).
In August 1996 the Four M Options were amended to provide that in the
event that $200,000 in principal amount (i.e., exercise proceeds) of the Four M
Options have been exercised prior to December 31, 1996, the exercise period of
the remaining Four M Options exercisable during 1996 (the "1996 Four M Options")
will be extended to September 6, 1997 and the exercise price would be increased
by 4% of the then current exercise price for each 30 day period or portion
thereof commencing January 1, 1997 in which the remainder of the 1996 Four M
Options are not exercised.
The shares of Common Stock owned by Four M are subject of a lockup
agreement with Commonwealth from and after the termination of the option
agreements and until 12 months from September 6, 1996; provided, however, that
to the extent Commonwealth releases more than 300,000 shares in the aggregate on
behalf of any affiliate or associated person of Commonwealth, any officer or
director of the Company or its subsidiaries or Benchmark, Commonwealth shall
release a number of Four M Shares equal to the same percentage as the number of
shares owned by such person. In addition, each of the Four M Option holders has
executed a lock-up agreement with Commonwealth for a period of twelve (12)
months from September 6, 1996.
Babcock Options
On February 21, 1996 R. Huston Babcock, M.D., a Director of the
Company, granted certain options exercisable commencing July 1, 1996 (subject to
the satisfaction of certain conditions) to purchase 183,542 shares of Common
Stock issuable upon conversion of outstanding Class B Convertible Preferred
Stock. The exercise price is equal to the lesser of 200% of the average of the
closing bid and ask price per share of Common Stock for the ten (10) business
days preceding July 1, 1996 or $1.79 per share. Benchmark received the right to
purchase 91,771 shares of Common Stock prior to December 31, 1996 and 91,771
shares prior to December 1997.
Dr. Babcock and Benchmark have executed lock-up agreements with
Commonwealth for a period of twelve (12) months from September 6, 1996.
81
<PAGE>
Kanter Option
On January 31, 1996, Walnut Capital Corp. ("WCC"), Windy City, Inc.
("WCI") and Canadian Imperial Bank of Commerce and Trust Company (Bahamas)
Limited ("CIB") (the "Kanter Group") entered into an agreement for the grant of
an option to various purchasers, including certain affiliates and associated
persons of Commonwealth, for the sale of 40,000 shares of Class A Preferred
Stock and/or the 978,891 shares of Common Stock of the Company issuable upon
conversion of such Class A Preferred Stock owned by the Kanter Group to the
purchasers. The option became effective February 7, 1996 and continued through
February 11, 1996, unless extended. The consideration for the purchase was
$485,000. The Shareholders' Agreement between Four M, WCC, WCI and CIB was
terminated concurrent with the sale by the Kanter Group by agreement among the
parties to the Shareholders' Agreement.
Holders of the Kanter Option Shares have entered into lock-up
agreements with Commonwealth for a period of twelve (12) months from September
6, 1996.
Cook Option
On October 19, 1995, Scott Cook loaned the principal amount of
$200,000 to ILINK, Ltd., one-half of which was guaranteed by the Company. The
amount guaranteed by the Company was secured under a Security Agreement pursuant
to which G Net Enterprises, Inc., the general partner of I-Link, Ltd. granted a
security interest in certain assets of I-Link, Ltd. In addition, the Company
issued to Mr. Cook a Common Stock Purchase Option to Purchase Common Stock for
the purchase of 100,000 shares of Common Stock at an exercise price of $1.00 per
share commencing January 1, 1996 through December 31, 1996. The Cook Option
provides for piggyback registration rights for three years beginning January 1,
1996. On April 24, 1996, Mr. Cook transferred 25,000 of the Cook Options to
R.C. Culbreth, 25,000 to John Beardmore and 25,000 to Watts Texas Limited
Partners. Mr. Cook has agreed to refrain from exercising the options and waived
the right to have the shares issuable on exercise of the Cook Option reserved
until approved by stockholders of the Company of an increase in the number of
authorized shares in an amount sufficient to accommodate an adjustment of the
Conversion Price of the Class C Preferred Stock.
E&M Warrants
In connection with a loan to the Company in June 1996 of $250,000 by
E&M RP Trust, the Company issued the E&M Warrants to purchase 80,000 shares of
Common Stock to E&M. The Warrants entitle the holder to purchase the Common
Stock at an exercise price of $4.00 per share at any time during the period
ending June 9, 1999. The E&M Warrants contain demand and piggyback registration
rights commencing July 31, 1997 through June 9, 1999 as to the Warrants and
shares of Common Stock.
Mandarino Warrants
In connection with a loan to the Company in June 1996 of $125,000 by
Joseph Mandarino, the Company issued the Mandarino Warrants to purchase 40,000
shares of Common Stock to Mandarino. The Warrants entitle the holder to purchase
the Common Stock at an exercise price of $4.00 per share at any time during the
period ending June 9, 1999. The Mandarino Warrants contain demand and
82
<PAGE>
piggyback registration rights commencing July 31, 1997 through June 9, 1999 as
to the Warrants and shares of Common Stock.
Mr. Mandarino has entered into a lock-up agreement with Commonwealth
for a period of twelve (12) months from September 6, 1996.
Anti-Takeover Measures
The Articles of Incorporation and Bylaws contain provisions that could
discourage potential takeover attempts and prevent shareholders from changing
the Company's management. The Articles of Incorporation provide for a
classified Board of Directors and that vacancies on the Board of Directors shall
be filled only by a majority of the remaining directors then in office.
In addition, the Bylaws provide, among other things, that no proposal
by a stockholder shall be presented for vote at a special or annual meeting of
stockholders unless such stockholder shall, not later than the close of business
on the fifth day following the date on which notice of the meeting is first
given to stockholders, provide the Board of Directors or the Secretary of the
Company with written notice of intention to present a proposal for action at the
forthcoming meeting of stockholders, which notice shall include the name and
address of such stockholder, the number of voting securities he or she holds of
record and which he or she holds beneficially, the text of the proposal to be
presented at the meeting and a statement in support of the proposal. Any
stockholder may make any other proposal at an annual meeting or special meeting
of stockholders and the same may be discussed and considered, but unless stated
in writing and filed with the Board of Directors or the Secretary prior to the
date set forth above, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the stockholders taking place sixty
(60) days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no new
business proposed by a stockholder (acting in such capacity) shall be acted upon
at such annual meeting unless stated and filed as described above.
Transfer and Warrant Agent
American Stock Transfer & Trust Company, New York, New York is the
Registrar and Transfer Agent for the Company's Preferred Stock and Common Stock.
PLAN OF DISTRIBUTION
The Securities subject hereto are being offered for sale by the
Selling Securityholders. Consequently, the Selling Securityholders will receive
the proceeds from the sale of such securities by the Selling Securityholders
pursuant to this Prospectus. The Company will receive the proceeds, if any,
from the exercise of the JW Charles Warrants, the Commonwealth Warrants, the
Cook Option, the E&M Warrants and the Mandarino Warrants. The Securities may be
sold to purchasers from time to time directly by and subject to the discretion
of the Selling Securityholders. The Selling Securityholders may from time to
time offer their respective securities for sale through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of such securities for whom they may act as agents. The Selling Securityholders
and any underwriter, dealer or agent who participates in the distribution of
such Selling Securityholders' securities may be deemed to be "underwriters"
under the Securities Act and any
83
<PAGE>
profit on the sale of such securities by any of them and any discounts,
commissions or concessions received by any such underwriters, dealers or agents
may be deemed to be underwriting compensation under the Securities Act.
At the time a particular offer of the Securities is made by or on the
behalf of a Selling Securityholder, a Prospectus and a Prospectus Supplement, to
the extent required, will be distributed which will set forth the number of
securities being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for such securities purchased from the Selling Securityholders, any
discounts, commissions and other items constituting compensation from the
Selling Securityholders, any discounts, commissions or concessions allowed,
reallowed or paid to dealers, and the proposed selling price to the public.
The Securities may be sold from time to time in one or more
transactions: (i) at an offering price which is fixed or which may vary from
transaction to transaction depending upon the time of sale, or (ii) at prices
otherwise negotiated at the time of sale. Such prices will be determined by the
Selling Securityholders or by agreement between the Selling Securityholders and
their underwriter.
In order to comply with the applicable securities laws, if any, of
certain states, the Securities will be offered or sold in such states through
registered or licensed brokers or dealers in those states. In addition, in
certain states, such securities may not be offered or sold unless they have been
registered or qualified for sale in such states or an exemption from such
registration or qualification requirement is available and is complied with.
Under applicable rules and regulations promulgated under the Exchange
Act, any person engaged in a distribution of securities may not simultaneously
bid for or purchase securities of the same class for a period of two business
days prior to the commencement of such distribution. In addition and without
limiting the foregoing, the Selling Securityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 10b-5, 10b-6 and 10b-7, in
connection with transactions in the Shares during the effectiveness of the
registration statement of which this Prospectus is a part. All of the foregoing
may affect the marketability of such securities.
The Company has paid all of the expenses incident to the registration
of the foregoing securities (including registration pursuant to the securities
laws of certain states) other than: (i) any fees or expenses of any counsel
retained by any Selling Securityholder and any out-of-pocket expenses incurred
by any Selling Stockholder or any person retained by any Selling Stockholder in
connection with registration of the Securities and (ii) commissions, expenses,
reimbursements and discounts of underwriters, dealers or agents, if any.
LEGAL MATTERS
Certain legal matters in connection with the registration of the
securities offered hereby will be passed upon for the Company by De Martino
Finkelstein Rosen & Virga, Washington, D.C.
84
<PAGE>
EXPERTS
The consolidated balance sheet as of December 31, 1995, and the
consolidated statements of operations and cash flows for each of the two years
in the period ended December 31, 1995, included in this prospectus have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given the authority of that firm as experts in
accounting and auditing.
85
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.........................................................................F-2
Consolidated Balance Sheet as of December 31, 1995........................................................F-3
Consolidated Statements of Operations for Years Ended December 31, 1995 and 1994..........................F-4
Consolidated Statements of Cash Flows for Years Ended December 31, 1995 and 1994..........................F-5
Notes to Consolidated Financial Statements................................................................F-7
Consolidated Balance Sheet (unaudited) as of September 30, 1996..........................................F-23
Consolidated Statements of Operations (unaudited) for Three Months
Ended September 30, 1996 and 1995 and for Nine Months Ended
September 30, 1996 and 1995............................................................................F-24
Consolidated Statements of Cash Flows (unaudited) for Three Months
Ended September 30, 1996 and 1995 and for Nine Months Ended
September 30, 1996 and 1995............................................................................F-25
Notes to Consolidated Financial Statements...............................................................F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Medcross, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheet of Medcross,
Inc. and subsidiaries as of December 31, 1995 and the related consolidated
statements of operations and cash flows for the two years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Medcross, Inc. and subsidiaries as of December 31, 1995 and the consolidated
results of their operations and their cash flows for the two years then ended in
conformity with generally accepted accounting principles.
/s/Coopers & Lybrand, L.L.P.
Tampa, Florida
March 26, 1996
F-2
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995
Assets
<TABLE>
<S> <C>
Current assets
Cash and cash equivalents $ 79,316
Accounts receivable less allowances of $694,436 921,793
Inventory 829,988
Prepaid expenses 87,253
---------
Total current assets 1,918,350
---------
Property and equipment
Office furniture, equipment, leasehold improvements, and vehicles 386,736
Medical equipment and vehicles 2,970,122
---------
3,356,858
Less accumulated depreciation 1,736,701
----------
Net property and equipment 1,620,157
---------
Investment in unconsolidated subsidiary 6,250
Intangible assets less accumulated amortization of $244,887 535,468
Other assets 66,638
---------
Total assets $ 4,146,863
=========
</TABLE>
Liabilities and Stockholders' Equity
<TABLE>
<S> <C>
Current liabilities
Accounts payable and accrued expenses $ 615,373
Advance deposits received 233,728
Note payable - related party 88,000
Notes payable 400,000
Current portion of long-term debt - related party 39,230
Current portion of long-term debt 702,447
Current obligations under capital lease 155,145
---------
Total current liabilities 2,233,923
Long-term debt - related party 87,682
Minority interest in consolidated subsidiaries 370,092
Commitments and contingencies -
Stockholders' equity
Preferred stock 2,075,000
Common stock, $.007 par value, authorized 20,000,000 shares,
issued and outstanding 1,803,092 shares 12,622
Additional paid-in capital 3,428,854
Accumulated deficit (4,061,310)
---------
Total stockholders' equity 1,455,166
---------
Total liabilities and stockholders' equity $ 4,146,863
=========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net health care service revenue $ 2,785,064 $ 3,268,910
Equipment sales and service 337,889 504,015
--------- ---------
Net operating revenue 3,122,953 3,772,925
--------- ---------
Cost of goods sold - equipment sales and service 154,481 542,195
Salaries and benefits 1,123,340 1,253,799
Repairs and maintenance 309,255 321,988
Provision for doubtful accounts 365,093 365,690
Depreciation and amortization 465,020 488,963
Other operating expenses 1,199,519 1,331,898
--------- ---------
Operating loss ( 493,755) ( 531,581)
Interest expense ( 160,423) ( 168,183)
Interest income 10,717 29,815
Gain (loss) on sale of property and equipment ( 765) 425
Equity in net income (loss) of unconsolidated subsidiaries 20,500 ( 66,249)
Other income 59,377 4,630
--------- ---------
Loss before minority interest in net income (loss) of consolidated
subsidiaries and income tax benefit ( 564,349) ( 731,143)
Minority interest in net income (loss) of consolidated subsidiaries 12,440 ( 52,385)
--------- ---------
Loss before income tax benefit ( 551,909) ( 783,528)
Income tax benefit - ( 68,094)
--------- ---------
Net loss $( 551,909) $( 715,434)
========= =========
Loss per common and equivalent share after preferred dividends $( .39) $( .55)
========= =========
Weighted average common and equivalent shares outstanding 1,756,540 1,520,960
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss $( 551,909) $( 715,434)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities
Depreciation 380,396 403,191
Amortization 84,624 85,745
Warranty liability ( 94,091) 93,280
Warrant expense 16,667 3,333
Professional fees 50,000 -
Provision for doubtful accounts 365,093 365,690
Gain (loss) on sale of property and equipment 765 ( 425)
Equity in net loss (income) of unconsolidated subsidiaries ( 20,500) 66,249
Distributions from unconsolidated subsidiary - 120,853
Minority interest in net income (loss) of consolidated subsidiaries ( 12,440) 52,385
Provision for deferred income tax benefit - ( 68,094)
Decrease (increase) in assets:
Accounts receivable ( 161,353) ( 431,078)
Inventory 91,926 ( 825,079)
Prepaid expenses 41,338 ( 12,358)
Organization and loan costs 14,055 ( 47,206)
Other assets 5,127 2,146
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 201,634 267,739
Other current liabilities ( 91,970) 266,850
---------- ----------
Net cash provided (used) by operating activities 319,362 ( 372,213)
---------- ----------
Cash flows from investing activities
Purchase of property and equipment ( 23,222) ( 47,611)
Purchase interest in Urological Ultrasound Services of Tampa Bay - ( 168,162)
Purchase minority interest in Medcross Imaging, Ltd. - ( 9,000)
Proceeds from sale of property and equipment 5,755 425
Investment in unconsolidated subsidiary ( 6,250) ( 3,750)
Sale of interest in unconsolidated subsidiary 28,000 -
---------- ----------
Net cash provided (used) by investing activities 4,283 ( 228,098)
---------- ----------
</TABLE>
- continued -
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from financing activities
Net proceeds from notes payable - related parties $ 218,000 $ -
Net proceeds (reduction of) from notes payable ( 151,000) 276,000
Reductions of long-term debt - related party ( 3,088) -
Reductions of long-term debt ( 367,783) ( 389,143)
Reduction of capital lease obligations ( 246,451) ( 223,765)
Issuance of common stock 15 8
Additional paid-in capital 1,805 2,974
Minority interest contributions - 260,417
Minority interest distributions ( 54,750) ( 55,517)
--------- ---------
Net cash used by financing activities ( 603,252) ( 129,026)
--------- ---------
Effect of foreign currency translation on cash flows ( 2,234) ( 86,263)
--------- ---------
Decrease in cash and cash equivalents ( 281,941) ( 815,600)
Cash and cash equivalents at beginning of year 361,157 1,176,757
--------- ---------
Cash and cash equivalents at end of year $ 79,316 $ 361,157
========= =========
Supplemental cash flow information
- - ----------------------------------
Interest paid $ 129,859 $ 140,979
========= =========
Income taxes paid (received) $ - $ -
========= =========
</TABLE>
In May 1994, the Company revalued the accounts receivable of Tampa MRI that were
purchased in June 1993. Purchased receivables were revalued at $183,273 greater
than originally recorded, which resulted in a corresponding decrease in
goodwill.
In July 1994, a holder of Class B Preferred Stock converted 695 shares into
17,008 shares of common stock.
In October 1994, upon dissolution of Urological Ultrasound Services of Tampa
Bay, $108,612 in assets and liabilities, excluding cash, were distributed to the
Company.
In November 1994, a Warrant to purchase 250,000 shares of common stock was
issued pursuant to a Financial Consulting Agreement. The Warrant was valued at
$20,000, which is included in paid-in capital and is being expensed over the
one-year term of the agreement.
In February 1995, a holder of Class B Preferred Stock converted 9,305 shares
into 227,714 shares of common stock.
In September 1995, the Company entered into a consulting agreement whereby
50,000 shares of common stock was issued. The market price of the common stock
upon issuance was $62,500 and is being expensed over the five month term of the
consulting agreement.
In September 1995, one of the noteholders of the $600,000 promissory note
demanded payment, due in common stock. A reduction of $5,201 of the debt
resulted in an issuance of 1,849 shares of common stock.
F-6
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business
Nature of business
The Company is in two businesses. Domestically the Company is a provider of
diagnostic and clinical services to healthcare facilities and directly to
patients both with its own equipment and equipment of other entities under
management contracts. In China, the Company sells and services used medical
equipment.
Note 2 - Accounting policies
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
Principles of consolidation
The consolidated financial statements include the accounts of Medcross, Inc.
(the Company) and the following subsidiaries:
- Medcross Imaging, Ltd., a limited partnership, provides mobile magnetic
resonance imaging services to healthcare facilities. The Company is the
sole general partner of the partnership and had a 81.75% ownership
interest as of December 31, 1995 and 1994.
- Waters Edge Scanning Associates, Inc., a Florida corporation, provides
magnetic resonance imaging services. This wholly owned subsidiary acquired
the assets of Waters Edge Scanning Associates, Ltd. and its general
partner, Florida Medical Enterprises, Inc. on June 1, 1993.
- Urological Ultrasound Services of Tampa Bay, Inc., a Florida corporation,
provides mobile ultrasound services. This wholly owned subsidiary began
operations in October 1994 after completion of an acquisition of the 75%
ownership interest not previously owned by the Company. Prior to that
time, the Company recorded its share of income or loss from the 25%
ownership interest on the equity method. On May 1, 1995, this subsidiary
distributed all of its assets net of liabilities to the Company. All of
the assets of this subsidiary, except cash, were contributed to Waters
Edge Scanning Associates, Inc.
- Medcross Asia, Ltd., a Hong Kong corporation, was formed by the Company as
a wholly owned subsidiary in 1993. This corporation is seeking investment
and equipment trading opportunities in the Far East.
- Shenyang Medcross Huamei Medical Equipment Company, Ltd. (SMHME), a
People's Republic of China (PRC) corporation formed in January 1994, sells
and services used computerized tomography (CT) equipment in the Shenyang
Province of the PRC. The Company has a 51% ownership interest in SMHME.
All significant intercompany transactions are eliminated in consolidation.
F-7
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Accounting policies - continued
Use of estimates
The preparation of financial statements in conforming with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
To meet the reporting requirements of FASB Statement No. 107 ("Disclosure about
Fair Value of Financial Instruments"), the Company calculates the fair value of
financial instruments and includes this additional information in the notes to
the consolidated financial statements when the fair value is different than the
book value of those financial instruments. When the fair value is equal to the
book value, no additional disclosure is made. The Company uses quoted market
prices whenever available to calculate these fair values. When quoted market
prices are not available, the Company uses standard pricing models for various
types of financial instruments which takes into account the present value of
future cash flows.
Cash and cash equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with a maturity of three months or less.
Inventory
Inventories consist of used and refurbished computerized tomography scanners
held for sale in China. Inventories are valued at the lower of cost or market
using the specific identification method.
Property and equipment
Property and equipment are stated at cost. Depreciation is calculated using the
declining balance method over the estimated useful lives of the assets, four to
nine years. Expenditures for maintenance and repairs are charged to expense as
incurred, and renewals and betterments are capitalized. Gains or losses on
disposals are credited or charged to operations.
Investment in unconsolidated subsidiaries
During 1995, the Company sold its interest in an unconsolidated subsidiary for
$28,000, which was a $78,750 investment in a Florida partnership formed in
February 1993. This investment was accounted for under the cost method of
accounting. The Company had a 7.5% equity and profits interest in this
partnership. The partnership's primary business was the sole shareholder of a
Cayman Islands corporation which discontinued operations during the second
quarter of 1994. As a result, the Company recorded a $71,250 writedown of the
value of the investment during 1994.
Until October 1, 1994, the Company had an interest in another unconsolidated
subsidiary, Urological Ultrasound Services of Tampa Bay (UUSTB). This
subsidiary was accounted for under the equity method of accounting, whereby the
cost of the investment was adjusted for the allocable share of the undistributed
income or losses of the subsidiary. The Company had a 25% equity and profits
interest in UUSTB before it purchased the remaining ownership interest. At that
time, the partnership was dissolved and a new company was formed (See Note 5).
F-8
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Accounting policies - continued
During 1995, the Company invested $6,250 in a joint venture formed in October
1995. The Company has an 18.75% interest in this joint venture and it is
accounted for under the cost method of accounting. The joint venture was formed
to determine the feasibility of the commercialization of telemedicine.
Intangible assets
Organization cost is amortized on the straight-line basis over a period of sixty
months. Loan costs are amortized on a straight-line basis over the period of
the loans (36 months to 60 months). Syndication and other issuance costs
incurred with respect to equity offerings of the Company and sale of limited
partnerships interests are deferred and offset against the proceeds of the
offerings at closing. Goodwill is amortized on the straight-line basis over a
period of twenty to twenty-five years.
Revenue recognition
The Company recognizes revenue from health care services at the time services
are performed net of contractual allowances based on agreements with third party
payers. The Company records revenue from equipment sales when installation is
completed. Advance deposits received prior to installation are recorded as a
current liability.
Warranty liability
Equipment sales are generally accompanied by a service warranty. Expected
future product warranty costs are recorded as an expense and liability when the
product is sold.
Foreign currency translation
The functional currency for the Company's foreign operations is the applicable
local currency. The translation from the applicable foreign currencies to U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for income statement items using a weighted
average exchange rate for the period. The gains or losses, net of applicable
deferred income taxes, resulting from such translations are included in
stockholders' equity.
Some transactions of the Company and its subsidiaries are made in currencies
different from their own. Gains and losses from these transactions are
generally included in income as they occur.
Net foreign currency transaction gains or losses are not material for any of the
periods presented. The effect of foreign currency translation on cash flows in
1994 is primarily the difference between the capital contribution exchange rate
stipulated in the joint venture agreement and the exchange rate at the time of
the contribution.
Income taxes
The Company records deferred taxes in accordance with the Financial Accounting
Standards Board (FASB) Statement 109, "Accounting for Income Taxes." The
Statement requires recognition of deferred tax assets and liabilities for the
temporary differences between the tax bases of assets and liabilities and the
amounts at which they are carried in the financial statements based upon the
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
F-9
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Accounting policies - continued
Income (loss) per common and equivalent share
Income (loss) per common and equivalent share is based on the weighted average
number of common shares outstanding and the dilutive effect of common stock
equivalents consisting of stock options and convertible preferred stock. Fully
diluted earnings per share are not presented because they approximate earnings
per common and equivalent share.
Note 3 - Major customers and concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains its cash and cash equivalents with what it
believes to be high credit quality financial institutions and attempts to limit
its exposure in any one particular instrument.
The Company provided magnetic resonance imaging services to two major customers
in 1995 and 1994. The revenue and accounts receivable balances, net of
contractual allowances, at year end for each of these customers were as follows:
<TABLE>
<CAPTION>
Revenue Accounts Receivable
--------------- -------------------
1995 1994 1995 1994
---- ------ ------ ------
<S> <C> <C> <C> <C>
Customer A $566,945 $825,751 $87,223 $92,263
Customer B 304,791 395,033 18,200 55,301
</TABLE>
Note 4 - Related party transactions
The Company had a management agreement with the unconsolidated subsidiary, of
which the Company is a general partner. The Company also had a management
agreement with the previously unconsolidated subsidiary of which it purchased
the 75% interest in October 1994. The Company recognized revenue from these
entities in the amount of $3,200 and $111,534 during 1995 and 1994,
respectively. There were no accounts receivables from these entities at
December 31, 1995.
During the first quarter of fiscal 1995, the Company received advances totaling
$218,000 from Mortgage Network International. Henry Y.L. Toh, the President and
Chief Executive Officer of the Company, has management control over Mortgage
Network International ("MNI"). Such advances were previously payable upon
demand. Subsequent to the extension of such advances, the Board of Directors
approved delivery of a promissory note representing the aggregate amount of such
advances, which promissory note matured by its terms on October 1, 1995 and
bears interest at one percent over the prime rate of interest established by
Southwest Bank of Texas, N.A. Subsequently, the Company and MNI modified the
Note such that: (i) a principal payment in the amount of eighty-eight thousand
dollars ($88,000) is due and payable on December 31, 1996; (ii) interest thereon
is payable monthly at the rate of 10.5%; and (iii) the remaining principal
amount of one-hundred thirty thousand dollars ($130,000) with interest thereon
at the rate of 10.5% will be paid in thirty-six (36) equal monthly payments of
four-thousand, two hundred, and twenty-five dollars and thirty-two cents
($4,225.32).
Note 5 - Acquisition of assets
In October 1994, the Company closed on the acquisition of a 75% ownership
interest in Urological Ultrasound Services of Tampa Bay (UUSTB) from Urology
Ultrasound, Inc. Prior to the acquisition, the Company owned the other 25%
ownership interest in UUSTB. The total consideration given for the 75%
partnership interest was
F-10
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Acquisition of assets - continued
$168,162. The purchase price was paid in cash at closing. UUSTB was organized
on September 9, 1987 and is in the business of providing urological ultrasound
services to urologic patients in west central Florida. When the Company
acquired the 75% partnership interest in UUSTB from Urology Ultrasound, Inc.,
the partnership ceased to exist. The Company immediately transferred all assets
and liabilities of the partnership, except cash of $115,603 to Urological
Ultrasound Services of Tampa Bay, Inc., a wholly owned subsidiary of Medcross,
formed for the purpose of this acquisition.
The acquisition was accounted for as a purchase. The results of operations of
the acquired enterprise is included in the consolidated financial statements
beginning October 1, 1994. Prior to the acquisition, the Company recorded its
share of income and loss on its 25% ownership interest in UUSTB using the equity
method.
The following table presents the pro forma financial information of the Company
and UUSTB for the year ended December 31, 1994 assuming such transactions had
occurred on January 1, 1994:
<TABLE>
<CAPTION>
Loss Per Common
Net Operating Net Income Share After
Year Ended December 31, 1994 Revenue (Loss) Preferred Dividends
- - ---------------------------- ------------- ---------- -------------------
<S> <C> <C> <C>
Company $ 3,772,925 $ (713,421) $ (.55)
UUSTB 252,347 20,006 ===
---------- ---------
Combined 4,025,272 (693,415)
---------- ---------
Pro forma adjustments ( 76,034) ( 3,010)
Pro forma combined $ 3,949,238 $ (696,425) $ (.53)
========== ========= ===
</TABLE>
Note 6 - Purchase of minority interest
In October 1994, the Company acquired an additional 1% ownership interest in
Medcross Imaging, Ltd. Prior to the acquisition, the Company had a 80.75%
ownership interest. The acquisition increased the Company's ownership interest
in Medcross Imaging, Ltd. to 81.75%. The acquisition was made by purchasing a
limited partnership unit from a certain limited partner for $9,000. The
purchase price was paid in cash.
Note 7 - Notes payable
Unsecured promissory note, payable to Mortgage Network
International, interest payable at 10.5% payable monthly,
principal balance due December 31, 1996. $ 88,000
=========
Line of credit, $700,000, payable to First Union National
Bank, interest payable at 3/4% above prime rate, (prime
rate was 8.5% at December 31, 1995), principal balance
due June 30, 1996, collateralized by accounts receivable
and general assets of the Company. $ 400,000
=========
The line of credit contains restrictive covenants relating to equity
requirements, minimum cash balances, acquisitions, debt to equity ratios,
borrowing base requirements, and net cash flow coverage requirements. On
December 31, 1995, the Company was in violation of the consolidated equity, net
cash flow coverage, past days sales and cash balance covenants. The Company
received a waiver from the bank of these loan covenant violations through June
30, 1996. The Company is continuing its attempts to secure new financing to
repay the line of credit.
F-11
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Notes payable - continued
The Company has reached an agreement with First Union National Bank pursuant to
which the Company has agreed to secure alternative financing to repay amounts
outstanding under the line of credit by June 30, 1996. In the event that the
Company is unable to secure such financing, the Company will be obligated to
repay amounts outstanding under the line of credit in increments of $10,000 per
month commencing on July 1, 1996, subject to negotiation of the terms of the
balloon payment thereafter which could be due on July 1, 1996. In the event the
line of credit is due on July 1, 1996, the Company will be required to secure
alternative financing to repay amounts outstanding.
Note 8 - Long-term debt
Long-term debt at December 31, 1995 was as follows:
Equipment obligation, payable to First Union National
Bank, due in monthly installments of $28,929, plus
accrued interest at prime rate plus 3/4% per annum,
(prime rate was 8.5% at December 31, 1995) until a
final payment due February 10, 1996, collateralized
by certificate of deposit and certain medical equipment. $ 32,648
Unsecured promissory note in amount of $600,000 inclusive
of simple interest through September 30, 1995 at rate of
5.33%, payable on September 30, 1996 in 213,333 shares
of Medcross common stock. The holder may demand payment
of principal and interest any time after September 30,
1995. After this date, the note bears interest at the
rate of 8% per annum payable in cash. 594,799
Unsecured promissory notes, payable to 11 individuals,
interest only paid quarterly, maturing September 30,
1996, convertible on demand by holders into 18,750 shares
of Medcross common stock after September 30, 1995. 75,000
Unsecured promissory note, payable to Mortgage Network
International due in 36 equal monthly installments of
principal and interest totalling $4,225.32. The interest
rate is 10.5% 126,912
-------
829,359
Less current portion 741,677
-------
$ 87,682
=======
The fair value of the long-term debt was approximately
$400,000 at December 31, 1995.
Principal repayments on long term obligations are expected
to occur as follows:
Years ending December 31, 1996 741,677
1997 43,554
1998 44,128
-------
$829,359
=======
Certain financing agreements contain restrictive covenants relating to equity
requirements, guarantor agreements, sales of property, acquisitions and debt to
equity ratio. The most restrictive covenant is that Medcross Imaging, Ltd.
cannot, without first having obtained a written consent of the lender, make
distributions to any of the partners unless its debt coverage ratio is equal to
or greater than 1.3 to 1.0 for any twelve consecutive months calculated on a
quarterly basis. At December 31, 1995, the Company was in compliance with the
covenants.
F-12
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Leases
The Company has a capital lease for its MRI equipment at Tampa MRI which
requires monthly payments of $22,886. The lease allows the Company to purchase
the equipment for $1 upon termination at July 31, 1996. At December 31, 1995,
the Company's property and equipment included $704,202 of medical equipment
under capital lease with accumulated amortization of $249,214.
The Company leases its corporate office and its China offices in Shenyang and
Beijing on a month-to-month basis.
The Company leases the facilities where Tampa MRI operates under two separate
operating leases. The lease for the medical facility is for five years,
commencing June 1, 1993, with a current lease payment of $3,431 per month, plus
sales tax. The Company has the option to extend the lease for an additional
two-year period. The lease for the business office space is for one year,
commencing June 1, 1995, with a current lease payment of $1,363 per month, plus
sales tax. The Company has the option to extend the lease for an additional
one-year period.
Future minimum lease payments under the leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
1996 $160,202 $ 47,987
1997 - 41,172
1998 - 17,155
-------- --------
Total minimum obligations 160,202 $106,314
========
Less interest 5,057
--------
Present value of net minimum obligations 155,145
========
</TABLE>
Lease expense for 1995 and 1994 was $107,360 and $141,717, respectively.
Note 10 - Commitments and contingencies
As part of the consideration for the purchase of the assets of Waters Edge
Scanning Associates, Ltd. two contingent notes with a net present value of
$639,212 were issued. The contingencies are based on the MRI center meeting
various levels of cash receipts through September 30, 1995. These contingent
notes were not recorded due to the fact that the contingencies were not met.
The Company has guaranteed $100,000 of a promissory note issued by I-Link
payable to Scott Cook.
A Complaint was filed on April 12, 1996, by JW Charles Financial Services, Inc.
("JWC") against the Company in Palm Beach County Florida Circuit Court, JW
Charles Financial Services, Inc. v. Medcross, Inc., Case No: CL96-3218. JWC was
issued a Common Stock Purchase Warrant ("Warrant") on or about November 3, 1994
by the Company. The alleged terms of the Warrant granted JWC the right to
purchase from the Company 250,000 shares of the Company's Common Stock subject
to adjustment. On or about February 12, 1996, JWC made written demand to the
Company to invoke its rights to have the common shares underlying the Warrant
registered pursuant to the terms of the Warrant. The Complaint alleges that the
Company breached the terms of the Warrant by failing to prepare and file with
the Securities and Exchange Commission ("SEC"), a registration statement
covering the common stock underlying JWC's Warrant. JWC alleges a breach of
contract; and requests specific performance, i.e., registering the shares with
the SEC, against the Company. JWC also demands damages in the amount of
$2,728,478.00 plus interest, reasonable attorneys fees, and forum costs. The
Company believes that it has a meritorious defenses to the Complaint.
F-13
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Income taxes
The components of the provision (benefit) for income taxes for the years ended
December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current tax expense $ - $ -
Deferred tax expense (benefit)
Current - 118,671
Deferred - (186,765)
------- ---------
$ - $ ( 68,094)
======= =========
</TABLE>
The sources of significant timing differences which gave rise to deferred tax
assets and liabilities as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Total Current Non-current
--------- --------- -----------
<S> <C> <C> <C>
Conversion of subsidiaries from accrual to cash for tax purposes $(272,773) $(272,773) $ -
Book basis of property and equipment in excess of tax (339,419) - (339,419)
------- ------- -------
Total deferred tax liabilities (612,192) (272,773) (339,419)
------- ------- -------
Tax operating loss carryforward 778,180 231,422 546,758
Allowance for marketable securities 29,034 29,034 -
Non-deductible vacation accrual 12,317 12,317 -
Tax basis of goodwill and intangible assets in excess of book 107,115 - 107,115
Foreign loss 36,134 - 36,134
Tax capital loss carryforward 34,508 - 34,508
Valuation allowance for capital loss carryforward and deferred
tax asset in excess of deferred tax liability (385,096) ( -) (385,096)
------- ------- -------
Total deferred tax assets 612,192 272,773 339,419
------- ------- -------
Net deferred tax asset (liability) $ - $ - $ -
======= ======= =======
</TABLE>
F-14
The valuation allowance increased $108,484 in 1995. The difference between the
actual tax provision and the amounts obtained by applying the statutory U.S.
Federal Income Tax rate to the income before taxes is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Tax benefit at statutory rate $(187,649) $(266,400)
Increase (decrease) in taxes resulting from the tax
effects of:
State income taxes - net ( 30,355) ( 43,094)
Non-deductible meals and entertainment 33 7,434
Non-deductible stock warrant amortization 6,583 1,316
Non-taxable foreign currency translation adjustments 2,710 2,013
Increase in total valuation allowance 108,484 240,509
Increase of prior year operating loss carryforward - ( 4,436)
Expiration of capital loss carryforward 1,224 1,596
Allowance for doubtful accounts 115,644 -
Adjust basis of property and equipment book to tax
difference - ( 7,032)
Other ( 16,674) -
------- -------
$ - $( 68,094)
======= =======
</TABLE>
F-14
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Income Taxes - continued
As of December 31, 1995, the Company had a $1,970,075 net operating loss
carryforward and a $87,361 capital loss carryforward. The net operating loss
carryforward will expire between the years 2006 and 2009. These amounts are
subject to annual limitations pursuant to provisions of the Internal Revenue
Code relating to cumulative changes in ownership. The capital loss carryforward
will expire between the years 1996 and 1997. A valuation allowance has been
recognized to offset that portion of the deferred tax assets whose realization
is conditioned upon the realization of future taxable income or capital gains.
Note 12 - Stockholders' equity
Common stock
In August 1994, the Company issued 17,008 shares of common stock upon the
conversion of 695 shares of preferred stock.
In February 1995, the Company issued 227,714 shares of common stock upon the
conversion of 9,305 shares of preferred stock.
In November 1995, the Company issued 50,000 shares of common stock to a
consultant for consulting services as provided in a consulting agreement.
In November 1995, the Company issued 1,849 shares of common stock upon demand
pursuant to a promissory note.
The Company issued 2,080 shares and 1,136 shares of common stock pursuant to the
Employee Stock Purchase Plan in 1995 and 1994, respectively.
Preferred stock
In 1992, the Board of Directors approved and filed with the state of Florida an
Amendment to the Articles of Incorporation designating 200,000 shares of
preferred stock as Class A Variable Rate Cumulative Convertible Preferred Stock
("Class A Preferred Stock") and 22,500 shares of preferred stock as Class B
Variable Rate Cumulative Convertible Preferred Stock ("Class B Preferred
Stock"). The Class A Preferred Stock and Class B Preferred Stock both have a
par value of $10 per share and are entitled to receive cumulative dividends at a
rate equal to 2% above the 30 day certificate of deposit rate in effect on the
first day of each month at the Texas Commerce Bank. The Company has the right
to redeem the Class A and Class B Preferred Stock for $10 per share plus the
amount of any accrued and unpaid dividends. Shares of Class A and Class B
Preferred Stock may be converted into such number of whole shares of common
stock as is determined by multiplying the number of shares of Class A Preferred
Stock by a fraction, the numerator of which is $10 and the denominator is the
conversion price ($.408625). Each share of Class A Preferred Stock will entitle
the holder thereof to that number of votes which is equal to the number of
shares of common stock into which the Class A Preferred Stock is convertible.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the Company, the holders of the Class A Preferred Stock shall be
entitled to distribution before any payments shall be made in the respect to the
Class B Preferred Stock or common stock in amount equal to the par value per
share plus all accrued and unpaid dividends and the holders of Class B Preferred
Stock shall be entitled to distribution before any payments shall be made in the
respect to common stock in an amount equal to the par value per share plus all
accrued and unpaid dividends.
On March 1, 1993, the Company and the holders of Class A Preferred Stock signed
an agreement to eliminate the redemption provision of the Class A Preferred
Stock. An amendment to the Company's Articles of Incorporation to eliminate the
redemption provision of the Class A Preferred Stock and increase the number of
authorized shares of preferred stock to 500,000 was approved by the shareholders
at the annual meeting held on January 24, 1994 and filed with the State of
Florida.
F-15
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' equity - continued
During 1994, 695 shares of Class B Preferred Stock were converted into common
stock.
In February 1995, 9,305 shares of Class B Preferred Stock were converted into
common stock.
In December 1995, the Board of Directors approved and filed with the State of
Florida an Amendment to the Articles of Incorporation designating 240,000 shares
of preferred stock as Class C 12% Cumulative Convertible Preferred Stock (the
"Class C Preferred Stock"). The Class C Preferred Stock has a par value of $10
per share and is entitled Note to receive cumulative dividends equal to 12% per
annum of the liquidation preference per share of $20. The Company does not have
the right to redeem the Class C Preferred Stock. The issued and outstanding
shares of Class C Preferred Stock shall convert to Common Stock on the second
anniversary (December 18, 1997) of the filing of the designation with the
Secretary of State of Florida (the "Conversion Date"). The shares of Class C
Preferred Stock held by each holder thereof shall be converted into such number
of whole shares of Common Stock as is determined by multiplying the number of
shares of Class C Preferred Stock by a fraction, the numerator of which is 20
and the denominator of which is 70% of the average of the bid and ask prices per
share of Common Stock as quoted by NASDAQ for the 20 consecutive trading days
prior to the Conversion Date. In the case no transaction price is available, the
closing bid price shall be used, or, in the case of no closing transaction price
and no closing bid price being available, the fair market value of the Common
Stock as determined in good faith by the Company's Board of Directors shall be
used. In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the affairs of the Company, each share of Class C Preferred Stock
shall have a liquidation preference of $20 per share. With respect to the
payment of dividends and rights to redemption and upon liquidation, the holders
of Class C Preferred Stock shall be subordinate to the issued and outstanding
shares of Class A Preferred Stock and Class B Preferred Stock of the Company and
shall rank senior to the shares of Common Stock of the Company.
At December 31, 1995, the Company had 200,000 shares of Class A Preferred Stock,
7,500 shares of Class B Preferred Stock, and no shares of Class C Preferred
Stock issued and outstanding.
At December 31, 1995, 30,000 of the 500,000 shares of preferred stock authorized
remain undesignated and unissued. Accrued and unpaid dividends at December 31,
1995 were $319,623 and $14,981 for Class A Preferred Stock and Class B Preferred
Stock, respectively.
Executive stock option plan
The Company's Executive Stock Option Plan which recently expired, authorized the
granting of stock options to key employees of the Company including officers.
Options granted under the Plan are non-qualified stock options exercisable at a
price not less than the highest bid price per share at which the stock is quoted
on the National Association of Securities Dealers, Inc. Automated Quotation
System on the date the option is granted. Options are exercisable not less than
one year or more than five years after the grant date.
As of December 31, 1995, options for the purchase of 74,363 shares of common
stock at prices ranging from $1.3125 to $2.875 per share were outstanding.
Options for the purchase of 33,763 shares were exercisable within sixty (60)
days of year end. No options were exercised in 1994 or in 1995.
Director stock option plan
The Company's Director Stock Option Plan which recently expired, authorized the
granting of stock options to Directors of the Company. Options granted under
the Plan are non-qualified stock options exercised for a price equal to the fair
market value per share of common stock on the date of any such grant. Options
are exercisable not less than six months or more than ten years after the date
of grant.
F-16
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' equity - continued
As of December 31, 1995, options for the purchase of 74,964 shares of common
stock at prices ranging from $0.875 to $3.875 per share were outstanding.
Options for the purchase of 35,556 shares were exercisable within 60 days of
year end. To date, no options have been exercised.
Stock purchase plan
In accordance with the Employee Qualified Stock Purchase Plan adopted in June
1990, employees may contribute up to 10 percent of their base wages towards the
purchase of the Company's common stock. The option price is the lesser of 85%
of the market value on the first business day of the Payment Period (September
1) or the last business day of the Payment Period (August 31). As of December
31, 1995, the Company had 36,059 shares of common stock reserved for issuance on
exercise of the purchase rights. On August 31, 1995, 2,080 shares of common
stock were issued at a price of $0.875 per share. On August 31, 1994, 1,136
shares of common stock were issued at a price of $2.625 per share.
1995 Director Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Director Stock Option and Appreciation Rights Plan, which plan
provides for the issuance of incentive options, non-qualified options and stock
appreciation rights (the "1995 Director Plan").
The 1995 Director Plan provides for automatic and discretionary grants of stock
options which qualify as incentive stock options (the "Incentive Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as options which do not so qualify (the "Non-Qualified Options") to be
issued to directors. In addition, stock appreciation rights (the "SARs") may be
granted in conjunction with the grant of Incentive Options and Non-Qualified
Options.
The 1995 Director Plan provides for the grant of Incentive Options, Non-
Qualified Options, and SARs to purchase up to 250,000 shares of common stock
(subject to adjustment in the event of stock dividends, stock splits, and other
similar events). To the extent that an Incentive Option or Non-Qualified Option
is not exercised within the period of exercisability specified therein, it will
expire as to the then unexercised portion. If any Incentive Option, Non-
Qualified Option or SAR terminates prior to exercise thereof and during the
duration of the 1995 Director Plan, the shares of common stock as to which such
option or right was not exercised will become available under the 1995 Director
Plan for the grant of additional options or rights to any eligible employee.
The shares of common stock subject to the 1995 Director Plan may be made
available from either authorized but unissued shares, treasury shares, or both.
The 1995 Director Plan also provides for the grant of Non-Qualified Options on a
discretionary basis pursuant to the following formula: each member of the Board
of Directors then serving shall receive a Non-Qualified Option to purchase
10,000 shares of common stock at an exercise price equal to the fair market
value per share of the common stock on that date. Pursuant to such formula,
directors received options to purchase 10,000 shares of common stock as of
October 17, 1995, and will receive options to purchase 10,000 shares of common
stock on the first business day of each January beginning in 1996. Each option
is immediately exercisable for a period of ten years from the date of grant.
The Company has 250,000 shares of common stock reserved for issuance under the
1995 Director Option Plan.
As of December 31, 1995, options exercisable to purchase 40,000 shares of common
stock at a price of $1.25 per share have been granted under the 1995 Director
Plan. As of December 31, 1995, no options have been exercised.
F-17
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' equity - continued
1995 Employee Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Employee Stock Option and Appreciation Rights Plan (the "1995
Employee Plan"), which plan provides for the issuance of Incentive Options, Non-
Qualified Options, and SARs.
Directors of the Company are not eligible to participate in the 1995 Employee
Plan. The 1995 Employee Plan provides for the grant of stock options which
qualify as Incentive Stock Options under Section 422 of the Code, to be issued
to officers who are employees and other employees, as well as Non-Qualified
Options to be issued to officers, employees, and consultants. In addition, SARs
may be granted in conjunction with the grant of Incentive Options and Non-
Qualified Options.
The 1995 Employee Plan provides for the grant of Incentive Options, Non-
Qualified Options, and SARs of up to 400,000 shares of common stock (subject to
adjustment in the event of stock dividends, stock splits, and other similar
events). To the extent that an Incentive Option or Non-Qualified Option is not
exercised within the period of exercisability specified therein, it will expire
as to the then unexercisable portion. If any Incentive Option, Non-Qualified
Option or SAR terminates prior to exercise thereof and during the duration of
the 1995 Employee Plan, the shares of common stock as to which such option or
right was not exercised will become available under the 1995 Employee Plan for
the grant of additional options or rights to any eligible employee. The shares
of common stock subject to the 1995 Employee Plan may be made available from
either authorized but unissued shares, treasury shares, or both. The Company
has 400,000 shares of common stock reserved for issuance under the 1995
Employee Plan. As of December 31, 1995, no options to purchase shares of
common stock have been granted under the 1995 Employee Plan.
Other warrants and options
Pursuant to the terms of a Consulting Agreement dated as of October 13, 1992
between the Company and The Equity Group, Inc., the Company issued two Common
Stock Purchase Warrants (the "Equity Warrants") each covering 21,429 shares of
common stock to The Equity Group as partial consideration for its rendering
financial public relations and consulting services to the Company. Both Equity
Warrants are exercisable at a price of $3.50 per share and expire on
October 14, 1997.
Pursuant to the terms of a Financial Consulting Agreement dated as of
November 3, 1994 between the Company and JW Charles Financial Services, Inc.,
the Company issued a Common Stock Purchase Warrant (the "JW Charles Warrant")
covering 250,000 shares of common stock to JW Charles Financial Services as
partial consideration for its rendering financial consulting services to the
Company. The warrant is exercisable at a price of $2.00 per share and expires on
November 3, 1999.
The JW Charles and Equity Warrants (the "Warrants") contain anti-dilution
provisions providing for adjustments in the exercise price. The JW Charles
Warrant also contains anti-dilution provisions providing for adjustments in the
number of shares covered by the warrant. The holders of the Warrants have no
voting, dividend, or other stockholder rights or privileges unless and until the
Warrants have been exercised. The holders of the Warrants have been granted
"piggy back" registration rights under the Securities Act of 1933 with respect
to the Warrants and the underlying shares of common stock. The Company will pay
the expense of such registration and of such registration qualifications of the
Warrants and underlying shares of common stock under the Securities Act of 1933
of such dates as the holders of the Warrants may determine.
F-18
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity - continued
Pursuant to a Consulting Agreement dated as of August 6, 1995 between the
Company and Timothy R. Barnes, formerly an officer of the Company, the Company
issued a Common Stock Purchase Warrant covering 36,858 shares of common stock as
consideration for the rendering of consulting services to the Company. The
Warrant is exercisable at a price of $1.00 per share and expires on August 5,
1999.
Pursuant to the issuance of a promissory note by I-Link to Scott Cook, the
Company issued a Common Stock Purchase Option covering 100,000 shares of the
Company's common stock. The option is exercisable at a price of $1.00 and
expires on December 31, 1999.
Pursuant to a Consulting Agreement dated as of October 18, 1995 between the
Company and Jason H. Pollak and Kalo Acquisitions, LLC, the Company issued an
Option to purchase common stock covering 150,000 shares of common stock as
consideration for the rendering of consulting services to the Company. The
agreement provided Mr. Pollak with an option to purchase 50,000 shares of common
stock each year at purchase prices of $1.50,. $2.50, and $3.50. The option
expires on January 31, 1999.
Note 13 - Geographic segment information
The Company's operations consist of providing diagnostic and clinical outpatient
health care services domestically and the sale and service of used medical
equipment in the People's Republic of China (PRC). Financial information for
the different geographic segments is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1995 Domestic China Corporate Eliminations Consolidated
- - ----------------- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $2,486,708 $ 340,233 $ 423,956 $ (127,944) $3,122,953
========= ========= ========= ========= =========
Operating Profit (Loss) $ 196,714 $( 171,083) $( 519,386) $ - $( 493,755)
========= ========= ========= ========= =========
Identifiable Assets $3,048,001 $1,098,742 $ 682,277 $ (682,157) $4,146,683
========= ========= ========= ========= =========
Amortization and Depreciation $ 438,498 $ 13,011 $ 13,511 $ - $ 465,020
========= ========= ========= ========= =========
Capital Expenditures $ 20,801 $ 2,046 $ 375 $ - $ 23,222
========= ========= ========= ========= =========
<PAGE>
<CAPTION>
Year Ended
December 31, 1994 Domestic China Corporate Eliminations Consolidated
- - ----------------- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $2,761,458 $ 512,973 $ 630,853 $( 132,359) $3,772,925
========= ========= ========= ========= =========
Operating Profit (Loss) $ 537,338 $( 581,856) $( 487,063) $ - $( 531,581)
========= ========= ========= ========= =========
Identifiable Assets $3,710,698 $1,284,824 $ 217,780 $ - $5,213,302
========= ========= ========= ========= =========
Amortization and Depreciation $ 459,663 $ 10,861 $ 18,412 $ - $ 488,936
========= ========= ========= ========= =========
Capital Expenditures $ 10,257 $ 18,590 $ 2,032 $ - $ 30,879
========= ========= ========= ========= =========
</TABLE>
F-19
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Geographic segment information - continued
The corporate office provides management and operational services for domestic
outpatient health care services. The eliminations represent charges for these
services to entities included in the consolidation.
Note 14 - Subsequent Events
On February 23, 1996, the Company closed its acquisition of all of the issued
and outstanding common stock of I-Link Worldwide Inc., a Utah corporation
("I-Link") from ILINK, Ltd., a Utah limited partnership in exchange for the
issuance of an aggregate of 4,000,000 shares of Common Stock of the Company. The
purchase price was determined through arms-length negotiation. The acquisition
was accounted for using the purchase method of accounting. Pursuant to the terms
of the stock purchase agreement, 2,600,000 shares of the Common Stock issued
pursuant to the acquisition of I-Link, Ltd. were placed in escrow to be released
as follows:
1. 1,600,000 shares of Common Stock are to be released upon the receipt of
proceeds greater than or equal to $4,000,000 from the sale of the
Company's securities pursuant to the conduct of one or more private or
public offerings prior to December 31, 1996; and
2. 1,000,000 shares of Common Stock are to be released upon the first to
occur of the following:
(i) the monthly revenue derived from subscribers serviced by ILINK,
Ltd. and revenue derived from the sale of related products and/or
services equals or exceeds $1,000,000; or
(ii) the number of subscribers serviced by ILINK, Ltd. exceeds 100,000
one year from the date of receipt by the Company of gross
proceeds equal to $4,000,000 from the sale of its securities
pursuant to one or more private or public offerings.
I-Link provides Internet access services to individuals and businesses in the
United States. I-Link is also the owner of a proprietary technology (patent
pending) which enables the transmission of information via facsimile over the
Internet.
There was no affiliation or relationship between the Company, its affiliates,
officers or directors, or associates of such persons and I-Link or ILINK, Ltd.
or any of their officers, directors, stockholders, or partners prior to the
acquisition.
Simultaneous with the closing of its acquisition of I-Link, the Company
completed a private placement of $1,000,000 in aggregate principal amount of
convertible promissory notes (the "10% Notes"). The 10% Notes are payable upon
the earlier of August 31, 1996 (subject to extension) or the Company's receipt
of proceeds of at least $4,000,000 from subsequent debt or equity offerings.
The 10% Notes bear interest payable semi-annually at the rate of 10% until
August 31, 1996 (13% after such date of the term of the 10% Note is extended).
Up to $1,250 of each $50,000 in principal amount of note is convertible at any
time at the option of the holder, into a maximum of 350,000 shares of Common
Stock at the rate of approximately $.0714 per share, subject to certain
antidilution adjustments. The 10% Notes may be extended until February 29, 1997
upon payment by the Company of 2.5% of the then outstanding principal balance of
the 10% Note. The proceeds of such offering were used to pay outstanding
accounts payable and other debts of I-Link.
The following presents the pro forma financial information of the Company and
I-Link as applicable for the year ended December 31, 1995 assuming such
transactions had occurred on January 1, 1995 and for the year ended December 31,
1994 assuming the transactions had occurred on January 1, 1994:
F-20
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Subsequent events - continued
<TABLE>
<CAPTION>
Loss Per Common
Net Operating Share After
Year Ended December 31, 1995 Revenue Net Loss Preferred Dividends
- - ---------------------------- ----------- ------------ -------------------
<S> <C> <C> <C>
Company $3,122,953 $( 551,909) $(.39)
I-Link 229,721 (1,446,219) ===
--------- ---------
Combined 3,352,674 (1,998,128)
Pro forma adjustments - (3,304,633)
--------- ---------
Pro forma combined $3,352,674 $(5,302,761) $(1.28)
========= ========= ====
<CAPTION>
Loss Per Common
Net Operating Share After
Year Ended December 31, 1994 Revenue Net Loss Preferred Dividends
- - ---------------------------- ----------- ------------ -------------------
<S> <C> <C> <C>
Company $3,772,925 $( 715,434) $(.55)
I-Link/(1)/ - ( 165,125) ===
--------- ---------
Combined 3,772,925 ( 880,559)
Pro forma adjustments - (2,881,170)
--------- ---------
Pro forma combined $3,772,925 $(3,761,729) $(1.33)
========= ========= ====
</TABLE>
/(1)/ For the period August 1, 1994 through December 31, 1994.
On February 21, 1996, in connection with the grant of an option by the Kanter
Group, 40,000 shares of outstanding Class A Preferred Stock of the Company was
converted into 978,891 shares of Common Stock. Options to acquire the 3,915,570
shares of Common Stock issuable upon conversion of the remaining 160,000 shares
of Class A Preferred Stock outstanding have been granted by Four M. Dr. R.
Huston Babcock, holder of all 7,500 shares of Class B Preferred Stock has also
granted an option to purchase the 183,542 shares of Common Stock issuable upon
conversion thereof.
The Kanter Group sold to certain persons, including affiliates and associated
persons of Commonwealth Associates, 978,891 shares of Common Stock issued upon
conversion of 40,000 shares of Class A Preferred Stock at a purchase price of
$485,000 (equal to $.4955 per share). Four M has granted certain options
exercisable commencing August 1, 1996 (subject to the satisfaction of certain
conditions) to purchase the 3,915,570 shares of Common Stock issuable upon
conversion of 160,000 shares of Class A Preferred Stock. The exercise price is
equal to the lesser of 200% of the average of the closing bid and ask price per
share of Common Stock for the ten (10) business days preceding August 1, 1996 or
$1.79 per share. Commonwealth Associates received the right to purchase 545,285
shares of Common Stock prior to December 31, 1996 and 537,500 shares of Common
Stock prior to December 31, 1997. Benchmark Equity Group, Inc. received the
right to purchase 545,285 shares of Common Stock prior to December 31, 1996 and
537,500 shares prior to December 1997. Certain members of management of I-Link
have the right to purchase 825,000 shares of Common Stock prior to December 31,
1996 and 825,000 shares prior to December 31, 1997. Scott Cook has received the
right to purchase 100,000 shares of Common Stock prior to December 31, 1996.
Dr. R. Huston Babcock has granted an option, upon substantially the same terms
and conditions as Four M, to purchase 183,542 shares of Common Stock issuable
upon conversion of 7,500 shares of Class B Preferred Stock to Benchmark Equity
Group, Inc.
F-21
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Subsequent events - continued
On March 5, 1996, the Consulting Agreement between the Company and Jason H.
Pollak and Kalo Acquisitions, LLC was terminated and options to purchase 100,000
shares of the Company's common stock were subsequently terminated.
F-22
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
Assets
<TABLE>
<CAPTION>
September 30
1996
------------
<S> <C>
Current assets
Cash and cash equivalents $ 7,354,003
Accounts receivable less allowance of $650,682 791,080
Inventory 830,666
Prepaid expenses 113,945
----------
Total current assets 9,089,694
----------
Property and equipment 4,584,331
Less accumulated depreciation 2,216,641
----------
Net property and equipment 2,367,690
----------
Intangible assets, net of amortization of $1,969,631 11,956,114
Restricted cash 1,682,211
Other assets 835,342
----------
Total assets $25,931,051
==========
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C>
Current liabilities
Accounts payable and accrued expenses $ 2,189,186
Advance deposits received 233,728
Accrued royalty fees 520,000
Note payable - related party 88,000
Note payable - other 1,027,000
Current portion of long-term debt 461,775
Current obligations under capital lease 244,749
----------
Total current liabilities 4,764,438
Long-term debt 55,447
Obligations under capital leases 407,263
Minority equity interest in consolidated subsidiaries 330,884
Commitments and contingencies -
Stockholders' equity
Preferred stock 2,475,000
Common stock 73,264
Other stockholders' equity 17,824,755
----------
Total stockholders' equity 20,373,019
----------
Total liabilities and stockholders' equity $25,931,051
==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-23
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- ---------------------------
1996 1995 1996 1995
--------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Health care service revenue $ 506,099 $ 607,014 $ 1,680,769 $2,144,977
Equipment sales and service - - - 337,889
Network service revenue 64,297 - 136,661 -
---------- --------- ---------- ---------
Net operating revenue 570,396 607,014 1,817,430 2,482,866
---------- --------- ---------- ---------
Cost of goods sold
- equipment sales and service - ( 46,601) - 193,197
Salaries and benefits 670,524 262,787 1,465,607 903,205
Repairs and maintenance 73,867 78,673 217,774 233,161
Network expenses 475,347 - 797,882 -
Provision for doubtful accounts 66,668 18,444 157,531 342,089
Depreciation and amortization 1,258,420 113,901 2,056,046 348,594
Research and development written off - - 2,034,103 -
Other operating expenses 459,833 341,950 1,589,721 956,486
---------- --------- ---------- ---------
Operating loss (2,434,263) ( 162,140) (6,501,234) ( 493,866)
Interest expense 95,850 44,066 218,616 124,886
Other income ( 36,251) ( 16,493) ( 49,013) ( 39,892)
Gain on sale of interest in unconsolidated
subsidiary - ( 20,500) - ( 20,500)
Equity in net loss of unconsolidated
subsidiary 3,212 - 3,212 -
---------- --------- ---------- ---------
Loss before minority interest in net income
(loss) of consolidated subsidiaries and
income tax provision (2,497,074) ( 169,213) (6,674,049) ( 558,360)
Minority interest in net income (loss) of
consolidated subsidiaries ( 2,281) 4,160 ( 2,344) ( 3,684)
---------- --------- ---------- ---------
Loss before income tax provision (2,494,793) ( 173,373) (6,671,705) ( 554,676)
Income tax provision - - - -
---------- --------- ---------- ---------
Net loss $(2,494,793) $( 173,373) $(6,671,705) $( 554,676)
Loss per common and equivalent share
after preferred dividends $( .27) $( .12) $( .78) $( .37)
Weighted average common and equivalent
shares outstanding 9,277,347 1,749,841 8,612,813 1,749,389
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-24
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- ---------------------------
1996 1995 1996 1995
--------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Cash provided (used) by operating activities $(2,149,923) $ 543 $(3,016,238) $ 156,525
--------- -------- --------- -------
Cash flows from investing activities
Purchase of property and equipment ( 194,941) ( 2,946) ( 201,768) ( 18,321)
Proceeds from sale of property and equipment - 400 3,251 4,900
Proceeds from sale of interest in
unconsolidated subsidiary - 28,000 - 28,000
--------- -------- --------- -------
Net cash provided (used)
by investing activities ( 194,941) 25,454 ( 198,517) 14,579
--------- -------- --------- -------
Cash flows from financing activities
Proceeds (reduction) of note payable - related ( 625,500) - ( 693,333) 218,000
Proceeds (reduction) of note payable - other ( 703,000) ( 50,000) 557,425 (151,000)
Release of certificate of deposit as collateral - - 60,000 -
Increase in restricted cash (1,682,211) - (1,682,211) -
Reduction of long-term debt ( 10,232) ( 86,426) ( 61,983) (280,997)
Payment of capital lease obligations ( 60,604) ( 62,338) ( 346,958) (182,589)
Issuance of preferred stock 2,400,000 - 2,400,000 -
Issuance of common stock 330 - 1,329 -
Additional paid-in capital 9,996,130 - 10,291,196 -
Minority interest distributions - ( 18,250) ( 36,865) ( 54,750)
--------- -------- ---------- -------
Net cash provided (used)
by financing activities 9,314,913 ( 217,014) 10,488,600 (451,336)
--------- -------- ---------- -------
Effect of foreign currency translation
on cash flows - ( 375) 1 ( 2,233)
--------- -------- --------- -------
Increase (decrease) in cash and cash equivalents 6,970,049 ( 191,392) 7,273,846 (282,465)
Cash and cash equivalents at beginning of period 383,954 270,084 80,157 361,157
--------- -------- --------- -------
Cash and cash equivalents at end of period $7,354,003 $ 78,692 $ 7,354,003 $ 78,692
========= ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-25
<PAGE>
Supplemental cash flow information
In February 1995 a holder of Class B Preferred Stock converted 9,350 shares into
227,714 shares of Common Stock.
In February 1996, the Company acquired all of the outstanding shares of I-Link
Worldwide, Inc. in exchange for the issuance of 4,000,000 shares of Common Stock
of the Company, of which 2,600,000 shares were being held in escrow.
In February 1996, a holder of Class A Preferred Stock converted 40,000 shares
into 978,891 shares of Common Stock.
In April 1996, holders of certain promissory notes issued by the Company in
February 1996 converted $10,000 in the aggregate into 140,000 shares of Common
Stock.
In June 1996, holders of certain promissory notes issued by the Company in June
1993 converted $180,542 in the aggregate into a 64,372 shares of Common Stock.
In June 1996, a holder of Class A Preferred Stock converted 160,000 shares into
3,915,570 shares of Common Stock.
In July 1996, a holder of a promissory note issued by the Company in June 1993
converted $69,612 into 24,750 shares of Common Stock.
In August 1996, the holders of certain promissory notes issued by the Company in
February 1996 converted $25,000 in the aggregate into a total of 350,000 shares
of Common Stock.
In August 1996, in accordance with the terms of the Stock Purchase Agreement
entered into during the I-Link acquisition, 1,600,000 shares of Common Stock
held in escrow for the benefit of ILINK, Ltd. were released, thus causing an
increase in goodwill in the amount of $9,800,000 and a corresponding increase in
equity.
In August 1996, pursuant to the issuance of a promissory to William Flury, Vice
President of Sales and Marketing of I-Link, a warrant to purchase 5,000 shares
of Common Stock was issued at an exercise price of $2.50 per share. An expense
equal to the difference between the exercise price of the warrant and the
closing bid price of the Common Stock on the date of issuance of the warrant was
expensed as a cost of the loan.
In September 1996, the Company closed a private placement offering Class C
Preferred Stock. As a result of this transaction, the Company issued a warrant
to purchase 250,000 shares of its Common Stock at an exercise price of $2.50 per
share as compensation to the Placement Agent. In addition, a Consulting
Agreement was entered into with the Placement Agent, in which a warrant to
purchase 500,000 shares of the Company's Common Stock at an exercise price of
$2.50 per share was issued. These items were recorded as a reduction to the
proceeds of the offering.
Through September 1996, I-Link financed approximately $744,824 through capital
leases.
The accompanying notes are an integral part of these consolidated
financial statements.
F-26
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Financial Statements
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three-month and nine-month periods ended September 30, 1996
and September 30, 1995, (b) the financial position at September 30, 1996, and
(c) cash flows for the three-month and nine-month periods ended September 30,
1996 and September 30, 1995, have been made.
The unaudited consolidated financial statements and notes are presented as
permitted by Form 10-QSB. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The
accompanying consolidated financial statements and notes should be read in
conjunction with the audited financial statements and notes of the Company for
the fiscal year ended December 31, 1995. The results of operations for the
three-month and nine-month periods ended September 30, 1996 are not necessarily
indicative of those to be expected for the entire year.
Note 2 - Acquisition of subsidiary
In February 1996, the Company closed its acquisition of all of the issued and
outstanding common stock of I-Link Worldwide Inc., a Utah corporation ("I-Link")
from ILINK, Ltd., a Utah limited partnership in exchange for the issuance of an
aggregate of 4,000,000 shares of common stock of the Company. The purchase price
was determined through arms length negotiation. The acquisition was accounted
for using the purchase method of accounting. The results of operations of the
acquired enterprise are included in the consolidated financial statements
beginning February 13, 1996. Pursuant to the terms of the stock purchase
agreement, 2,600,000 shares of the common stock issued pursuant to the
acquisition of I-Link were placed in escrow. In August 1996, 1,600,000 shares of
Common Stock were released from escrow upon the receipt of proceeds from the
completion of the Company's offering of Class C Preferred Stock (See Note 3 -
Intangible Assets). In addition, 1,000,000 shares of common stock are to be
released from escrow upon the first to occur of the following:
(i) the monthly revenue derived from subscribers serviced by I-Link and
revenue derived from the sale of related products and/or services
equals or exceeds $1,000,000; or
(ii) the number of subscribers serviced by I-Link exceeds 100,000 one year
from the date of receipt by the Company of gross proceeds equal to
$4,000,000 from the sale of its securities pursuant to one or more
private or public offerings.
I-Link is in the business of delivering business communications services via the
emerging worldwide data communication networks (which includes the Internet). I-
Link seeks to provide business communications solutions and enhanced
capabilities to existing users of traditional telecommunications services, at
substantial cost savings to its customers through utilization of the Internet
and other existing data communications networks. I-Link's first business
communications product will be marketed under the name "Fax4Less/TM/".
F-27
<PAGE>
Note 2 - Acquisition of subsidiary - continued
The following presents the proforma financial information of the Company and I-
Link, as applicable for the nine months ended September 30, 1996 assuming such
transaction had occurred on January 1, 1996 and for the nine months ended
September 30, 1995 assuming such transaction had occurred on January 1, 1995:
<TABLE>
<CAPTION>
Nine Months Ended Net Loss Per Common
September 30, 1996 Revenue Net Loss and Equivalent Share
---------------------- ----------- ------------ ---------------------
<S> <C> <C> <C>
Company/(1)/ $1,817,430 $(6,671,705) $( .78)
====
I-Link/(2)/ 48,585 ( 139,683)
----------
Combined 1,866,015 (6,811,388)
Proforma adjustment - ( 190,378)
----------
Proforma combined $1,866,015 $(7,001,766) $( .81)
========== =========== ====
<CAPTION>
Nine Months Ended Net Loss Per Common
September 30, 1995 Revenue Net Loss and Equivalent Share
---------------------- ----------- ------------ ---------------------
<S> <C> <C> <C>
Company $2,482,866 $( 554,676) $( .37)
====
I-Link/(3)/ 175,829 ( 690,252)
----------
Combined 2,658,695 (1,244,928)
Proforma adjustment - (3,178,168)
----------
Proforma combined $2,658,695 $(4,423,096) $( .77)
========== =========== ====
</TABLE>
/(1)/ Includes I-Link operations from February 13, 1996 through September
30, 1996
/(2)/ For the period January 1, 1996 through February 12, 1996.
/(3)/ For the period January 1, 1995 through September 30, 1995.
Note 3 - Restricted Cash
During the third quarter of 1996, I-Link entered into a 24 month, $3.5 million
operating lease with IBM Credit Corporation. As a condition of that lease, I-
Link obtained from Zions First National Bank a letter of credit totaling $1.575
million. These monies are held in an escrow account at Zions First National Bank
and bear interest which is paid to I-Link. These funds will be released when the
lease expires. At the end of the lease, at I-Link's option, the equipment
secured by the lease can be purchased at fair market value.
I-Link also has restricted cash totalling $107,211 used to secure lines of
credit in connection with capital leases at IBM Credit Corporation totalling
approximately $750,000. The monies are held in an escrow account at First Texas
Bank and bear interest which is to be paid to I-Link.
Note 4 - Intangible Assets
Intangible assets of $4,969,314 were recorded by the Company as a result of the
acquisition of the common stock of I-Link. The intangible assets recorded by the
Company were as follows:
<TABLE>
<S> <C>
Acquisition costs $ 116,279
Subscriber list 323,100
FaxLink patent 456,764
VoiceLink patent 456,987
FaxLink research and development 1,356,068
VoiceLink research and development 678,035
Goodwill 1,582,081
</TABLE>
F-28
<PAGE>
Note 4 - Intangible Assets - continued
The acquisition costs and the subscriber list are amortized over 12 months, the
patents will be amortized over a period to be determined at the time the patents
are issued, the research and development was expensed immediately and the
goodwill is amortized over 24 months.
In August 1996, pursuant to the terms of the ILINK, Ltd. Stock Purchase
Agreement, 1,600,000 shares of Common Stock held in escrow for the benefit of
ILINK, Ltd. were released. This resulted in an addition to goodwill of
$9,800,000. This amount will be amortized over the remaining life of the
existing goodwill.
Note 5 - Notes Payable
Simultaneous with the closing of its acquisition of I-Link, the Company
completed a private placement of $1,000,000 in aggregate principal amount of
convertible promissory notes (the "10% Notes"). The 10% Notes were payable upon
the earlier of August 31, 1996 (subject to extension) or the Company's receipt
of proceeds of at least $4,000,000 from subsequent debt or equity offerings. The
10% Notes bear interest payable semi-annually at the rate of 10% until August
31, 1996 (13% after such date if the term of the 10% Note is extended). Up to
$1,250 of each $50,000 in principal amount of note is convertible at any time at
the option of the holder, into a maximum of 350,000 shares of Common Stock at
the rate of approximately $.0714 per share, subject to certain antidilution
adjustments. The 10% Notes may be extended until February 28, 1997 upon payment
by the Company of 2.5% of the then outstanding principal balance of the 10%
Note. The proceeds of such offering were used to pay outstanding accounts
payable and other debts of I-Link. In August 1996 $25,000 in the aggregate of
these notes were converted into 350,000 shares of the Company's Common Stock and
the remaining principal balances plus interest were paid.
In addition, the Company assumed notes payable to limited partners of ILINK,
Ltd. in the amount of $643,333 and to other parties in the amount of $104,575.
In June 1996, the Company issued promissory notes in the amount of $375,000.
These promissory notes were due on the earlier of December 31, 1996 or the
receipt of at least $4.8 million from debt or equity financings, with interest
at the rate of 8% per annum. The proceeds of the promissory notes were used for
I-Link working capital purposes. These notes were paid in full in September
1996.
Simultaneous with the closing of the Company's offering of Class C Preferred
Stock, the Company issued an aggregate of $717,000 in principal amount of
Convertible Promissory Notes. Each Convertible Note is due on April 1, 1997 with
interest at the rate of 8% percent per annum. The entirety of the unpaid
principal amount of the Convertible Notes will be automatically converted into
shares of Class C Preferred Stock at the rate of $60 per share of Class C
Preferred Stock. The Convertible Notes are convertible into an aggregate of
11,950 shares of Class C Preferred Stock. The proceeds of the promissory notes
were used for I-Link working capital purposes.
Note 6 - Commitments and Contingencies
The remaining portion of the I-Link common stock purchase price placed in escrow
will be released upon the satisfaction of the contingency described in Note 2
above. The fair market value of the Common Stock at the time of its release from
escrow will be charged to goodwill and amortized over the remaining life of the
goodwill.
F-29
<PAGE>
Note 7 - Earnings Per Common Share
Earnings per common share are based upon the weighted average number of common
shares outstanding and the dilutive effect of common stock equivalents
consisting of stock options and warrants, convertible debt, and convertible
preferred stock. Fully diluted earnings per share are not presented because it
approximates earnings per common share.
Note 8 - Lease Commitments
I-Link leases approximately 1,500 square feet of space, which space housed its
corporate offices in Austin, Texas. Such lease has a term of three years, which
is scheduled to expire on November 30, 1997 but which I-Link is negotiating to
terminate. Pursuant to the terms of such lease, I-Link pays rent on a monthly
basis of $1,740. I-Link has recently entered into a ten-month lease for 5,000
square feet of space in Austin, Texas, which housed its corporate offices.
Pursuant to such lease, I-Link will pay rent of $5,000 per month. I-Link also
leases several other spaces to house its POPs throughout the United States. Such
spaces vary in size and are rented on a month-to-month basis.
I-Link currently leases and occupies approximately 6,500 square feet of office
space, in Draper Utah, pursuant to a commercial lease dated May 21, 1996, with
an unrelated third party. The initial lease term is five years commencing on
July 8, 1996 at a base rent of $5,451 per month. In addition, I-Link will be
responsible for certain improvements to such facilities above $97,120. In
September 1996, I-Link entered into a second lease for approximately 14,000
square feet of space from the same landlord in an adjacent building pursuant to
a commercial lease dated September 11, 1996. I-Link's offices and network
operations facilities will be moved to this space upon its completion. The term
of the lease is seven years commencing November 5, 1996, subject to the right to
extend for an additional five years. The initial base rent is approximately
$11,650 per month. In October 1996, I-Link delivered $214,000 in certificates of
deposit to the landlord as a security deposit under the second lease. When the
Company is able to occupy the new office space and commences lease payments
under the second lease, it is management's intent to sublet the office space
under the first lease.
In September 1996, I-Link entered into a two year equipment lease with IBM
Credit Corporation relating to the financing of an aggregate of $3.5 million
worth of equipment purchases necessary to build the I-Link network. As a
condition of that equipment lease, I-Link obtained from Zions First National
Bank, a standby letter of credit totaling $1.575 million to the benefit of IBM
Credit Corporation. In order to obtain this letter of credit, I-Link deposited
$1.575 million into a certificate of deposit to be held at Zions First National
Bank, until the IBM Credit Corporation obligation is satisfied. The certificate
of deposit bears interest which is payable to the Company, and will be released
to I-Link when the lease expires. At the end of the lease, at I-Link's option,
the equipment secured by the lease can be repurchased at fair market value.
I-Link is obligated to pay approximately $450,000 every quarter.
Through September 1996, I-Link financed approximately $742,096 of equipment
through IBM Credit Corporation. Under the terms of those credit arrangements,
I-Link is obligated to pay approximately $60,000 every quarter.
Note 9 - Geographic Segment Information
The Company's operations consist of providing telecommunications network
services and diagnostic and clinical outpatient health care services
domestically and the sale and service of used medical equipment in the People's
Republic of China (PRC). The corporate office provides management and
operational services for network services and domestic outpatient health care
services. The eliminations represent charges for these services to entities
included in the consolidation. Financial information for the different
geographic segments is as follows:
F-30
<PAGE>
<TABLE>
<CAPTION>
Domestic
--------------------------
Nine Months Ended Network Corporate/
September 30, 1996 Health Care Services China Management Eliminations Consolidated
- - ------------------------- ----------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $1,496,899 $ 136,661 $ - $ 251,464 $( 67,594) $ 1,817,430
========= =========== ========= ========= ========== ===========
Operating Profit (Loss) $ 61,280 $( 6,174,533) $( 22,582) $( 468,276) $( 67,594) $( 6,671,705)
========= =========== ========= ========= ========== ===========
Identifiable Assets $2,671,339 $ 22,281,396 $1,012,501 $ 171,685 $( 205,870) $ 25,931,051
========= =========== ========= ========= ========== ===========
<CAPTION>
Domestic
--------------------------
Nine Months Ended Network Corporate/
September 30, 1995 Health Care Services China Management Eliminations Consolidated
- - ------------------------- ----------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $1,907,911 $ - $ 337,889 $ 340,036 $( 102,970) $ 2,482,866
========= =========== ========= ========= ========== ===========
Operating Profit (Loss) $ 258,469 $ - $( 197,230) $( 452,135) $( 102,970) $( 493,866)
========= =========== ========= ========= ========== ===========
Identifiable Assets $3,120,198 $ - $ 964,635 $ 155,559 $( 70,108) $ 4,170,284
========= =========== ========= ========= ========== ===========
</TABLE>
Note 10 - Subsequent Events
In October 1996, in conjunction with I-Link's Utah lease of office and network
operations facilities, I-Link deposited in escrow with Zions First National Bank
the sum of $214,000 in the form of four separate certificates of deposit. One CD
has a four year maturity, the second a three year maturity, the third a two year
maturity, and the fourth a one year maturity. As each CD reaches maturity, and
provided I-Link is not in default under the lease, the money in the mature CD is
released to I-Link. So long as these CD's are held in escrow, they earn interest
at varying rates which is paid to I-Link.
F-31
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized in connection
with this offering to give any information or to make any representations other
than those contained in this Prospectus. The Prospectus does not constitute an
offer or a solicitation in any jurisdiction to any person to whom it is unlawful
to make such an offer or solicitation. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the circumstances of the Company or
the facts herein set forth since the date hereof.
TABLE OF CONTENTS PAGE
----
AVAILABLE INFORMATION...................................................... 4
PROSPECTUS SUMMARY......................................................... 5
RISK FACTORS............................................................... 9
THE COMPANY................................................................ 22
USE OF PROCEEDS............................................................ 23
CAPITALIZATION............................................................. 23
DIVIDEND POLICY............................................................ 23
MANAGEMENT'S DISCUSSION AND
ANALYSIS.................................................................. 24
BUSINESS OF ILINK.......................................................... 32
BUSINESS OF MEDCROSS....................................................... 37
DESCRIPTION OF PROPERTY.................................................... 41
LEGAL PROCEEDINGS.......................................................... 42
1996 OFFERINGS............................................................. 43
MANAGEMENT................................................................. 45
EXECUTIVE COMPENSATION..................................................... 48
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS....................................................... 54
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT................................................................. 56
SELLING SECURITYHOLDERS.................................................... 59
MARKET FOR THE COMMON STOCK
AND RELATED SHAREHOLDER
MATTERS.................................................................... 74
DESCRIPTION OF SECURITIES.................................................. 75
PLAN OF DISTRIBUTION....................................................... 83
LEGAL MATTERS.............................................................. 84
EXPERTS.................................................................... 85
INDEX TO FINANCIAL STATEMENTS............................................. F-1
331,126 JW Charles Shares
9,384,461 Shares of Common Stock
6,046,800 Conversion Shares
750,000 Commonwealth Warrants
750,000 Commonwealth Shares
183,542 Babcock Shares
100,000 Cook Shares
80,000 E&M Warrants
80,000 E&M Shares
40,000 Mandarino Warrants
40,000 Mandarino Shares
MEDCROSS, INC.
--------------
PROSPECTUS
--------------
___________, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 607.0850 of the Florida Business Corporation Act empowers a
corporation to indemnify any person who was or is a party to a proceeding by
reason of the fact that he was or is an officer, director, employee or agent of
the corporation against liability incurred in connection with such proceeding.
Such person must have acted in good faith and in a manner reasonably believed to
be in or not opposed to, the best interests of the corporation. With respect to
any criminal proceeding, such person must have had no reasonable cause to
believe his conduct was unlawful. Any such indemnification may only be made
upon a determination by the corporation that such indemnification is proper
because the person met the applicable standard of conduct.
The Florida Business Corporation Act provides further that the
indemnification permitted thereunder is not exclusive; provided, however,
indemnification is not permitted to be made on behalf of any such person if a
judgment or final adjudication establishes (i) a violation of the criminal law
unless such person had reasonable cause to believe his conduct was lawful or no
reasonable cause to believe his conduct was unlawful; (ii) such person derived
an improper personal benefit from the transaction; (iii) as to any director such
proceeding arose from an unlawful distribution under Section 607.0834; or (iv)
willful misconduct or a conscious disregard for the best interests of the
corporation in a proceeding by the corporation or a shareholder.
The Company's By-Laws provide that the Company shall indemnify any such
person to the fullest extent provided by law and empowers the Company to
purchase and maintain insurance on behalf of any such person.
The Company previously entered into indemnification agreements in 1988 with
certain officers and directors of the Company for indemnification against
expenses (including attorneys' fees, through all proceedings, trials, and
appeals), judgments, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending, or contemplated action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
arising from any actual or alleged breach of duty, neglect, effort, or other
action taken or omitted, solely in the capacity as an officer and/or a director
of the Company; provided that no indemnification will be made in respect of any
acts or omissions (a) involving gross negligence or willful misconduct, (b)
involving libel or slander, or (c) based upon or attributable to gaining,
directly or indirectly, any profit or advantage to which he was not legally
entitled.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT AND IS THEREFORE
UNENFORCEABLE.
II-1
<PAGE>
Other Arrangements
- - ------------------
The Company maintains a "claims made" officers and directors liability
insurance policy with coverage limits of $3,000,000 and a maximum $100,000
deductible amount for each claim.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses to be incurred by the Company in connection with the
registration of the securities subject of this registration statement, other
than underwriting discounts and commissions, are estimated as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ *
Blue Sky Fees and Expenses *
Printing and Engraving Expenses *
Registrant's Counsel Fees and Expenses *
Accountant's Fees and Expenses *
Miscellaneous Expenses *
-----------
Estimated Total *
===========
</TABLE>
- - --------------------------
* To be provided by amendment
Item 26. Recent Sales of Unregistered Securities.
The Registrant has issued the following securities during the past three
years:
In November 1994, the Company issued a Common Stock Purchase Warrant to
J.W. Charles Financial Services, Inc. to purchase 250,000 shares of Common Stock
(331,126 shares as adjusted) pursuant to the terms of a Financial Consulting
Agreement between the Company and Corporate Management Group, Inc.
Pursuant to a Consulting Agreement dated as of August 6, 1995 between the
Company and Timothy R. Barnes, the Company issued a Common Stock Purchase
Warrant to purchase 36,858 shares of Common Stock to Mr. Barnes.
In October 1995, the Company issued a Common Stock Purchase Option to Scott
Cook to purchase 100,000 shares of Common Stock in connection with a loan to
Ilink, Ltd.
In February 1996, in connection with the purchase of all of the issued and
outstanding shares of I-Link Worldwide, Inc., the Company issued an aggregate of
4 million shares of Common Stock to the owners of I-Link Worldwide, Inc.
In February 1996, in connection with loans, the Company issued a Series II
Non-Negotiable 10% Convertible Promissory Note in the principal amount of
$50,000 to Joseph Wong and a Series III Non-Negotiable 10% Convertible
Promissory Note in the principal amount of $50,000 to Trident II. The
II-2
<PAGE>
holders of the notes converted $5,000 of the principal amount of the notes to
70,000 shares of Common Stock, respectively, in June 1996.
In February 1996, the Company completed a private placement of $1,000,000
in aggregate principal amount of convertible promissory notes (the "10% Notes").
Up to $1,250 of each $50,000 in principal amount of the 10% Note was convertible
at any time at the option of the holder, into an aggregate of 350,000 shares of
Common Stock at the rate of approximately $.0714 per share, subject to certain
anti-dilution adjustments; and such principal amount was converted to Common
Stock in August 1996. Commonwealth Associates served as the placement agent for
the offering.
On September 6, 1996, the Company closed a private placement of 240,000
shares of Class C Preferred Stock, $10 par value per share. In addition, the
Company issued $717,000 of principal amount of Convertible Promissory Notes
payable on April 1, 1997 (the "Maturity Date") and bearing interest at 8% per
annum (previously defined as the "Convertible Notes"). The unpaid principal
amount of a Convertible Note will be automatically converted into shares of
Class C Preferred Stock at any time prior to the close of business on the
Maturity Date at the rate of $60 per share of Class C Preferred Stock upon
certain conditions being met. Commonwealth Associates (previously defined and
hereinafter referred to as "Commonwealth"), acted as the placement agent for the
Class C Offering.
The Company issued to Commonwealth Placement Agent Warrants to purchase up
to 250,000 shares of the Company's Common Stock and Consultant's Warrants to
purchase up to 500,000 shares of Common Stock (together previously defined as
the "Commonwealth Warrants"). The Commonwealth Warrants will be exercisable for
five (5) years commencing March 1997 at an exercise price of $2.50 per share,
subject to adjustment.
In April 1996, pursuant to an employment agreement, the Company agreed to
grant to John Edwards, President of the Company, an option to purchase 1 million
shares of Common Stock of the Company. In consideration for the amendment of
the employment agreement, effective August 21, 1996, the Company agreed to grant
Mr. Edwards options to purchase 250,000 shares of Common Stock.
In June 1996, the Company completed a private placement of $375,000 in
principal amount of Non-Negotiable 8% Promissory Notes and Common Stock Purchase
Warrants to purchase 120,000 shares of Common Stock at an exercise price of
$4.00 per share. Commonwealth served as the placement agent for the offering.
In July 1996, the Company approved the grant of options to purchase
1,500,000 and 500,000 shares of Common Stock to Clay Wilkes and Alex Radulovik,
officers of ILINK.
In August 1996, the Company agreed to issue to William H. Flury and John W.
Edwards, officers of the company and/or ILINK, warrants to purchase 5,000 shares
and 25,000 shares, respectively, in connection with loans to ILINK.
In October 1996, pursuant to an employment agreement, the Company agreed to
grant to each of Karl S. Ryser, Jr. and William H. Flury, officers of ILINK,
options to purchase 250,000 shares of Common Stock of the Company.
The Company believes that the transactions set forth above were exempt from
registration with the Commission pursuant to Section 4(2) of the Securities Act
as transactions by an issuer not involving any public offering. Except as
disclosed above, no broker-dealer or underwriter was involved in the
II-3
<PAGE>
foregoing transactions. All certificates representing such securities have been
appropriately legended. The February, June and September 1996 placements were
made in reliance upon a claim of exemption pursuant to Rule 506 of Regulation D.
Additionally, the participants in the February, June and September 1996 private
placements were accredited investors.
Item 27. Exhibits.
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Title of Exhibit
------ ----------------
2(a)/6/ Management Agreement Assignment, effective June 1, 1993
between Florida Medical Enterprises, Inc. and Waters Edge
Scanning Associates, Inc.
2(b)/6/ Lease Assignment and Asset Purchase Agreement dated as of
June 1, 1993 between Waters Edge Scanning Associates,
Ltd. and Medcross, Inc.
2(c)/10/ Joint Venture Interest Purchase Agreement, effective
October 1, 1994 between Medcross, Inc. and Urology
Ultrasound, Inc.
2(d)/15/ Stock Purchase Agreement, dated February 13, 1996, by and
among Medcross, Inc, ILINK, Ltd., and G Net Enterprises,
Inc.
2(e)/15/ Escrow Agreement, dated February 21, 1996, by and among
Medcross, Inc., ILINK, Ltd., and De Martino Finkelstein
Rosen & Virga.
2(f)/19/ Form of 8% Convertible Promissory Note.
2(g)/18/ Stock Purchase Agreement dated February 13, 1996, by and
among Medcross, Inc., Ilink, Ltd. and G Net Enterprises,
Inc.
2(g)/17/ Escrow Agreement dated February 21, 1996, by and among
Medcross, Inc., Ilink, Ltd. and De Martino Finkelstein
Rosen & Virga.
2(g)/17/ Form of Promissory Note.
3(a)/20/ Amendment to the Amended and Restated Articles of
Incorporation dated August 16, 1996.
3(b)/20/ Composite copy of the Amended and Restated Articles of
Incorporation incorporating all amendments through the
date hereof.
3(c)/8/ Bylaws of the Company, as amended.
3(d)/16/ Articles of Incorporation of ILINK Worldwide, Inc.
II-4
<PAGE>
Exhibit
Number Title of Exhibit
------ ----------------
4(a)/1/ Specimen Common Stock Certificate.
4(b)/7/ Promissory Note payable to Waters Edge Scanning
Associates, Ltd., in the amount of $600,000, dated June
1, 1993.
4(c)/7/ Promissory Note contingently payable to Waters Edge
Scanning Associates, Ltd., in the amount of $365,000,
dated June 1, 1993.
4(d)/7/ Promissory Note contingently payable to Waters Edge
Scanning Associates, Ltd., in the amount of $365,000,
dated June 1, 1993.
4(e)/8/ Form of Promissory Note payable to limited partners of
Medcross Imaging, Ltd., in the aggregate amount of
$75,000, dated October 1, 1993.
4(f)/11/ Series CS Warrant to Purchase Common Shares of Medcross,
Inc.
4(g)/13/ Common Stock Purchase Option to Purchase Common Shares of
Medcross, Inc.
4(h)/15/ Form of 10% Convertible Promissory Note dated February
21, 1996.
4(i)/16/ Non-Negotiable 10% Promissory Note payable to Scott Cook
in the amount of $100,000, dated October 19, 1995.
4(j)/16/ Guaranty by and between Medcross, Inc. and Scott Cook,
dated October 19, 1995.
4(k)/16/ Security Agreement by and between ILINK, Ltd., Scott
Cook, and Medcross, Inc. dated October 19, 1995.
4(l)/16/ Common Stock Purchase Option to Purchase Common Shares of
Medcross, Inc. issued to Scott Cook.
4(m) Forms of Convertible Promissory Notes issued September 6,
1996.
4(n)/21/ Placement Agent's Common Stock Warrant Agreement and
Certificate.
4(o)/21/ Consultant's Common Stock Warrant Agreement and
Certificate.
4(p) Option to purchase 7,500 shares of Class B Convertible
Preferred Stock of Medcross, Inc., granted by R. Huston
Babcock to Benchmark Equity Group, Inc., dated February
14, 1996.
II-5
<PAGE>
Exhibit
Number Title of Exhibit
------ ----------------
4(q) Option to purchase 160,000 shares of Class A Convertible
Preferred Stock of Medcross, Inc., granted by Four M
International, Ltd. to Commonwealth Associates, dated
February 21, 1996.
4(r) Non-Negotiable 10% Convertible Promissory Note (Series
II) payable to Joseph Wong, in the principal amount of
$50,000, dated February 9, 1996.
4(s) Non-Negotiable 10% Convertible Promissory Note (Series
III) payable to Trident I, L.L.C., in the principal
amount of $50,000, dated February 21, 1996.
5(a)/21/ Opinion of Counsel.
9(a)/4/ Shareholder's Agreement dated February 19, 1992 among
Four M International, Inc., Walnut Capital Corp., Windy
City, Inc., and Canadian Imperial Bank of Commerce Trust
Company (Bahamas) Limited.
9(b)/10/ First Amendment to Shareholder's Agreement.
*10(a)/9/ Director Stock Option Plan.
*10(b)/2/ Executive Stock Option Plan.
10(c)/2/ MR Service Agreement, dated August 14, 1990, between
Medcross Imaging, Ltd. and HealthTrust, Inc. with respect
to Edward White Hospital.
10(d)/2/ MR Service Agreement, dated August 14, 1990, between
Medcross Imaging, Ltd. and HealthTrust, Inc. with respect
to South Bay Hospital.
10(e)/3/ Stock Purchase Agreement, dated February 9, 1992, between
Medcross, Inc., Four M International Limited, Walnut
Capital Corp., Windy City, Inc., and Canadian Imperial
Bank of Commerce Trust Company.
10(f)/5/ First Amendment to Stock Purchase Agreement, dated May 1,
1992, between Medcross, Inc., Four M International, Inc.,
Walnut Capital Corp., Windy City, Inc., and Canadian
Imperial Bank of Commerce Trust Company (Bahamas)
Limited, as trustee.
10(g)/10/ Financial Consulting Agreement and Common Stock Purchase
Warrant dated as of November 3, 1994 between Medcross,
Inc. and JW Charles Financial Services, Inc.
10(h)/11/ Consulting Agreement, dated as of August 6, 1995, between
the Company and Timothy R. Barnes.
10(i)/12/ Consulting Agreement, dated September 1, 1995, by and
among Medcross, Inc., Kalo Acquisitions, LLC, and Jason
H. Pollak.
10(j)/13/ Amendment to and Restatement of the Amended and Restated
Consulting Agreement, dated March 4, 1996, by and among
Medcross, Inc., Kalo Acquisitions, LLC, and Jason H.
Pollak.
II-6
<PAGE>
Exhibit
Number Title of Exhibit
------ ----------------
10(k)/13/ Termination of Amended and Restated Consulting Agreement,
dated March 5, 1996, by and among Medcross, Inc., Kalo
Acquisitions, LLC, and Jason H. Pollak.
10(l)/14/ MR Service Agreement effective October 1, 1995, by and
between Medcross Imaging, Ltd. and South Bay Hospital.
10(m)/14/ MR Service Agreement effective October 1, 1995, by and
between Medcross Imaging, Ltd. and Edward White Hospital.
*10(n)/16/ Employment Agreement, dated February 4, 1996, between
Medcross, Inc. and Henry Y.L. Toh.
*10(o)/16/ Employment Agreement, dated January 1, 1996, between
Medcross, Inc. and Dorothy L. Michon.
*10(p)/16/ Employment Agreement, dated January 1, 1996, between
Medcross, Inc. and Stephanie E. Giallourakis.
*10(q)/16/ Employment Agreement, dated February 14, 1996, between I-
Link Worldwide, Inc. and Clay Wilkes.
*10(r)/16/ Employment Agreement, dated February 14, 1996, between I-
Link Worldwide, Inc. and Alex Radulovic.
*10(s)/16/ 1995 Director Stock Option and Appreciation Rights Plan.
*10(t)/16/ 1995 Employee Stock Option and Appreciation Rights Plan.
*10(u)/16/ Employment Agreement, dated April 8, 1996, between I-Link
Worldwide, Inc. and John W. Edwards.
10(v)/18/ Consulting Agreement, effective January 1, 1996, by and
between Windy City, Inc. and the Company.
10(w)/20/ Agreement for Terminal Facility Collocation Space, dated
June 21, 1996, by and between I-Link Worldwide, Inc. and
MPS Telecom, Inc.
10(x)/21/ Consulting Agreement dated August 21, 1996 between the
Company and Commonwealth Associates.
10(y)/21/ Sales Agency Agreement dated July 1, 1996 between the
Company and Commonwealth Associates and Amendment No. 1
thereto.
II-7
<PAGE>
10(z)/21/ Commercial Lease dated May 21, 1996 between I-Link
Worldwide, Inc. and Draper Land Partnership II and First
Amendment dated July 22, 1996.
10(aa)/21/ Commercial Lease dated September 11, 1996 between I-Link
Worldwide, Inc. and Draper Land Partnership II and First
Amendment dated October 24, 1996.
*10(bb)/21/ Employment Agreement dated October 15, 1996, between I-
Link Worldwide, Inc. and Karl S. Ryser.
10(cc) Second Amendment dated November 22, 1995 to Medcross,
Inc. Shareholders' Agreement.
10(dd) Third Amendment dated January 31, 1996 to Medcross, Inc.
Shareholders' Agreement
10(ee) Term Lease Master Agreement dated May 29, 1996 by and
between IBM Credit Corporation and I-Link Worldwide,
Inc.
11 Statement regarding computation of earnings per common
share.
21 Subsidiaries of the registrant.
23(a)/21/ Consent of De Martino Finkelstein Rosen & Virga included
in Exhibit 5(a).
23(b) Consent of Coopers & Lybrand L.L.P.
- - --------------------
/1/ Incorporated by reference to the Company's Registration Statement on Form
S-18 file number 33-27978-A.
/2/ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990, file number 0-17973.
/3/ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991, file number 0-17973.
/4/ Incorporated by reference to the Company's Current Report on Form 8-K dated
March 30, 1992, file number 0-17973.
/5/ Incorporated by reference to the Company's Current Report on Form 8-K dated
May 22, 1992, file number 0-17973.
/6/ Incorporated by reference to the Company's Current Report on Form 8-K dated
June 30, 1993, file number 0-17973.
/7/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993, file number 0-17973.
/8/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993, file number 0-17973.
/9/ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, file number 0-17973.
/10/ Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994, file number 0-17973.
/11/ Incorporated by reference to the Company's Registration Statement filed on
Form S-8, file number 33-63751.
/12/ Incorporated by reference to the Company's Registration Statement filed on
Form S-8, file number 33-63749.
/13/ Incorporated by reference to the Company's Registration Statement filed on
Form S-8, file number 333-01525.
II-8
<PAGE>
/14/ Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 31, 1995, file number 0-17973.
/15/ Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 23, 1995, file number 0-17973.
/16/ Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the years ended December 31, 1995, filed on April 15, 1996, file number 0-
17973.
/17/ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1996, file number 0-17973.
/18/ Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 23, 1996, file number 0-17973.
/19/ Incorporated by reference to the Company's Current Report on Form 8-K,
dated September 6, 1996, file number 0-17973.
/20/ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996, file number 0-17973.
/21/ To be filed by amendment.
* Indicates a management contract or compensatory plan or arrangement
required to be filed herewith.
Item 28. Undertakings
(a) Rule 415 Offering.
-----------------
The undersigned Registrant will:
(1) File, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act treat each post-
effective amendment as a new registration statement of the Securities
offered, and the offering of the Securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
Securities that remain unsold at the end of the offering.
II-9
<PAGE>
(e) Indemnification.
---------------
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 22 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the Securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(f) Rule 430A.
---------
The undersigned Registrant will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer under Rule 424(b)(1) or
(4) or 497(h) under the Securities Act as part of this Registration
Statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each post-
effective amendment that contains a form of prospectus as a new
registration statement for the Securities offered in the Registration
Statement, and that offering of the Securities at that time as the initial
bona fide offering of those Securities.
II-10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and has authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Draper, State of Utah, on December 13, 1996.
MEDCROSS, INC.
By: /s/ John W. Edwards
--------------------------------------------
John W. Edwards, President, Chief Executive
Officer and Acting Chief Financial Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/ Clay Wilkes Chairman of the Board and December 11, 1996
- - ---------------------------------- Chief Technical Officer of
Clay Wilkes ILINK
/s/ John W. Edwards President, Chief Executive December 11, 1996
- - ---------------------------------- Officer and Acting Chief
John W. Edwards Financial Officer
/s/ Henry Y.L. Toh Director December 13, 1996
- - ----------------------------------
Henry Y.L. Toh
/s/ R. Huston Babcock Director December 13, 1996
- - ----------------------------------
R. Huston Babcock
/s/ Joseph A. Cohen Director December 12, 1996
- - ----------------------------------
Joseph A. Cohen
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
Exhibit
Number Item
- - ------ ----
4(m) Forms of Convertible Promissory Notes issued September 6,
1996.
4(p) Option to purchase 7,500 shares of Class B Convertible
Preferred Stock of Medcross, Inc., granted by R. Huston
Babcock to Benchmark Equity Group, Inc., dated
February 14, 1996.
4(q) Option to purchase 160,000 shares of Class A Convertible
Preferred Stock of Medcross, Inc., granted by Four M
International, Ltd. to Commonwealth Associates,
dated February 21, 1996.
4(r) Non-Negotiable 10% Promissory Note (Series II) payable to
Joseph Wong, in the principal amount of $50,000, dated
February 9, 1996.
4(s) Non-Negotiable 10% Promissory Note (Series III) payable to
Trident I, L.L.C., in the principal amount of $50,000, dated
February 21, 1996.
10(cc) Second Amendment dated November 22, 1995 to Medcross, Inc.
Shareholders' Agreement.
10(dd) Third Amendment dated January 31, 1996 to Medcross, Inc.
Shareholders' Agreement.
10(ee) Term Lease Master Agreement dated May 29, 1996 by and between
IBM Credit Corporation and I-Link Worldwide, Inc.
11 Statement regarding computation of earnings per common share.
21 Subsidiaries of the registrant.
23(b) Consent of Coopers & Lybrand L.L.P.
<PAGE>
EXHIBIT 4(m)
THIS NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND HAS BEEN ISSUED
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND
SUCH LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT
TO REGISTRATION OR EXEMPTION THEREFROM.
CONVERTIBLE PROMISSORY NOTE
---------------------------
$57,000 St. Petersburg, Florida
September 6, 1996
FOR VALUE RECEIVED, the undersigned, Medcross, Inc., a Florida
corporation (hereinafter referred to as the "Maker"), hereby promises to pay to
Jeffries International, Ltd. (the "Payee") at 46 New Broad Street, London EC2M
1JD or at such other place as the holder hereof may from time to time designate
in writing, the principal sum of Fifty-Seven Thousand Dollars ($57,000) in one
installment due on April 1, 1997 (the "Maturity Date"), together with interest
from and after the date hereof at the rate of eight percent (8%) per annum
computed on the unpaid principal balance. Interest shall be paid by Maker to
the Payee quarterly on November 15, February 15, May 15 and August 15 until the
principal amount of the Note is converted or paid by the Company. By acceptance
of this 8% Convertible Promissory Note (the "Note"), the Payee represents,
warrants, covenants and agrees that he, she or it will abide by and be bound by
its terms.
1. Prepayment and Notices. The unpaid principal balance outstanding under this
----------------------
Note may be prepaid in part or in full by the Maker without penalty, upon thirty
(30) days notice to the Payee stating the repayment amount and repayment date
(the "Repayment Date"); provided, however, that as a condition precedent to
prepayment hereunder, the Maker shall have effected an amendment to its Articles
of Incorporation to increase the authorized capital stock of the Maker and shall
have designated a sufficient amount of Class C Preferred Stock (as hereinafter
defined) so as to accommodate conversion as set forth in Section 2 hereof. Any
such notice must specify that the Payee may exercise its conversion rights prior
to the Repayment Date.
2. Conversion.
----------
(a) Subject to the provisions of Section 2(b) hereof, the entirety of
the unpaid principal amount of this Note shall be automatically converted at any
time prior to the close of business on the Maturity Date in the manner and on
the terms hereinafter set forth, into shares of Class C Convertible Cumulative
Redeemable Preferred Stock ("Class C Preferred Stock") of the Maker at the rate
of Sixty Dollars ($60.00) per share of Class C Preferred Stock (the "Conversion
Price"), subject to adjustment pursuant to Section 4 hereof, upon the amendment
of the Maker's Articles of Incorporation to increase its authorized number of
shares of Preferred Stock, $10.00 par value, to at least 2,000,000 shares and
the authorized number of shares of Common Stock, $.007 par value, to at least
50,000,000 shares (the "Articles Amendment") and
<PAGE>
the designation by the Maker of additional Class C Preferred Stock in an amount
sufficient to accommodate conversion of this Note (the "Designation").
(b) Notwithstanding any other provision of this Note to the contrary,
upon receipt of notice of the Maker's intent to prepay part or all of the
principal amount hereunder, the Payee may elect to exercise the Conversion Right
and convert pursuant to Section 2(a) hereof all or a portion (as set forth in
subsection (a) hereof) of the amount of unpaid principal which the Maker intends
to prepay, up to the close of business on the last business day before the
stated Repayment Date.
3. Conversion Procedure. Upon completion by the Maker of the Articles
--------------------
Amendment and the Designation, the Maker shall promptly notify the holder of
this Note that conversion of this Note has occurred and the date thereof (the
"Automatic Conversion Date"). The holder shall thereupon surrender this Note to
the Maker at the principal office of the Maker. The Conversion Right set forth
in Section 2(b) of this Note may be exercised by the Payee by the surrender of
this Note (along with the conversion form attached hereto duly executed) to the
Maker at the principal office of the Maker. Risk of loss prior to surrender of
this Note shall be borne by the Payee. Consequently, hand delivery with written
acknowledgement of receipt by the Maker or registered or certified mail, return
receipt requested, is the preferred mode of delivery. Conversion pursuant to
Section 2(b) hereof shall be deemed to have been effected on the date when such
delivery of the conversion notice is actually made or, if earlier, at the
expiration of five calendar days after being sent to the Maker by the Payee by
registered or certified mail, return receipt requested, with postage thereon
fully prepaid (the "Conversion Date"). As promptly as practicable thereafter,
the Maker shall issue and deliver to the Payee certificates representing the
number of shares of Class C Preferred Stock to which the Payee is entitled
together with a check for the accrued interest to the Automatic Conversion Date
or the Conversion Date, as the case may be. The Maker shall not be obligated to
issue certificates representing shares of Class C Preferred Stock in the name of
any party other than the Payee. The person or entity in whose name the
certificates representing the shares of Class C Preferred Stock issuable upon
conversion hereof shall be deemed to have become a holder of record on the next
succeeding day on which the transfer books are open, but the Conversion Price
shall be that in effect on the Conversion Date. The Maker covenants that all
securities which may be issued upon exercise of the Conversion Right will, upon
issuance, be fully paid and nonassessable and free of all taxes, liens and
charges caused or created by the Maker with respect to the issuance thereof.
4. Adjustments. The number and kind of securities which may be received upon
-----------
the exercise of the Conversion Right and the Conversion Price shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(a) Stock Splits and Combinations. If the Maker shall at any time or
-----------------------------
from time to time after the date hereof effect a subdivision of its outstanding
shares of Class C Preferred Stock, the Conversion Price then in effect
immediately before such subdivision shall be proportionately decreased and the
number of shares purchasable upon conversion proportionately increase, and
conversely, if the Maker shall at any time or from time to time after the date
2
<PAGE>
hereof combine its outstanding shares of Class C Preferred Stock, the Conversion
Price then in effect immediately before such combination shall be
proportionately increased and the number of shares purchasable upon conversion
shall be proportionately decreased. Any adjustment under this section shall
become effective upon the close of business on the date the subdivision or
combination becomes effective.
(b) Certain Dividends and Distributions. In the event that the Maker
-----------------------------------
shall at any time or from time to time after the date hereof make or issue, or
fix a record date for the determination of holders of shares of Class C
Preferred Stock entitled to receive, a dividend or other distribution payable in
additional shares of Class C Preferred Stock, then and in each such event, the
Conversion Price then in effect shall be decreased as of the time of such
issuance or, in the event that such a record date shall have been fixed, as of
the close of business on such record date, by multiplying the Conversion Price
then in effect by a fraction:
(i) the numerator of which shall be the total number of shares of
Class C Preferred Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date; and
(ii) the denominator of which shall be the sum of the total number
of shares of Class C Preferred Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record date and the
number of shares of Class C Preferred Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date shall have been
-------- -------
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter such
Conversion Price shall be adjusted pursuant to this subsection as of the time of
actual payment of such dividends or distributions.
(c) Other Dividends and Distributions. In the event that the Maker at
---------------------------------
any time or from time to time after the date hereof shall make or issue, or fix
a record date for the determination of holders of shares of Class C Preferred
Stock entitled to receive, a dividend or other distribution payable in
securities of the Maker other than shares of Class C Preferred Stock, then and
in each such event provisions shall be made so that the holder of this Note
shall receive, upon conversion of this Note, in addition to the number of shares
of Class C Preferred Stock receivable thereupon, the amount of securities of the
Maker which such holder would have received had its Note been converted into
shares of Class C Preferred 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 (together with any distributions payable thereon
during such period) receivable by the holder as aforesaid during such period,
giving application to all adjustments called for during such period under this
section with respect to the rights of the holder of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of
------------------------------------------
Class C Preferred Stock issuable upon the conversion of this Note shall be
changed into the same or different number of shares of any class or classes of
capital stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend
3
<PAGE>
provided for above, or a reorganization, merger, consolidation or sale of assets
provided for in subsection (e) below), then and in each such event, the holder
of this Note shall have the right thereafter to convert this Note into the kind
and amount of shares of capital stock and other securities and property
receivable upon such reorganization, reclassification or other change, as the
holder of the number of shares of Class C Preferred Stock into which this Note
might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(e) Reorganization, Merger, Consolidation or Sale of Assets. If, at
-------------------------------------------------------
any time or from time to time, there shall be a capital reorganization of the
shares of Class C Preferred Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this section)
or a merger or consolidation of the Maker with or into another corporation, or
the sale of all or substantially all of the Maker's properties and assets to any
other person or entity, then as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holder of this Note
shall thereafter be entitled to receive upon conversion of this Note, the number
of shares of capital stock or other securities or property of the Maker, or of
the successor corporation resulting from such merger or consolidation or sale,
to which the holder of shares of Class C Preferred Stock deliverable upon
conversion would have been entitled on such reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this section with respect to the rights
of the holder of this Note after the reorganization, merger, consolidation or
sale to the end that the provisions of this section (including adjustment of the
Conversion Price then in effect and the number of shares of Class C Preferred
Stock receivable upon conversion of this Note) shall be applicable after that
event as nearly equivalent hereto as may be practicable.
(f) Minimum Adjustment. Notwithstanding anything to the contrary set
------------------
forth herein, no adjustment of the Conversion Price shall be made in an amount
equal to less than one cent ($.01), but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to one cent ($.01) or more.
(g) Certificate of Adjustment. Upon the occurrence of each adjustment
-------------------------
or readjustment of the applicable Conversion Price pursuant to this section, the
Maker shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to the holder of this Note a
certificate, signed by the Chairman of the Board, the President or the Chief
Financial Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(h) Notices of Record Date. If and in the event that:
----------------------
(i) the Maker shall set a record date for the purpose of
entitling the holders of shares of Class C Preferred Stock to receive a
dividend, or any other distribution, payable otherwise than in cash;
4
<PAGE>
(ii) the Maker shall set a record date for the purpose of
entitling the holders of shares of Class C Preferred Stock to subscribe for or
purchase any shares of any class or to receive any other rights;
(iii) there shall occur any capital reorganization of the Maker,
reclassification of the shares of capital stock of the Maker (other than a
subdivision or combination of its outstanding shares of Class C Preferred
Stock), consolidation or merger of the Maker with or into another corporation,
or sale of all or substantially all of the assets of the Maker; or
(iv) there shall occur a voluntary or involuntary dissolution,
liquidation, or winding up of the Maker;
then, and in any such case, the Maker shall cause to be mailed to the holder of
record of this Note, at least thirty (30) days prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution, or rights; or (B) on which such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the record date as of which the
holder of record shall be entitled to exchange this Note for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, dissolution, liquidation or winding up.
5. Reservation. The Maker covenants that the Maker will use its best efforts
-----------
to cause the Articles Amendment and to designate a sufficient number of shares
of Class C Preferred Stock prior to the period within which the Conversion Right
may be exercised to provide for the exercise of the Conversion Right in full.
6. Fractional Shares. No fractional shares of Class C Preferred Stock shall be
-----------------
issued upon conversion of this Note. In lieu of any fractional shares of Class C
Preferred Stock to which the Payee would otherwise be entitled, the Maker shall
pay an amount equal to the product of such fraction multiplied by the fair value
of one share of Class C Preferred Stock on the Conversion Date, as determined in
good faith by the Board of Directors of the Maker.
7. Miscellaneous.
-------------
(a) Restricted Securities. By acceptance hereof, the Payee
---------------------
understands and agrees that this Note and the shares of Class C Preferred Stock
issuable upon conversion hereof are "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Maker in a
transaction not involving a public offering and have not been the subject of
registration under the Securities Act and that under such laws and applicable
regulations such securities may be resold in the absence of registration under
the Securities Act only in certain limited circumstances. The Payee hereby
represents that it is familiar with Rule 144 promulgated under the Securities
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
5
<PAGE>
(b) Further Limitations on Disposition. Except as otherwise provided
----------------------------------
herein, this Note may not be negotiated, assigned or transferred by Payee. The
Payee further agrees not to make any disposition of all or any portion of this
Note (or of the securities issuable upon conversion hereof) unless and until:
(i) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement;
(ii) such disposition is made in accordance with Rule 144 under
the Securities Act; or
(iii) the Payee shall have notified the Maker of the proposed
disposition and shall have furnished the Maker with a detailed statement of the
circumstances surrounding the proposed disposition, and the Payee shall have
furnished the Maker with an opinion of counsel, which opinion of counsel shall
be reasonably satisfactory to the Maker, that such disposition will not require
registration under the Securities Act and will be in compliance with applicable
state securities laws.
(c) Legends. It is understood that this Note and each certificate
-------
evidencing shares of Class C Preferred Stock issuable upon conversion hereof (or
evidencing any other securities issued with respect thereto pursuant to any
stock split, stock dividend, merger or other form of reorganization or
recapitalization) shall bear the legends (in addition to any legends which may
be required in the opinion of the Maker's counsel by the securities laws of the
state where the Payee is located) set forth on the first page of this Note.
8. Presentment. Except as set forth herein, Maker waives presentment, demand
-----------
and presentation for payment, notice of nonpayment and dishonor, protest and
notice of protest and expressly agrees that this Note or any payment hereunder
may be extended from time to time by the Payee without in any way affecting the
liability of Maker.
9. Notices.
-------
(a) Notices to the Payee. Any notice required by the provisions of
--------------------
this Note to be given to the holder hereof shall be in writing and may be
delivered by personal service, facsimile transmission or by registered or
certified mail, return receipt requested, with postage thereon fully prepaid or
overnight delivery courier. All such communications shall be addressed to the
Payee of record at its address appearing on the books of the Maker. Service of
any such communication made only by mail shall be deemed complete on the date of
actual delivery as shown by the addressee's registry or certification receipt or
at the expiration of the third (3rd) business day after the date of mailing,
whichever is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note
--------------------
requires a notice to be given or a request to be made to the Maker by the Payee
or the holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event
6
<PAGE>
affecting this Note, then and in each such case, any such notice or request
shall be in writing and shall be sent by registered or certified mail, return
receipt requested with postage thereon fully prepaid to the Maker at its
principal place of business.
No notice given or request made hereunder shall be valid unless signed
by the Payee of this Note or other holder giving such notice or request (or, in
the case of a notice or request by Holders of a specified percent in aggregate
principal amount of outstanding Notes, unless signed by each Holder of a Note
whose Note has been counted in constituting the requisite percentage of Notes
required to give such notice or make such request).
10. Events of Default.
-----------------
(a) Each of the following shall constitute an event of default (an
"Event of Default") hereunder: (i) the failure to pay when due any principal or
interest hereunder; (ii) the failure of the Maker to effect the Articles
Amendment within seven (7) months of the date of issuance of this Note; (iii)
the violation by the Maker of any covenant or agreement contained in this Note
and the continuance of such violation for a period of thirty (30) days after
written notice from the Payee to the Maker of such failure; (iv) any change in
control of the Maker which the Board of Directors of the Maker deems to be
hostile or unfriendly; (v) the assignment for the benefit of creditors by the
Maker; (vi) the application for the appointment of a receiver or liquidator for
the Maker or for property of the Maker; (vii) the filing of a petition in
bankruptcy by or against the Maker; (viii) the issuance of an attachment or the
entry of a judgment against the Maker in excess of $500,000; (ix) a default by
the Maker with respect to any other material indebtedness or obligation; (x) the
making or sending of a notice of an intended bulk sale by the Maker; or (xi) the
termination of existence, dissolution or insolvency of the Maker. Upon the
occurrence of any of the foregoing Events of Default, this Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder hereof become
immediately due and payable in full. Upon the occurrence of an Event of
Default which remains uncured as set forth herein and the placement of this Note
in the hands of an attorney for collection, the Maker agrees to pay reasonable
collection costs and expenses, including reasonable attorneys' fees and interest
from the date of the default at the rate of eighteen percent (18%) per annum
computed on the unpaid principal balance.
(b) The Payee may waive any Event of Default hereunder. Such waiver
shall be evidenced by written notice or other document specifying the Event or
Events of Default being waived and shall be binding on all existing or
subsequent Payees under this Note.
11. Construction; Governing Law. The validity and construction of this Note
---------------------------
and all matters pertaining hereto are to be determined in accordance with the
laws of the State of Florida without regard to the conflicts of law principles
thereof.
* * * * *
7
<PAGE>
IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this Convertible Promissory Note and affixed its
corporate seal as of this _____ day of September, 1996.
MEDCROSS, INC.
By:
------------------------------
Henry Y.L. Toh, President
ATTEST:
- - ----------------------------------------
Stephanie E. Giallourakis, Secretary
8
<PAGE>
CONVERSION FORM
The undersigned hereby elects to convert _________________________________
Dollars ($_____________) of the unpaid principal amount of the attached 8%
Convertible Promissory Note (the "Note") into shares of Class C Preferred Stock
of the Maker.
Date: Signature:
-----------------------
----------------------------------------------
------------------------------------------------
(Sign exactly as your name appears on the Note)
<PAGE>
THIS NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND HAS BEEN ISSUED
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND
SUCH LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT
TO REGISTRATION OR EXEMPTION THEREFROM.
CONVERTIBLE PROMISSORY NOTE
---------------------------
$660,000 St. Petersburg, Florida
September 6, 1996
FOR VALUE RECEIVED, the undersigned, Medcross, Inc., a Florida
corporation (hereinafter referred to as the "Maker"), hereby promises to pay to
Maerki Baumann & Co. AG (the "Payee") at Dreikonig Str 8, 8002 Zurich,
Switzerland or at such other place as the holder hereof may from time to time
designate in writing, the principal sum of Six Hundred Sixty Thousand Dollars
($660,000) in one installment due on April 1, 1997 (the "Maturity Date"),
together with interest from and after the date hereof at the rate of eight
percent (8%) per annum computed on the unpaid principal balance. Interest shall
be paid by Maker to the Payee quarterly on November 15, February 15, May 15 and
August 15 until the principal amount of the Note is converted or paid by the
Company. By acceptance of this 8% Convertible Promissory Note (the "Note"), the
Payee represents, warrants, covenants and agrees that he, she or it will abide
by and be bound by its terms.
1. Prepayment and Notices. The unpaid principal balance outstanding under this
----------------------
Note may be prepaid in part or in full by the Maker without penalty, upon thirty
(30) days notice to the Payee stating the repayment amount and repayment date
(the "Repayment Date"); provided, however, that as a condition precedent to
prepayment hereunder, the Maker shall have effected an amendment to its Articles
of Incorporation to increase the authorized capital stock of the Maker and shall
have designated a sufficient amount of Class C Preferred Stock (as hereinafter
defined) so as to accommodate conversion as set forth in Section 2 hereof. Any
such notice must specify that the Payee may exercise its conversion rights prior
to the Repayment Date.
2. Conversion.
----------
(a) Subject to the provisions of Section 2(b) hereof, the entirety of
the unpaid principal amount of this Note shall be automatically converted at any
time prior to the close of business on the Maturity Date in the manner and on
the terms hereinafter set forth, into shares of Class C Convertible Cumulative
Redeemable Preferred Stock ("Class C Preferred Stock") of the Maker at the rate
of Sixty Dollars ($60.00) per share of Class C Preferred Stock (the "Conversion
Price"), subject to adjustment pursuant to Section 4 hereof, upon the amendment
of the Maker's Articles of Incorporation to increase its authorized number of
shares of Preferred Stock, $10.00 par value, to at least 2,000,000 shares and
the authorized number of shares of Common Stock, $.007 par value, to at least
50,000,000 shares (the "Articles Amendment") and
<PAGE>
the designation by the Maker of additional Class C Preferred Stock in an amount
sufficient to accommodate conversion of this Note (the "Designation").
(b) Notwithstanding any other provision of this Note to the contrary,
upon receipt of notice of the Maker's intent to prepay part or all of the
principal amount hereunder, the Payee may elect to exercise the Conversion Right
and convert pursuant to Section 2(a) hereof all or a portion (as set forth in
subsection (a) hereof) of the amount of unpaid principal which the Maker intends
to prepay, up to the close of business on the last business day before the
stated Repayment Date.
3. Conversion Procedure. Upon completion by the Maker of the Articles
--------------------
Amendment and the Designation, the Maker shall promptly notify the holder of
this Note that conversion of this Note has occurred and the date thereof (the
"Automatic Conversion Date"). The holder shall thereupon surrender this Note to
the Maker at the principal office of the Maker. The Conversion Right set forth
in Section 2(b) of this Note may be exercised by the Payee by the surrender of
this Note (along with the conversion form attached hereto duly executed) to the
Maker at the principal office of the Maker. Risk of loss prior to surrender of
this Note shall be borne by the Payee. Consequently, hand delivery with written
acknowledgement of receipt by the Maker or registered or certified mail, return
receipt requested, is the preferred mode of delivery. Conversion pursuant to
Section 2(b) hereof shall be deemed to have been effected on the date when such
delivery of the conversion notice is actually made or, if earlier, at the
expiration of five calendar days after being sent to the Maker by the Payee by
registered or certified mail, return receipt requested, with postage thereon
fully prepaid (the "Conversion Date"). As promptly as practicable thereafter,
the Maker shall issue and deliver to the Payee certificates representing the
number of shares of Class C Preferred Stock to which the Payee is entitled
together with a check for the accrued interest to the Automatic Conversion Date
or the Conversion Date, as the case may be. The Maker shall not be obligated to
issue certificates representing shares of Class C Preferred Stock in the name of
any party other than the Payee. The person or entity in whose name the
certificates representing the shares of Class C Preferred Stock issuable upon
conversion hereof shall be deemed to have become a holder of record on the next
succeeding day on which the transfer books are open, but the Conversion Price
shall be that in effect on the Conversion Date. The Maker covenants that all
securities which may be issued upon exercise of the Conversion Right will, upon
issuance, be fully paid and nonassessable and free of all taxes, liens and
charges caused or created by the Maker with respect to the issuance thereof.
4. Adjustments. The number and kind of securities which may be received upon
-----------
the exercise of the Conversion Right and the Conversion Price shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(a) Stock Splits and Combinations. If the Maker shall at any time or
-----------------------------
from time to time after the date hereof effect a subdivision of its outstanding
shares of Class C Preferred Stock, the Conversion Price then in effect
immediately before such subdivision shall be proportionately decreased and the
number of shares purchasable upon conversion proportionately increase, and
conversely, if the Maker shall at any time or from time to time after the date
2
<PAGE>
hereof combine its outstanding shares of Class C Preferred Stock, the Conversion
Price then in effect immediately before such combination shall be
proportionately increased and the number of shares purchasable upon conversion
shall be proportionately decreased. Any adjustment under this section shall
become effective upon the close of business on the date the subdivision or
combination becomes effective.
(b) Certain Dividends and Distributions. In the event that the Maker
-----------------------------------
shall at any time or from time to time after the date hereof make or issue, or
fix a record date for the determination of holders of shares of Class C
Preferred Stock entitled to receive, a dividend or other distribution payable in
additional shares of Class C Preferred Stock, then and in each such event, the
Conversion Price then in effect shall be decreased as of the time of such
issuance or, in the event that such a record date shall have been fixed, as of
the close of business on such record date, by multiplying the Conversion Price
then in effect by a fraction:
(i) the numerator of which shall be the total number of shares of
Class C Preferred Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date; and
(ii) the denominator of which shall be the sum of the total number
of shares of Class C Preferred Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record date and the
number of shares of Class C Preferred Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date shall have been
-------- -------
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter such
Conversion Price shall be adjusted pursuant to this subsection as of the time of
actual payment of such dividends or distributions.
(c) Other Dividends and Distributions. In the event that the Maker at
---------------------------------
any time or from time to time after the date hereof shall make or issue, or fix
a record date for the determination of holders of shares of Class C Preferred
Stock entitled to receive, a dividend or other distribution payable in
securities of the Maker other than shares of Class C Preferred Stock, then and
in each such event provisions shall be made so that the holder of this Note
shall receive, upon conversion of this Note, in addition to the number of shares
of Class C Preferred Stock receivable thereupon, the amount of securities of the
Maker which such holder would have received had its Note been converted into
shares of Class C Preferred 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 (together with any distributions payable thereon
during such period) receivable by the holder as aforesaid during such period,
giving application to all adjustments called for during such period under this
section with respect to the rights of the holder of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of
------------------------------------------
Class C Preferred Stock issuable upon the conversion of this Note shall be
changed into the same or different number of shares of any class or classes of
capital stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend
3
<PAGE>
provided for above, or a reorganization, merger, consolidation or sale of assets
provided for in subsection (e) below), then and in each such event, the holder
of this Note shall have the right thereafter to convert this Note into the kind
and amount of shares of capital stock and other securities and property
receivable upon such reorganization, reclassification or other change, as the
holder of the number of shares of Class C Preferred Stock into which this Note
might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(e) Reorganization, Merger, Consolidation or Sale of Assets. If, at
-------------------------------------------------------
any time or from time to time, there shall be a capital reorganization of the
shares of Class C Preferred Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this section)
or a merger or consolidation of the Maker with or into another corporation, or
the sale of all or substantially all of the Maker's properties and assets to any
other person or entity, then as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holder of this Note
shall thereafter be entitled to receive upon conversion of this Note, the number
of shares of capital stock or other securities or property of the Maker, or of
the successor corporation resulting from such merger or consolidation or sale,
to which the holder of shares of Class C Preferred Stock deliverable upon
conversion would have been entitled on such reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this section with respect to the rights
of the holder of this Note after the reorganization, merger, consolidation or
sale to the end that the provisions of this section (including adjustment of the
Conversion Price then in effect and the number of shares of Class C Preferred
Stock receivable upon conversion of this Note) shall be applicable after that
event as nearly equivalent hereto as may be practicable.
(f) Minimum Adjustment. Notwithstanding anything to the contrary set
------------------
forth herein, no adjustment of the Conversion Price shall be made in an amount
equal to less than one cent ($.01), but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to one cent ($.01) or more.
(g) Certificate of Adjustment. Upon the occurrence of each adjustment
-------------------------
or readjustment of the applicable Conversion Price pursuant to this section, the
Maker shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to the holder of this Note a
certificate, signed by the Chairman of the Board, the President or the Chief
Financial Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(h) Notices of Record Date. If and in the event that:
----------------------
(i) the Maker shall set a record date for the purpose of
entitling the holders of shares of Class C Preferred Stock to receive a
dividend, or any other distribution, payable otherwise than in cash;
4
<PAGE>
(ii) the Maker shall set a record date for the purpose of
entitling the holders of shares of Class C Preferred Stock to subscribe for or
purchase any shares of any class or to receive any other rights;
(iii) there shall occur any capital reorganization of the Maker,
reclassification of the shares of capital stock of the Maker (other than a
subdivision or combination of its outstanding shares of Class C Preferred
Stock), consolidation or merger of the Maker with or into another corporation,
or sale of all or substantially all of the assets of the Maker; or
(iv) there shall occur a voluntary or involuntary dissolution,
liquidation, or winding up of the Maker;
then, and in any such case, the Maker shall cause to be mailed to the holder of
record of this Note, at least thirty (30) days prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution, or rights; or (B) on which such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the record date as of which the
holder of record shall be entitled to exchange this Note for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, dissolution, liquidation or winding up.
5. Reservation. The Maker covenants that the Maker will use its best efforts
-----------
to cause the Articles Amendment and to designate a sufficient number of shares
of Class C Preferred Stock prior to the period within which the Conversion Right
may be exercised to provide for the exercise of the Conversion Right in full.
6. Fractional Shares. No fractional shares of Class C Preferred Stock shall be
-----------------
issued upon conversion of this Note. In lieu of any fractional shares of Class C
Preferred Stock to which the Payee would otherwise be entitled, the Maker shall
pay an amount equal to the product of such fraction multiplied by the fair value
of one share of Class C Preferred Stock on the Conversion Date, as determined in
good faith by the Board of Directors of the Maker.
7. Miscellaneous.
-------------
(a) Restricted Securities. By acceptance hereof, the Payee
---------------------
understands and agrees that this Note and the shares of Class C Preferred Stock
issuable upon conversion hereof are "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Maker in a
transaction not involving a public offering and have not been the subject of
registration under the Securities Act and that under such laws and applicable
regulations such securities may be resold in the absence of registration under
the Securities Act only in certain limited circumstances. The Payee hereby
represents that it is familiar with Rule 144 promulgated under the Securities
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
5
<PAGE>
(b) Further Limitations on Disposition. Except as otherwise provided
----------------------------------
herein, this Note may not be negotiated, assigned or transferred by Payee. The
Payee further agrees not to make any disposition of all or any portion of this
Note (or of the securities issuable upon conversion hereof) unless and until:
(i) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement;
(ii) such disposition is made in accordance with Rule 144 under
the Securities Act; or
(iii) the Payee shall have notified the Maker of the proposed
disposition and shall have furnished the Maker with a detailed statement of the
circumstances surrounding the proposed disposition, and the Payee shall have
furnished the Maker with an opinion of counsel, which opinion of counsel shall
be reasonably satisfactory to the Maker, that such disposition will not require
registration under the Securities Act and will be in compliance with applicable
state securities laws.
(c) Legends. It is understood that this Note and each certificate
-------
evidencing shares of Class C Preferred Stock issuable upon conversion hereof (or
evidencing any other securities issued with respect thereto pursuant to any
stock split, stock dividend, merger or other form of reorganization or
recapitalization) shall bear the legends (in addition to any legends which may
be required in the opinion of the Maker's counsel by the securities laws of the
state where the Payee is located) set forth on the first page of this Note.
8. Presentment. Except as set forth herein, Maker waives presentment, demand
-----------
and presentation for payment, notice of nonpayment and dishonor, protest and
notice of protest and expressly agrees that this Note or any payment hereunder
may be extended from time to time by the Payee without in any way affecting the
liability of Maker.
9. Notices.
-------
(a) Notices to the Payee. Any notice required by the provisions of
--------------------
this Note to be given to the holder hereof shall be in writing and may be
delivered by personal service, facsimile transmission or by registered or
certified mail, return receipt requested, with postage thereon fully prepaid or
overnight delivery courier. All such communications shall be addressed to the
Payee of record at its address appearing on the books of the Maker. Service of
any such communication made only by mail shall be deemed complete on the date of
actual delivery as shown by the addressee's registry or certification receipt or
at the expiration of the third (3rd) business day after the date of mailing,
whichever is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note
--------------------
requires a notice to be given or a request to be made to the Maker by the Payee
or the holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event
6
<PAGE>
affecting this Note, then and in each such case, any such notice or request
shall be in writing and shall be sent by registered or certified mail, return
receipt requested with postage thereon fully prepaid to the Maker at its
principal place of business.
No notice given or request made hereunder shall be valid unless signed
by the Payee of this Note or other holder giving such notice or request (or, in
the case of a notice or request by Holders of a specified percent in aggregate
principal amount of outstanding Notes, unless signed by each Holder of a Note
whose Note has been counted in constituting the requisite percentage of Notes
required to give such notice or make such request).
10. Events of Default.
-----------------
(a) Each of the following shall constitute an event of default (an
"Event of Default") hereunder: (i) the failure to pay when due any principal or
interest hereunder; (ii) the failure of the Maker to effect the Articles
Amendment within seven (7) months of the date of issuance of this Note; (iii)
the violation by the Maker of any covenant or agreement contained in this Note
and the continuance of such violation for a period of thirty (30) days after
written notice from the Payee to the Maker of such failure; (iv) any change in
control of the Maker which the Board of Directors of the Maker deems to be
hostile or unfriendly; (v) the assignment for the benefit of creditors by the
Maker; (vi) the application for the appointment of a receiver or liquidator for
the Maker or for property of the Maker; (vii) the filing of a petition in
bankruptcy by or against the Maker; (viii) the issuance of an attachment or the
entry of a judgment against the Maker in excess of $500,000; (ix) a default by
the Maker with respect to any other material indebtedness or obligation; (x) the
making or sending of a notice of an intended bulk sale by the Maker; or (xi) the
termination of existence, dissolution or insolvency of the Maker. Upon the
occurrence of any of the foregoing Events of Default, this Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder hereof become
immediately due and payable in full. Upon the occurrence of an Event of
Default which remains uncured as set forth herein and the placement of this Note
in the hands of an attorney for collection, the Maker agrees to pay reasonable
collection costs and expenses, including reasonable attorneys' fees and interest
from the date of the default at the rate of eighteen percent (18%) per annum
computed on the unpaid principal balance.
(b) The Payee may waive any Event of Default hereunder. Such waiver
shall be evidenced by written notice or other document specifying the Event or
Events of Default being waived and shall be binding on all existing or
subsequent Payees under this Note.
11. Construction; Governing Law. The validity and construction of this Note
---------------------------
and all matters pertaining hereto are to be determined in accordance with the
laws of the State of Florida without regard to the conflicts of law principles
thereof.
* * * * *
7
<PAGE>
IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this Convertible Promissory Note and affixed its
corporate seal as of this _____ day of September, 1996.
MEDCROSS, INC.
By:
---------------------------
Henry Y.L. Toh, President
ATTEST:
- - ----------------------------------------
Stephanie E. Giallourakis, Secretary
8
<PAGE>
CONVERSION FORM
The undersigned hereby elects to convert _________________________________
Dollars ($_____________) of the unpaid principal amount of the attached 8%
Convertible Promissory Note (the "Note") into shares of Class C Preferred Stock
of the Maker.
Date: Signature:
--------------------
------------------------------------------------
------------------------------------------------
(Sign exactly as your name appears on the Note)
<PAGE>
EXHIBIT 4(p)
R. Huston Babcock, M.D.
2299 9th Avenue, North
Suite 3D
St. Petersburg, Florida 33713
February 14, 1996
Mr. Frank M. DeLape
President
Benchmark Equity Group, Inc.
16815 Royal Crest Drive, Suite 160
Houston, TX 77058
Re: Option to Acquire Class B Preferred Stock of Medcross, Inc.
-----------------------------------------------------------
("Medcross")
------------
Dear Mr. DeLape:
I am the owner of 7,500 shares of Class B Convertible Preferred Stock of
Medcross (the "Preferred Stock") and desire to grant to Benchmark Equity Group,
Inc. ("Benchmark") an option to acquire the 183,542 shares of common stock
issuable upon conversion of its shares of the Preferred Stock (the "Common
Stock") at an exercise price equal to the lesser of: (i) 200% of the average of
the closing bid and asked prices per share of the Common Stock as quoted on the
Nasdaq SmallCap Market/SM/ for the ten days preceding the initial exercise date
set forth below, or (ii) $1.79 per share the (the "Exercise Price"). In light of
the foregoing, this letter is intended to set forth the basic terms and
conditions of the grant of such option. Counter-execution below by you shall
constitute the agreement, acknowledgement and acceptance by Benchmark of the
terms and conditions set forth herein.
1. Grant of Option. I hereby grant to Benchmark, subject to the terms
---------------
and conditions set forth herein, an option to acquire up to 183,542 shares of
Common Stock issuable upon conversion of the Preferred Stock owned by me at the
Exercise Price as set forth above. Such option shall become exercisable on July
1, 1996, subject to Section 2 below, and shall be exercised by delivery of
written notice to me of Benchmark's desire to exercise all or a portion of the
option granted herein (to the extent the same has become exercisable as set
forth in Section 2 below). Upon execution hereof, I shall cause the 7,500
shares of Preferred Stock to be converted into an aggregate of 183,542 shares of
Common Stock. Upon exercise of the option granted herein, I shall transfer,
deliver and surrender to Benchmark certificates representing all of the shares
of Common Stock issuable upon such exercise. Each such certificate shall be
properly endorsed in blank or accompanied by a fully executed stock power
relating thereto, or new certificates representing the shares of Common Stock
shall be issued in the name of Benchmark. Concurrent with delivery of such
certificates to Benchmark, Benchmark shall deliver via wire transfer of
immediately available funds an aggregate amount equal to the exercise price
attributable to the number of shares of Common Stock being acquired upon such
exercise of the option.
2. Option Term; Expiration. The option granted herein shall be
-----------------------
exercisable through the close of business on December 31, 1997 to purchase up to
91,771 shares of Common Stock; provided, however, that Benchmark must exercise
-------- -------
its right to acquire an aggregate of 91,771 shares of such Common Stock on or
before the close of business on December 31, 1996. In the event that Benchmark
<PAGE>
Mr. Frank M. DeLape
February 14, 1996
Page 2
fails to exercise its right to acquire the foregoing shares of Common Stock on
or before the close of business on December 31, 1996, Benchmark's right to
acquire such shares of Common Stock shall expire unexercised and Benchmark shall
thereafter retain only the right to acquire the remaining 91,771 shares of
Common Stock subject hereto through the close of business on December 31, 1997,
at which time the option granted herein shall expire altogether if not
previously exercised.
3. Representations and Warranties. I hereby represent and warrant to
------------------------------
Benchmark as follows:
(a) Authorization. I have taken all steps necessary and have all the
-------------
necessary power to enter into this letter agreement, to grant the option
described herein and to consummate the transactions contemplated hereby. This
letter agreement has been duly and validly executed and delivered by me and it
is valid, binding and enforceable against me in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws now or hereafter in effect, or by legal or
equitable principles, relating to or limiting creditors' rights generally and
except that the remedy of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
(b) Capitalization. The number of shares of Preferred Stock owned by
--------------
me as of the date hereof is as set forth herein. Such shares of Preferred
Stock, to the best of my knowledge, have been duly authorized, validly issued
and are fully paid and nonassessable. I am the sole legal and beneficial owner
of the foregoing shares of Preferred Stock. All of such shares of Preferred
Stock are owned free of preemptive rights and free and clear of all claims,
liens, pledges, mortgages, charges, security interests, encumbrances and other
restrictions and/or limitations of any kind whatsoever. My acquisition of the
Preferred Stock was for my own account and was not with a view toward
distribution or resale thereof.
(c) Agreements; Actions. Neither execution and delivery of this
-------------------
letter agreement nor consummation of the transactions contemplated hereby will
constitute or cause a violation or breach of any provision of any document,
agreement, contract or understanding to which I am a party or by which I am
bound. There is no action, suit, proceeding or investigation pending or
threatened which could restrict my ability of to perform my obligations
hereunder and there are no grounds for or facts, events or circumstances which
could form the basis of any such action that could cause or result in any such
action, suit, proceeding or investigation or which is probable of assertion. I
am not in default in respect of any judgment, order, writ, injunction or decree
of any court or any federal, state, local or other governmental agency,
authority, body, board, bureau, commission, department or instrumentality, and
execution and delivery of this letter agreement and consummation of the
transactions contemplated hereby will not constitute or cause a violation,
breach or default of or under any of the foregoing.
<PAGE>
Mr. Frank M. DeLape
February 14, 1996
Page 3
4. Representations and Warranties of Benchmark. By counter execution
-------------------------------------------
below, Benchmark hereby represents and warrants as follows:
(a) Authorization. Benchmark has taken all steps necessary and has
-------------
all the necessary power to enter into this letter agreement, to receive the
option granted herein and to consummate the transactions contemplated hereby.
This letter agreement has been duly and validly executed and delivered by
Benchmark and is the valid and binding obligation of Benchmark, enforceable
against it in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect, or by legal or equitable
principles, relating to or limiting creditors' rights generally and except that
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(b) General Investment Representations. Benchmark understands that:
----------------------------------
(i) the Preferred Stock (and the Common Stock issuable upon conversion thereof)
has not been the subject of registration under the Securities Act of 1933 (the
"1933 Act"), the federal securities laws or the laws of any state; (ii) absent
an exemption from registration under such laws, the issuance and sale of the
Preferred Stock (and the shares of Common Stock issuable upon conversion
thereof) would require registration; and (iii) the transactions contemplated
hereby are being undertaken in reliance upon exemption from the registration
requirements of the 1933 Act.
(c) Agreements; Actions. Neither execution and delivery of this
-------------------
letter agreement nor consummation of the transactions contemplated hereby will
constitute or cause a violation or breach of any provision of any document,
agreement, contract or understanding to which Benchmark is a party or by which
Benchmark is bound. There is no action, suit, proceeding or investigation
pending or threatened which could restrict the ability of Benchmark to perform
its obligations hereunder and there are no grounds for or facts, events or
circumstances which could form the basis of any such action that could cause or
result in any such action, suit, proceeding or investigation or which is
probable of assertion. Benchmark is not in default in respect of any judgment,
order, writ, injunction or decree of any court or any federal, state, local or
other governmental agency, authority, body, board, bureau, commission,
department or instrumentality, and execution and delivery of this letter
agreement and consummation of the transactions contemplated hereby will not
constitute or cause a violation, breach or default of or under any of the
foregoing.
5. Registration. Medcross shall prepare and file or cause to be prepared
------------
and filed, at its expense and as soon as practicable after execution hereof (but
in no event later than 90 days thereafter), a registration statement under the
Securities Act of 1933 with the Securities and Exchange Commission (the "SEC")
relating to the reoffer and resale of the shares of Common Stock subject hereto
and shall use its best efforts to cause the same to be declared effective as
soon as possible thereafter. Medcross shall keep any such registration
statement effective for a period of 120 days after declaration of effectiveness
by the SEC. In the event that Medcross shall fail to file the foregoing
registration statement with the time set forth above, it shall include for
registration the shares of Common Stock subject hereto in the first registration
statement filed by Medcross thereafter. Notwithstanding the foregoing, in the
event that
<PAGE>
Mr. Frank M. DeLape
February 14, 1996
Page 4
Medcross determines to register the offer and sale of any of its securities
pursuant to an underwritten offering and the underwriter thereof so requests,
Benchmark hereby agrees to refrain from selling the securities subject hereto
for a period of up to twelve months from the date of effectiveness of any such
registration statement.
6. Assignment. Neither of the parties to this letter agreement shall
----------
have the authority to assign its respective rights or obligations hereunder
without the prior written consent of the other party hereto, which consent shall
not be unreasonably withheld.
7. Fees and Expenses. Except as otherwise set forth herein, each of the
-----------------
parties hereto will be responsible for payment of its own expenses incurred in
connection with the execution, delivery and performance of this letter agreement
and for all matters relating to consummation of the transactions contemplated
hereby.
8. Modification, Amendment and Waiver. The provisions hereof may be
----------------------------------
amended, modified or waived by mutual consent of the parties hereto; provided
--------
however, that any such amendment, modification or waiver must be in writing and
- - -------
must be signed by each of the parties hereto.
9. Brokers. Each of the parties hereto hereby acknowledges that no
-------
broker or finder has been engaged by it or on its behalf in connection with
execution of this letter or consummation of the transactions contemplated
hereby. The parties hereto hereby agree to indemnify one another against the
claims of any broker or finder who claims through any of the parties as an
indemnifying party hereunder.
10. Entire Agreement. This letter agreement sets forth the entire
----------------
agreement and understanding between the parties hereto with respect to the
transactions contemplated hereby and supersedes any and all prior agreements
and/or understandings with respect to such transactions, whether written or
oral.
11. Governing Law. This letter agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Florida without regard to
such jurisdiction's principles of conflicts of laws.
12. Notices. Any notice, request, instruction or other document required
-------
to be given hereunder by any party hereto shall be in writing and shall be
delivered personally, by facsimile transmission or telex, or sent by registered,
certified or express mail, postage prepaid and addressed as follows:
If to Benchmark: Mr. Frank M. DeLape
Benchmark Equity Group, Inc.
16815 Royal Crest Drive, Suite 160
Houston, Texas 77058
If to me: R. Huston Babcock, M.D.
2299 9th Avenue, North
Suite 3D
St. Petersburg, Florida 33713
<PAGE>
Mr. Frank M. DeLape
February 14, 1996
Page 5
or to such other persons or addresses as may be designated in writing by the
party to whom such notice, request or instruction is to be sent. If sent as
directed herein, the date of mailing or facsimile transmission shall be the date
on which any such notices, request or instruction shall be deemed to have been
delivered.
13. Counterparts. This letter agreement may be executed in counterparts,
------------
each of which shall be an original, but all of which shall constitute one and
the same letter agreement.
14. Severability. The provisions of this letter agreement shall be
------------
considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable.
Such invalid, void or otherwise unenforceable provisions shall be automatically
replaced by another provision or provisions which are valid and enforceable and
which are as similar as possible in term and intent to those provisions deemed
to be invalid, void or otherwise unenforceable. Notwithstanding the foregoing,
the remaining provisions hereof shall remain enforceable to the fullest extent
permitted by law.
15. Headings. The headings set forth herein are inserted for convenience
--------
of reference only. Such headings shall not be deemed to constitute a part
hereof.
* * * *
<PAGE>
Mr. Frank M. DeLape
February 14, 1996
Page 6
Execution below shall constitute agreement, acknowledgement and acceptance of
the terms and conditions set forth above. Upon counter-execution hereof, this
letter agreement shall be deemed to be effective and binding as of the date
hereof. Please counter-execute this letter agreement in the space provided below
and thereafter return the same to me by facsimile transmission and by overnight
mail/delivery service.
Very truly yours,
/s/ R. Huston Babcock, M.D.
R. Huston Babcock, M.D.
Agreed to and Accepted
this 21st day of February, 1996:
Benchmark Equity Group, Inc.
By: /s/ Frank M. DeLape
------------------------------
Frank M. DeLape
Medcross, Inc.
By: /s/ Henry Y.L. Toh
------------------------------
Henry Y.L. Toh
<PAGE>
Exhibit 4 (q)
FOUR M INTERNATIONAL, LTD.
1980 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
February 21, 1996
Mr. Michael Falk
President
Commonwealth Associates
733 3rd Avenue, 11th Floor
New York, New York 10017
Re: Option to Acquire Class A Preferred Stock of Medcross, Inc.
-----------------------------------------------------------
("Medcross")
------------
Dear Mr. Falk:
Four M International, Ltd. ("Four M") is the owner of 160,000 shares of
Class A Convertible Preferred Stock of Medcross (the "Preferred Stock") and
desires to grant to Commonwealth Associates ("Commonwealth") an option to
acquire the shares of common stock issuable upon conversion of shares of the
Preferred Stock (the "Common Stock") at an exercise price equal to the lesser
of: (i) 200% of the average of the closing bid and asked prices per share of the
Common Stock as quoted on the Nasdaq SmallCap Market(TM) for the ten days
preceding the initial exercise date set forth below, or (ii) $1.79 per share
the (the "Exercise Price"). In light of the foregoing, this letter is intended
to set forth the basic terms and conditions of the grant of such option.
Counter-execution below by you shall constitute the agreement, acknowledgement
and acceptance by Commonwealth of the terms and conditions set forth herein.
1. Grant of Option. Four M hereby grants to Commonwealth, subject to the
---------------
terms and conditions set forth herein, an option to acquire up to 541,392 shares
of Common Stock issuable upon conversion of the Preferred Stock owned by Four M
at the Exercise Price as set forth above. Such option shall become exercisable
on July 1, 1996, subject to Section 2 below, and shall be exercised by delivery
of written notice to Four M of Commonwealth's desire to exercise all or a
portion of the option granted herein (to the extent the same has become
exercisable as set forth in Section 2 below). Upon execution hereof, Four M
shall cause the shares of Preferred Stock to be converted into an aggregate of
541,392 shares of Common Stock. Upon exercise of the option granted herein,
Four M shall transfer, deliver and surrender to Commonwealth certificates
representing all of the shares of Common Stock issuable upon such exercise.
Each such certificate shall be properly endorsed in blank or accompanied by a
fully executed stock power relating thereto, or new certificates representing
the shares of Common Stock shall be issued in the name of Commonwealth.
Concurrent with delivery of such certificates to Commonwealth, Commonwealth
shall deliver via wire transfer of immediately available funds an aggregate
amount equal to the exercise price attributable to the number of shares of
Common Stock being acquired upon such exercise of the option.
<PAGE>
Mr. Michael Falk
Commonwealth Associates
February 21, 1996
Page 2
2. Option Term; Expiration. The option granted herein shall be
-----------------------
exercisable through the close of business on December 31, 1997 to purchase up to
541,392 shares of Common Stock; provided, however, that Commonwealth must
-------- -------
exercise its right to acquire an aggregate of 270,696 shares of such Common
Stock on or before the close of business on December 31, 1996. In the event
that Commonwealth fails to exercise its right to acquire the foregoing shares of
Common Stock on or before the close of business on December 31, 1996,
Commonwealth's right to acquire such shares of Common Stock shall expire
unexercised and Commonwealth shall thereafter retain only the right to acquire
the remaining 270,696 shares of Common Stock subject hereto through the close of
business on December 31, 1997, at which time the option granted herein shall
expire altogether if not previously exercised.
3. Representations and Warranties of Four M. Four M hereby represents
----------------------------------------
and warrants to Commonwealth as follows:
(a) Authorization. Four M has taken all steps necessary and has all
-------------
the necessary corporate power to enter into this letter agreement, to grant the
option described herein and to consummate the transactions contemplated hereby.
This letter agreement has been duly and validly executed and delivered by Four M
and is the valid and binding obligation of Four M, enforceable against it in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, or by legal or equitable principles, relating
to or limiting creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(b) Capitalization. The number of shares of Preferred Stock owned
--------------
by Four M as of the date hereof is as set forth herein. The shares of Preferred
Stock owned by Four M, to the best knowledge of Four M, have been duly
authorized, validly issued and are fully paid and nonassessable. Four M is the
sole legal and beneficial owner of the foregoing shares of Preferred Stock. All
of such shares of Preferred Stock are owned free of preemptive rights and free
and clear of all claims, liens, pledges, mortgages, charges, security interests,
encumbrances and other restrictions and/or limitations of any kind whatsoever.
The acquisition of the Preferred Stock by Four M was for such member's own
account and was not with a view toward distribution or resale thereof.
(c) Agreements; Actions. Neither execution and delivery of this
-------------------
letter agreement nor consummation of the transactions contemplated hereby will
constitute or cause a violation or breach of any provision of any document,
agreement, contract or understanding to which Four M is a party or by which Four
M is bound. There is no action, suit, proceeding or investigation pending or
threatened which could restrict the ability of Four M to perform its obligations
hereunder and there are no grounds for or facts, events or circumstances which
could form the basis of any such action that could cause or result in any such
action, suit, proceeding or investigation or which is probable of assertion.
Four M is
<PAGE>
Mr. Michael Falk
Commonwealth Associates
February 21, 1996
Page 3
not in default in respect of any judgment, order, writ, injunction or decree of
any court or any federal, state, local or other governmental agency, authority,
body, board, bureau, commission, department or instrumentality, and execution
and delivery of this letter agreement and consummation of the transactions
contemplated hereby will not constitute or cause a violation, breach or default
of or under any of the foregoing.
4. Representations and Warranties of Commonwealth. Commonwealth hereby
----------------------------------------------
represents and warrants to Four M as follows:
(a) Authorization. Commonwealth has taken all steps necessary and
-------------
has all the necessary power to enter into this letter agreement, to receive the
option granted herein and to consummate the transactions contemplated hereby.
This letter agreement has been duly and validly executed and delivered by
Commonwealth and is the valid and binding obligation of Commonwealth,
enforceable against it in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect, or by legal or equitable
principles, relating to or limiting creditors' rights generally and except that
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(b) General Investment Representations. Commonwealth understands
----------------------------------
that: (i) the Preferred Stock (and the Common Stock issuable upon conversion
thereof) has not been the subject of registration under the Securities Act of
1933 (the "1933 Act"), the federal securities laws or the laws of any state;
(ii) absent an exemption from registration under such laws, the issuance and
sale of the Preferred Stock (and the shares of Common Stock issuable upon
conversion thereof) would require registration; and (iii) the transactions
contemplated hereby are being undertaken in reliance upon exemption from the
registration requirements of the 1933 Act.
(c) Agreements; Actions. Neither execution and delivery of this
-------------------
letter agreement nor consummation of the transactions contemplated hereby will
constitute or cause a violation or breach of any provision of any document,
agreement, contract or understanding to which Commonwealth is a party or by
which Commonwealth is bound. There is no action, suit, proceeding or
investigation pending or threatened which could restrict the ability of
Commonwealth to perform its obligations hereunder and there are no grounds for
or facts, events or circumstances which could form the basis of any such action
that could cause or result in any such action, suit, proceeding or investigation
or which is probable of assertion. Commonwealth is not in default in respect of
any judgment, order, writ, injunction or decree of any court or any federal,
state, local or other governmental agency, authority, body, board, bureau,
commission, department or instrumentality, and execution and delivery of this
letter agreement and consummation of the transactions contemplated hereby will
not constitute or cause a violation, breach or default of or under any of the
foregoing.
<PAGE>
Mr. Michael Falk
Commonwealth Associates
February 21, 1996
Page 4
5. Registration. Medcross shall prepare and file or cause to be prepared
------------
and filed, at its expense and as soon as practicable after execution hereof (but
in no event later than 90 days thereafter), a registration statement under the
Securities Act of 1933 with the Securities and Exchange Commission (the "SEC")
relating to the reoffer and resale of the shares of Common Stock subject hereto
and shall use its best efforts to cause the same to be declared effective as
soon as possible thereafter. Medcross shall keep any such registration
statement effective for a period of 120 days after declaration of effectiveness
by the SEC. In the event that Medcross shall fail to file the foregoing
registration statement with the time set forth above, it shall include for
registration the shares of Common Stock subject hereto in the first registration
statement filed by Medcross thereafter. Notwithstanding the foregoing, in the
event that Medcross determines to register the offer and sale of any of its
securities pursuant to an underwritten offering and the underwriter thereof so
requests, Commonwealth hereby agrees to refrain from selling the securities
subject hereto for a period of up to twelve months from the date of
effectiveness of any such registration statement.
6. Assignment. Neither of the parties to this letter agreement shall
----------
have the authority to assign its respective rights or obligations hereunder
without the prior written consent of the other party hereto, which consent shall
not be unreasonably withheld.
7. Termination. This letter agreement may not be terminated by either of
-----------
the parties hereto for any reason other than expiration hereof by its terms.
This letter agreement shall have full force and effect and shall be the binding
obligations of the parties hereto.
8. Fees and Expenses. Except as otherwise set forth herein, each of the
-----------------
parties hereto will be responsible for payment of its own expenses incurred in
connection with the execution, delivery and performance of this letter agreement
and for all matters relating to consummation of the transactions contemplated
hereby.
9. Modification, Amendment and Waiver. The provisions hereof may be
----------------------------------
amended, modified or waived by mutual consent of the parties hereto; provided
--------
however, that any such amendment, modification or waiver must be in writing and
- - -------
must be signed by each of the parties hereto.
10. Brokers. Each of the parties hereto hereby acknowledges that no
-------
broker or finder has been engaged by it or on its behalf in connection with
execution of this letter or consummation of the transactions contemplated
hereby. The parties hereto hereby agree to indemnify one another against the
claims of any broker or finder who claims through any of the parties as an
indemnifying party hereunder.
11. Entire Agreement. This letter agreement sets forth the entire
----------------
agreement and understanding between the parties hereto with respect to the
transactions contemplated hereby and supersedes any and all prior agreements
and/or understandings with respect to such transactions, whether written or
oral.
<PAGE>
Mr. Michael Falk
Commonwealth Associates
February 21, 1996
Page 5
12. Governing Law. This letter agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Florida without regard to
such jurisdiction's principles of conflicts of laws.
13. Notices. Any notice, request, instruction or other document required
-------
to be given hereunder by any party hereto shall be in writing and shall be
delivered personally, by facsimile transmission or telex, or sent by registered,
certified or express mail, postage prepaid and addressed as follows:
If to Commonwealth: Mr. Michael Falk
Commonwealth Associates
733 3rd Avenue, 11th Floor
New York, New York 10017
Phone: (212) 297-5844
Facsimile: (212) 297-5696
with a copy to: Victor J. DiGioia, Esq.
Goldstein, Axelrod & DiGioia
369 Lexington Avenue
New York, New York 10017
Phone: (212) 599-3322
Facsimile: (212) 557-0295
If to Four M: Mr. Henry Y.L. Toh
Four M International, Ltd.
1980 Post Oak Boulevard
Houston, Texas 77056
Phone: (713) 622-3866
Facsimile: (713) 942-9888
with a copy to: Ralph V. De Martino, Esq.
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Phone: (202) 659-0494
Facsimile: (202) 659-1290
or to such other persons or addresses as may be designated in writing by the
party to whom such notice, request or instruction is to be sent. If sent as
directed herein, the date of mailing or facsimile transmission shall be the date
on which any such notices, request or instruction shall be deemed to have been
delivered.
<PAGE>
Mr. Michael Falk
Commonwealth Associates
February 21, 1996
Page 6
14. Counterparts. This letter agreement may be executed in counterparts,
------------
each of which shall be an original, but all of which shall constitute one and
the same letter agreement.
15. Severability. The provisions of this letter agreement shall be
------------
considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable.
Such invalid, void or otherwise unenforceable provisions shall be automatically
replaced by another provision or provisions which are valid and enforceable and
which are as similar as possible in term and intent to those provisions deemed
to be invalid, void or otherwise unenforceable. Notwithstanding the foregoing,
the remaining provisions hereof shall remain enforceable to the fullest extent
permitted by law.
16. Headings. The headings set forth herein are inserted for convenience
--------
of reference only. Such headings shall not be deemed to constitute a part
hereof.
* * * * *
<PAGE>
Mr. Michael Falk
Commonwealth Associates
February 21, 1996
Page 7
Execution below shall constitute agreement, acknowledgement and acceptance
of the terms and conditions set forth above. Upon counter-execution hereof, this
letter agreement shall be deemed to be effective and binding as of the date
hereof. Please counter-execute this letter agreement in the space provided below
and thereafter return the same to Four M by facsimile transmission and by
overnight mail/delivery service.
FOUR M INTERNATIONAL, LTD.
By: /s/ Henry Y.L. Toh
----------------------------------
Henry Y.L. Toh
AGREED TO AND ACCEPTED
THIS 21ST DAY OF FEBRUARY, 1996:
COMMONWEALTH ASSOCIATES
By: /s/ Robert R. Beuret
---------------------------------
Robert R. Beuret
Vice Chairman
Co-Head of Investment Banking
MEDCROSS, INC.
By: /s/ Henry Y.L. Toh
---------------------------------
Henry Y.L. Toh
<PAGE>
FOUR M INTERNATIONAL, LTD.
1980 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
August __, 1996
Mr. Michael Falk
President
Commonwealth Associates
733 Third Avenue, 11th Floor
New York, N.Y. 10017
Re: Amendment to Option to Acquire Class A Preferred Stock of Medcross,
-------------------------------------------------------------------
Inc.
----
Dear Mr. Falk:
On or about February 21, 1996 Four M International, Ltd. ("Four M") granted
options (the "Four M Options") to purchase an aggregate of 3,915,570 shares of
Common Stock of Medcross, Inc. ("Medcross") to Commonwealth Associates and
certain affiliates or associates thereof, members of management of ILINK and
Benchmark, including options held by you (collectively, the "Four M
Optionholders"). Of such Four M Options, options to purchase an aggregate of
2,011,678 shares are exercisable from July 1, 1996 through December 31, 1996
(the "1996 Four M Options") and options to purchase an aggregate of 1,903,892
shares are exercisable from July 1, 1996 through December 31, 1997. This letter
is intended to set forth our understanding of the modification of certain of the
terms and conditions of such Four M Options, including the terms of the Four M
Option held by you.
In consideration of the sum of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which is acknowledged, the Four M
Option heretofore granted to you is hereby amended as follows:
In the event that $200,000 in principal amount (i.e., exercise proceeds) of
the Four M Options have been exercised prior to December 31, 1996 (the "Partial
Exercise"), the exercise period relating to the remaining 1996 Four M Options
will be extended to a date which is twelve (12) months from the final closing of
the Medcross private offering of Class C Preferred Stock. In addition, in the
event of such Partial Exercise, for every thirty (30) day period or portion
thereof commencing January 1, 1997 in which the remainder of the 1996 Four M
Options are not exercised, the minimum exercise price of the 1996 Four M Options
(presently $1.79 per share) shall be increased by four percent (4%) of the then
current exercise price. In the event of such extension, it is our understanding
that the 1996 Four M Options shall be exercisable at the following prices:
<PAGE>
Mr. Michael Falk
August __, 1996
Page 2
<TABLE>
<CAPTION>
Period Price
------ -----
<S> <C>
January 1, 1997 through January 31, 1997 $1.86
February 1, 1997 through February 28, 1997 1.93
March 1, 1997 through March 31, 1997 2.01
April 1, 1997 through April 30, 1997 2.09
May 1, 1997 through May 31, 1997 2.17
June 1, 1997 through June 30, 1997 2.26
July 1, 1997 through July 31, 1997 2.35
August 1, 1997 through August 31, 1997 2.45
</TABLE>
All other terms and conditions of the Four M Options shall remain
unchanged.
Execution below shall constitute agreement, acknowledgement and
acceptance of the modification of the terms and conditions of the Four M Options
as set forth above. Upon counter-execution hereof, this letter agreement shall
be deemed to be effective and binding as of the date hereof. Please
counter-execute this letter agreement in the space provided below and thereafter
return the same to Four M by facsimile transmission and by overnight
mail/delivery service.
FOUR M INTERNATIONAL, Ltd.
By:
-------------------------------
Henry Y.L. Toh, Director
AGREED TO AND ACCEPTED
THIS ____ DAY OF AUGUST, 1996:
Commonwealth Associates
By:
-------------------------------
Michael Falk, President
<PAGE>
Exhibit 4(r)
THIS NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND HAS BEEN ISSUED
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND
SUCH LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT
TO REGISTRATION OR EXEMPTION THEREFROM.
NON-NEGOTIABLE 10% CONVERTIBLE PROMISSORY NOTE
----------------------------------------------
$50,000 St. Petersburg, Florida
February 9, 1996
Series II
FOR VALUE RECEIVED, the undersigned, Medcross, Inc., a Florida
corporation (hereinafter referred to as the "Maker"), hereby promises to pay to
Joseph Wong (the "Payee") at 3227 Bennett Street North, St. Petersburg, Florida
33713 or at such other place as the holder hereof may from time to time
designate in writing, the principal sum of Fifty-Thousand Dollars ($50,000) in
one installment due upon the earlier of: (i) February 28, 1997 or such later
date as extended by the Payee as set forth below (the "Maturity Date"); or (ii)
the Maker's receipt of proceeds of at least Two Million Four Hundred Thousand
Dollars ($2,400,000) from one or more equity or debt financing conducted by the
Maker (the "Accelerated Maturity Date"), together with interest from and after
the date hereof at the rate of ten percent (10%) per annum computed on the
unpaid principal balance. Interest shall be paid by Maker to the Payee on the
Maturity Date or the Accelerated Maturity Date, as applicable. By acceptance of
this Non-Negotiable 10% Convertible Promissory Note (the "Note"), the Payee
represents, warrants, covenants and agrees that he, she or it will abide by and
be bound by its terms.
1. Prepayment and Notices. The unpaid principal balance outstanding under this
----------------------
Note may be prepaid in part or in full by the Maker without penalty, upon thirty
(30) days notice to the Payee stating the repayment amount and repayment date
(the "Repayment Date"). The Maker must provide notice five business days prior
to an Accelerated Maturity Date to the Payee.
2. Conversion.
----------
(a) Up to $5,000 of each $50,000 (i.e., 10%) of unpaid principal amount
of this Note shall be convertible at the option of the Payee (the "Conversion
Right") at any time after March 31, 1996 but prior to the close of business on
the Maturity Date or the Accelerated Maturity Date, as applicable, in the manner
and on the terms hereinafter set forth, into 70,000 shares of common stock, par
value $.007 per share (the "Common Stock") of the Maker (the "Conversion
Price"), subject to adjustment pursuant to Section 4 hereof.
(b) The Payee may, at its option and upon notice given no later than
December 31, 1996, elect to extend the Maturity Date to a date after February
28, 1997, but in no case may
<PAGE>
such extended date be later than December 31, 1998, provided that this Note has
not previously been prepaid or converted.
(c) Notwithstanding any other provision of this Note to the contrary,
upon receipt of notice of the Maker's intent to prepay part or all of the
principal amount hereunder or of an Accelerated Maturity Date, the Payee may
elect to exercise the Conversion Right and convert pursuant to Section 2(a)
hereof a portion (as set forth in subsection (a) hereof) of the amount of unpaid
principal which the Maker intends to prepay, up to the close of business on the
last business day before the stated Repayment Date.
(d) Notwithstanding any other provision hereof, the Conversion Right
may not be exercised at any time during which a registration statement under the
Securities Act of 1933 is filed but not effective.
3. Conversion Procedure. The Conversion Right may be exercised by the
--------------------
Payee by the surrender of this Note (along with the conversion form attached
hereto, duly executed) to the Maker at the principal office of the Maker. Risk
of loss prior to surrender of this Note shall be borne by the Payee.
Consequently, hand delivery with written acknowledgement of receipt by the Maker
or registered or certified mail, return receipt requested, is the preferred mode
of delivery. Conversion shall be deemed to have been effected on the date when
such delivery of the conversion notice is actually made or, if earlier, at the
expiration of five calendar days after being sent to the Maker by the Payee by
registered or certified mail, return receipt requested, with postage thereon
fully prepaid (the "Conversion Date"). As promptly as practicable thereafter,
the Maker shall issue and deliver to the Payee: (a) a new note representing the
difference between principal amount of this Note and the principal amount hereof
which has been converted pursuant hereto; and (b) certificates representing the
number of shares of Common Stock to which the Payee is entitled. The Maker shall
not be obligated to issue certificates representing shares of Common Stock in
the name of any party other than the Payee. The person or entity in whose name
the certificates representing the shares of Common Stock issuable upon
conversion hereof shall be deemed to have become a holder of record on the next
succeeding day on which the transfer books are open, but the Conversion Price
shall be that in effect on the Conversion Date. The Maker covenants that all
securities which may be issued upon exercise of the Conversion Right will, upon
issuance, be fully paid and nonassessable and free of all taxes, liens and
charges caused or created by the Maker with respect to the issuance thereof.
4. Adjustments. The number and kind of securities which may be received
-----------
upon the exercise of the Conversion Right and the Conversion Price shall be
subject to adjustment from time to time upon the happening of certain events, as
follows:
(a) Stock Splits and Combinations. If the Maker shall at any time or
-----------------------------
from time to time after the date hereof effect a subdivision of its outstanding
shares of Common Stock, the Conversion Price then in effect immediately before
such subdivision shall be proportionately decreased, and conversely, if the
Maker shall at any time or from time to time after the date
2
<PAGE>
hereof combine its outstanding shares of Common Stock, the Conversion Price then
in effect immediately before such combination shall be proportionately
increased. Any adjustment under this section shall become effective upon the
close of business on the date the subdivision or combination becomes effective.
(b) Certain Dividends and Distributions. In the event that the Maker
-----------------------------------
shall at any time or from time to time after the date hereof make or issue, or
fix a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event, the Conversion Price then
in effect shall be decreased as of the time of such issuance or, in the event
that such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in effect by a
fraction:
(i) 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 or the close of business on such record date; and
(ii) the denominator of which shall be the sum of the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date and the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date shall have been fixed
-------- -------
and such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter such Conversion
Price shall be adjusted pursuant to this subsection as of the time of actual
payment of such dividends or distributions.
(c) Other Dividends and Distributions. In the event that the Maker at
---------------------------------
any time or from time to time after the date hereof shall make or issue, or fix
a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Maker other than shares of Common Stock, then and in each such event
provisions shall be made so that the holder of this Note shall receive, upon
conversion of this Note, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Maker which such holder
would have received had its Note been converted into shares of 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
(together with any distributions payable thereon during such period) receivable
by the holder as aforesaid during such period, giving application to all
adjustments called for during such period under this section with respect to the
rights of the holder of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of Common
------------------------------------------
Stock issuable upon the conversion of this Note shall be changed into the same
or different number of shares of any class or classes of capital stock, whether
by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for
3
<PAGE>
above, or a reorganization, merger, consolidation or sale of assets provided for
in subsection (e) below), then and in each such event, the holder of this Note
shall have the right thereafter to convert this Note into the kind and amount of
shares of capital stock and other securities and property receivable upon such
reorganization, reclassification or other change, as the holder of the number of
shares of Common Stock into which this Note might have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(e) Reorganization, Merger, Consolidation or Sale of Assets. If, at any
-------------------------------------------------------
time or from time to time, there shall be a capital reorganization of the shares
of Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this section) or a merger or
consolidation of the Maker with or into another corporation, or the sale of all
or substantially all of the Maker's properties and assets to any other person or
entity, then as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holder of this Note shall thereafter be
entitled to receive upon conversion of this Note, the number of shares of
capital stock or other securities or property of the Maker, or of the successor
corporation resulting from such merger or consolidation or sale, to which the
holder of shares of Common Stock deliverable upon conversion would have been
entitled on such reorganization, merger, consolidation, or sale. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this section with respect to the rights of the holder of this Note after the
reorganization, merger, consolidation or sale to the end that the provisions of
this section (including adjustment of the Conversion Price then in effect and
the number of shares of Common Stock receivable upon conversion of this Note)
shall be applicable after that event as nearly equivalent hereto as may be
practicable.
(f) Minimum Adjustment. Notwithstanding anything to the contrary set
------------------
forth herein, no adjustment of the Conversion Price shall be made in an amount
equal to less than one cent ($.01), but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to one cent ($.01) or more.
(g) Certificate of Adjustment. Upon the occurrence of each adjustment
-------------------------
or readjustment of the applicable Conversion Price pursuant to this section, the
Maker shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to the holder of this Note a
certificate, signed by the Chairman of the Board, the President or the Chief
Financial Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(h) Notices of Record Date. If and in the event that:
----------------------
(i) the Maker shall set a record date for the purpose of
entitling the holders of shares of Common Stock to receive a dividend, or any
other distribution, payable otherwise than in cash;
4
<PAGE>
(ii) the Maker shall set a record date for the purpose of
entitling the holders of shares of Common Stock to subscribe for or purchase any
shares of any class or to receive any other rights;
(iii) there shall occur any capital reorganization of the
Maker, reclassification of the shares of capital stock of the Maker (other than
a subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Maker with or into another corporation, or sale
of all or substantially all of the assets of the Maker; or
(iv) there shall occur a voluntary or involuntary
dissolution, liquidation, or winding up of the Maker;
then, and in any such case, the Maker shall cause to be mailed to the holder of
record of this Note, at least thirty (30) days prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution, or rights; or (B) on which such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the record date as of which the
holder of record shall be entitled to exchange this Note for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, dissolution, liquidation or winding up.
(i) Exceptions. The Maker proposes to acquire all of the assets of
----------
ILINK, Ltd., a Utah limited partnership, in exchange for the issuance of
securities of the Maker (the "ILINK Acquisition"). Notwithstanding anything to
the contrary set forth elsewhere herein, the provisions hereof relating to
adjustments shall not be operative and no adjustment which otherwise may have
been required pursuant hereto shall be made as a result of the issuance of
securities by the Company in connection with or related in any way to the ILINK
Acquisition.
5. Reservation. The Maker covenants that, during the period within which
-----------
the Conversion Right may be exercised, the Maker will at all times have
authorized and reserved for the purpose of issuance upon exercise of the
Conversion Right, a sufficient number of shares of Common Stock (or other
securities subject to the Conversion Right) to provide for the exercise of the
Conversion Right in full.
6. Fractional Shares. No fractional shares of Common Stock shall be issued
-----------------
upon conversion of this Note. In lieu of any fractional shares of Common Stock
to which the Payee would otherwise be entitled, the Maker shall pay an amount
equal to the product of such fraction multiplied by the fair value of one share
of Common Stock on the Conversion Date, as determined in good faith by the Board
of Directors of the Maker.
5
<PAGE>
7. Registration Rights. The Maker hereby covenants and agrees as follows:
-------------------
(a) Definitions. For purposes of this section:
-----------
(i) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration of effectiveness of such
registration statement or other document by the Securities and Exchange
Commission (the "SEC").
(ii) The term "Registrable Securities" means: (A) the shares
of Common Stock issued or issuable upon conversion of this Note; or (B) any
other securities of the Maker issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, in exchange for or in replacement of the
shares of Common Stock referenced in subsection (A) immediately above, excluding
in all cases, however, any Registrable Securities sold to the public pursuant to
a registration or an exemption from registration.
(iii) The number of shares of "Registrable Securities then
outstanding" shall be the number of securities outstanding which are Registrable
Securities.
(iv) The term "Holder" as used hereinafter in this Section 7
means any person or entity owning of record Registrable Securities.
(b) Reserved.
--------
(c) Piggy-Back Registration Rights. In the event that (but without
------------------------------
any obligation to do so) the Maker proposes to register any of its securities
under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration on Form S-4, Form S-8 or
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Maker shall promptly give each Holder written
notice of such registration (the "Piggy-Back Notice"); provided, however, that
the Maker shall have no obligation to so notify Holders with respect to any
registration subsequent to the first of such registrations to occur after the
issuance of this Note and shall have no obligation if the managing underwriter
of the subject proposed offering expresses its objection thereto to the Maker.
Upon the written request of each Holder given within twenty (20) days after
receipt of such Piggy-Back Notice from the Maker, the Maker shall, subject to
the provisions of Section 7(h) below, cause to be included in the registration
statement filed by the Maker under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered; provided,
--------
however, that the Maker shall have no such obligation if the managing
- - -------
underwriter of the subject proposed offering has expressed its objection to the
same to the Maker. To the extent that a Holder is offered the opportunity under
this Section 7 to include all of its Registrable Securities in a registration
6
<PAGE>
statement, such Holder will be deemed to have exercised its sole piggy-back
registration right provided by this Section 7(c).
(d) Obligations of the Maker. Whenever required under this section
------------------------
to file a registration statement to effect the registration of any Registrable
Securities, the Maker shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of at least fifty percent (50%) of the Registrable Securities registered
thereunder, keep such registration statement effective for at least four (4)
months.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus included therein
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(iii) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the Maker shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering.
(vi) Notify the Holders promptly after the Maker shall have
received notice thereof, of the time when the registration statement becomes
effective or any supplement to any prospectus forming a part of the registration
statement has been filed.
(vii) Notify the Holders of any stop order suspending the
effectiveness of the registration statement and use its reasonable best efforts
to remove such stop order.
(e) Furnish Information. It shall be a condition precedent to the
obligations of the Maker to take any action pursuant hereto that any Holder
seeking to include any of its Registrable Securities in a registration statement
filed by the Maker pursuant hereto shall furnish
7
<PAGE>
to the Maker such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of its Registrable Securities. In that
connection, each such Holder shall be required to represent to the Maker that
all such information which is given is both complete and accurate in all
material respects. Each of such Holders shall deliver to the Maker a statement
in writing from the beneficial owners of such securities that such beneficial
owners bona fide intend to sell, transfer or otherwise dispose of such
securities.
(f) Definition of Expenses.
----------------------
(i) "Registration Expenses" shall mean all expenses incurred
---------------------
by the Maker in complying with Sections 7(c) and 7(d) hereof, including without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Maker, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Maker which shall be
paid in any event by the Maker).
(ii) "Selling Expenses" shall mean all underwriting discounts,
----------------
selling commissions and underwriters' expense allowance applicable to the sale
and all fees and disbursements of any special counsel (other than the Maker's
regular counsel) for any Holder.
(g) Expenses of Registration. All Registration Expenses incurred
------------------------
in connection with any registration, qualification or compliance herewith, shall
be borne by the Maker, and all Selling Expenses shall be borne by the Holders of
the securities so registered pro rata on the basis of the number of Registrable
Securities so registered; provided, however, that the Maker shall not be
required to pay any Registration Expenses if, as a result of the withdrawal of a
request for registration by Initiating Holders, the registration statement does
not become effective. In the case of such withdrawal and the failure of the
Holders to agree so to forfeit, the Holders shall bear such Registration
Expenses pro rata on the basis of the number of Registrable Securities so
included in the registration request.
(h) Underwriting Requirements. All Holders proposing to distribute
-------------------------
their securities through an underwriting pursuant hereto shall (together with
the Maker and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Maker.
Notwithstanding any other provision of this section, at the request of the
managing underwriter, the Holder shall delay the sale of Registrable Securities
which such Holder has requested be registered under this section for the ninety
(90) day period commencing with the effective date of the registration
statement. Notwithstanding anything to the contrary herein, no such delay shall
be required with respect to securities offered by holders of securities who have
requested the Maker to register such securities pursuant to a mandatory
registration obligation of the Maker if other security holders of the Maker who
have not made requests pursuant to such an obligation are not subject to a
similar delay. If any Holder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Maker and the
8
<PAGE>
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(i) Delay of Registration. No Holder shall have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this section.
(j) Indemnification. In the event that any Registrable Securities
---------------
are included in a registration statement pursuant hereto:
(i) To the extent permitted by law, the Maker will indemnify
and hold harmless each Holder, the officers, directors and partners of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person or entity, if any, that controls such Holder or underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the Securities Act,
the Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"Violation"): (A) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (B) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (C) any violation or alleged violation by the Maker
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Maker will reimburse each such Holder, officer, director
or partner, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Maker (which consent shall not
be unreasonably withheld), nor shall the Maker be liable in any such case for
any such loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person;
and further provided, however, that the foregoing indemnity agreement is subject
to the condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in the definitive prospectus, such
indemnity agreement shall not inure to the benefit of the underwriter (or the
benefit of any person or entity that controls such underwriter), if a copy of
the definitive prospectus was not sent or given to such person or entity with or
prior to the confirmation of the sale of such securities to such person or
entity.
9
<PAGE>
(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Maker, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Maker within the meaning of the Securities Act or the Exchange Act,
any underwriter (within the meaning of the Securities Act) for the Maker, any
person who (or entity that) controls such underwriter, and any other Holder
selling securities in such registration statement or any of its directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Maker or any such
director, officer, controlling person (or entity), or underwriter or controlling
person, or other such Holder or director, officer or controlling person may
become subject, under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Maker or any
such director, officer, controlling person (or entity), underwriter or
controlling person (or entity), other Holder, officer, director or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld.
(iii) Promptly after receipt by an indemnified party under
this Section 7(j) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7(j), notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 7(j), but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 7(j).
(k) Reports Under Securities Exchange Act of 1934. With a view
toward making available to Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Maker to the public without
registration, the Maker agrees to:
10
<PAGE>
(i) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all times;
(ii) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Maker under the
Securities Act and the Exchange Act; and
(iii) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request such information as may be
reasonably requested in order to allow any Holder to avail himself of any rule
or regulation of the SEC which permits the selling of any such securities
without registration.
(l) Termination of the Maker's Obligations.
--------------------------------------
(i) The Maker shall have no obligation pursuant to Section
7(c) with respect to any request made by any Holder after the second anniversary
of the Maturity Date.
(ii) Notwithstanding any provision hereof to the contrary,
the Maker shall not be required to effect any registration under the Securities
Act or under any state securities laws on behalf of any Holder or Holders if, in
the opinion of counsel for the Maker, the offering or transfer by such Holder or
Holders in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred and the method of offering or
transfer) is exempt from the registration requirements of the Securities Act and
the securities laws of applicable states.
8. Miscellaneous.
-------------
(a) Restricted Securities. By acceptance hereof, the Payee
---------------------
understands and agrees that this Note and the shares of Common Stock issuable
upon conversion hereof are "restricted securities" under the federal securities
laws inasmuch as they are being acquired from the Maker in a transaction not
involving a public offering and have not been the subject of registration under
the Securities Act and that under such laws and applicable regulations such
securities may be resold in the absence of registration under the Securities Act
only in certain limited circumstances. The Payee hereby represents that it is
familiar with Rule 144 promulgated under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
(b) Further Limitations on Disposition. This Note may not be
----------------------------------
negotiated, assigned or transferred by Payee. The Payee further agrees not to
make any disposition of all or any portion of this Note (or of the securities
issuable upon conversion hereof) unless and until:
(i) there is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement;
11
<PAGE>
(ii) such disposition is made in accordance with Rule 144
under the Securities Act; or
(iii) the Payee shall have notified the Maker of the proposed
disposition and shall have furnished the Maker with a detailed statement of the
circumstances surrounding the proposed disposition, and the Payee shall have
furnished the Maker with an opinion of counsel, which opinion of counsel shall
be reasonably satisfactory to the Maker, that such disposition will not require
registration under the Securities Act and will be in compliance with applicable
state securities laws.
(c) Legends. It is understood that this Note and each certificate
-------
evidencing shares of Common Stock issuable upon conversion hereof (or evidencing
any other securities issued with respect thereto pursuant to any stock split,
stock dividend, merger or other form of reorganization or recapitalization)
shall bear the legends (in addition to any legends which may be required in the
opinion of the Maker's counsel by the securities laws of the state where the
Payee is located) set forth on the first page of this Note.
9. Presentment. Except as set forth herein, Maker waives presentment,
-----------
demand and presentation for payment, notice of nonpayment and dishonor, protest
and notice of protest and expressly agrees that this Note or any payment
hereunder may be extended from time to time by the Payee without in any way
affecting the liability of Maker.
10. Notices.
-------
(a) Notices to the Payee. Any notice required by the provisions of
--------------------
this Note to be given to the holder hereof shall be in writing and may be
delivered by personal service, facsimile transmission or by registered or
certified mail, return receipt requested, with postage thereon fully prepaid or
overnight delivery courier. All such communications shall be addressed to the
Payee of record at its address appearing on the books of the Maker. Service of
any such communication made only by mail shall be deemed complete on the date of
actual delivery as shown by the addressee's registry or certification receipt or
at the expiration of the third (3rd) business day after the date of mailing,
whichever is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note
--------------------
requires a notice to be given or a request to be made to the Maker by the Payee
or the holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event affecting this Note, then and
in each such case, any such notice or request shall be in writing and shall be
sent by registered or certified mail, return receipt requested with postage
thereon fully prepaid to the Maker at its principal place of business.
No notice given or request made hereunder shall be valid unless signed
by the Payee of this Note or other holder giving such notice or request (or, in
the case of a notice or request by Holders of a specified percent in aggregate
principal amount of outstanding Notes, unless signed
12
<PAGE>
by each Holder of a Note whose Note has been counted in constituting the
requisite percentage of Notes required to give such notice or make such
request).
11. Events of Default.
-----------------
(a) Each of the following shall constitute an event of default (an
"Event of Default") hereunder: (i) the failure to pay when due any principal or
interest hereunder and the continuance of such failure for a period of thirty
(30) days after written notice from the Payee to the Maker of such failure; (ii)
the violation by the Maker of any covenant or agreement contained in this Note
and the continuance of such violation for a period of thirty (30) days after
written notice from the Payee to the Maker of such failure; (iii) any change in
control of the Maker which the Board of Directors of the Maker deems to be
hostile or unfriendly; (iv) the assignment for the benefit of creditors by the
Maker; (v) the application for the appointment of a receiver or liquidator for
the Maker or for property of the Maker; (vi) the filing of a petition in
bankruptcy by or against the Maker; (vii) the issuance of an attachment or the
entry of a judgment against the Maker in excess of $50,000; (viii) a default by
the Maker with respect to any other indebtedness due to the Payee; (ix) the
making or sending of a notice of an intended bulk sale by the Maker; or (x) the
termination of existence, dissolution or insolvency of the Maker. Upon the
occurrence of any of the foregoing Events of Default, this Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder hereof become
immediately due and payable in full. Upon the occurrence of an Event of Default
which remains uncured as set forth herein and the placement of this Note in the
hands of an attorney for collection, the Maker agrees to pay reasonable
collection costs and expenses, including reasonable attorneys' fees and interest
from the date of the default at the rate of fifteen percent (15%) per annum
computed on the unpaid principal balance.
(b) The Payee waives any Event of Default hereunder. Such waiver
shall be evidenced by written notice or other document specifying the Event or
Events of Default being waived and shall be binding on all existing or
subsequent Payees under this Note.
12. Construction; Governing Law. The validity and construction of this Note
---------------------------
and all matters pertaining hereto are to be determined in accordance with the
laws of the State of Florida without regard to the conflicts of law principles
thereof.
* * * * *
13
<PAGE>
IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this convertible promissory note and affixed its
corporate seal as of this _____ day of February, 1996.
MEDCROSS, INC.
By:
---------------------------
Henry Y.L. Toh, President
ATTEST:
- - --------------------------------------
Stephanie E. Giallourakis, Secretary
14
<PAGE>
CONVERSION FORM
The undersigned hereby elects to convert the following principal amount
of the attached Non-Negotiable 10% Convertible Promissory Note (the "Note") (not
to exceed $5,000) into shares of Common Stock of the Maker:
State such amount: ($ ).
------------------------------------- -----------
Date: Signature:
-----------------------
----------------------------------------------
(Sign exactly as your name appears on the Note)
<PAGE>
Exhibit 4(s)
THIS NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND HAS BEEN ISSUED
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND
SUCH LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT
TO REGISTRATION OR EXEMPTION THEREFROM.
NON-NEGOTIABLE 10% CONVERTIBLE PROMISSORY NOTE
----------------------------------------------
$50,000 St. Petersburg, Florida
February 21, 1996
Series III
FOR VALUE RECEIVED, the undersigned, Medcross, Inc., a Florida corporation
(hereinafter referred to as the "Maker"), hereby promises to pay to Trident I,
L.L.C.(the "Payee") at 3227 Bennett Street North, St. Petersburg, Florida 33713
or at such other place as the holder hereof may from time to time designate in
writing, the principal sum of Fifty-Thousand Dollars ($50,000) in one
installment due upon the earlier of: (i) February 28, 1997 or such later date as
extended by the Payee as set forth below (the "Maturity Date"); or (ii) the
Maker's receipt of proceeds of at least Five Hundred Thousand Dollars ($500,000)
from one or more equity or debt financings conducted by the Maker (the
"Accelerated Maturity Date"), together with interest from and after the date
hereof at the rate of ten percent (10%) per annum computed on the unpaid
principal balance. Interest shall be paid by Maker to the Payee on the Maturity
Date or the Accelerated Maturity Date, as applicable. By acceptance of this Non-
Negotiable 10% Convertible Promissory Note (the "Note"), the Payee represents,
warrants, covenants and agrees that he, she or it will abide by and be bound by
its terms.
1. Prepayment and Notices. The unpaid principal balance outstanding under
----------------------
this Note may be prepaid in part or in full by the Maker without penalty, upon
thirty (30) days notice to the Payee stating the repayment amount and repayment
date (the "Repayment Date"). The Maker must provide notice five business days
prior to an Accelerated Maturity Date to the Payee.
2. Conversion.
----------
(a) Up to $5,000 of each $50,000 (i.e., 10%) of unpaid principal amount
of this Note shall be convertible at the option of the Payee (the "Conversion
Right") at any time after March 31, 1996 but prior to the close of business on
the Maturity Date or the Accelerated Maturity Date, as applicable, in the manner
and on the terms hereinafter set forth, into 70,000 shares of common stock, par
value $.007 per share (the "Common Stock") of the Maker (the "Conversion
Price"), subject to adjustment pursuant to Section 4 hereof.
(b) The Payee may, at its option and upon notice given no later than
December 31, 1996, elect to extend the Maturity Date to a date after February
28, 1997, but in no case may
<PAGE>
such extended date be later than December 31, 1998, provided that this Note has
not previously been prepaid or converted.
(c) Notwithstanding any other provision of this Note to the contrary,
upon receipt of notice of the Maker's intent to prepay part or all of the
principal amount hereunder or of an Accelerated Maturity Date, the Payee may
elect to exercise the Conversion Right and convert pursuant to Section 2(a)
hereof a portion (as set forth in subsection (a) hereof) of the amount of unpaid
principal which the Maker intends to prepay, up to the close of business on the
last business day before the stated Repayment Date.
(d) Notwithstanding any other provision hereof, the Conversion Right may
not be exercised at any time during which a registration statement under the
Securities Act of 1933 is filed but not effective.
3. Conversion Procedure. The Conversion Right may be exercised by the Payee
--------------------
by the surrender of this Note (along with the conversion form attached hereto,
duly executed) to the Maker at the principal office of the Maker. Risk of loss
prior to surrender of this Note shall be borne by the Payee. Consequently, hand
delivery with written acknowledgement of receipt by the Maker or registered or
certified mail, return receipt requested, is the preferred mode of delivery.
Conversion shall be deemed to have been effected on the date when such delivery
of the conversion notice is actually made or, if earlier, at the expiration of
five calendar days after being sent to the Maker by the Payee by registered or
certified mail, return receipt requested, with postage thereon fully prepaid
(the "Conversion Date"). As promptly as practicable thereafter, the Maker shall
issue and deliver to the Payee: (a) a new note representing the difference
between principal amount of this Note and the principal amount hereof which has
been converted pursuant hereto; and (b) certificates representing the number of
shares of Common Stock to which the Payee is entitled. The Maker shall not be
obligated to issue certificates representing shares of Common Stock in the name
of any party other than the Payee. The person or entity in whose name the
certificates representing the shares of Common Stock issuable upon conversion
hereof shall be deemed to have become a holder of record on the next succeeding
day on which the transfer books are open, but the Conversion Price shall be that
in effect on the Conversion Date. The Maker covenants that all securities which
may be issued upon exercise of the Conversion Right will, upon issuance, be
fully paid and nonassessable and free of all taxes, liens and charges caused or
created by the Maker with respect to the issuance thereof.
4. Adjustments. The number and kind of securities which may be received upon
-----------
the exercise of the Conversion Right and the Conversion Price shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(a) Stock Splits and Combinations. If the Maker shall at any time or
-----------------------------
from time to time after the date hereof effect a subdivision of its outstanding
shares of Common Stock, the Conversion Price then in effect immediately before
such subdivision shall be proportionately decreased, and conversely, if the
Maker shall at any time or from time to time after the date
2
<PAGE>
hereof combine its outstanding shares of Common Stock, the Conversion Price then
in effect immediately before such combination shall be proportionately
increased. Any adjustment under this section shall become effective upon the
close of business on the date the subdivision or combination becomes effective.
(b) Certain Dividends and Distributions. In the event that the Maker
-----------------------------------
shall at any time or from time to time after the date hereof make or issue, or
fix a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event, the Conversion Price then
in effect shall be decreased as of the time of such issuance or, in the event
that such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in effect by a
fraction:
(i) 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 or the close of business on such record date; and
(ii) the denominator of which shall be the sum of the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date and the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter such Conversion Price shall
be adjusted pursuant to this subsection as of the time of actual payment of such
dividends or distributions.
(c) Other Dividends and Distributions. In the event that the Maker at
---------------------------------
any time or from time to time after the date hereof shall make or issue, or fix
a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Maker other than shares of Common Stock, then and in each such event
provisions shall be made so that the holder of this Note shall receive, upon
conversion of this Note, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Maker which such holder
would have received had its Note been converted into shares of 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
(together with any distributions payable thereon during such period) receivable
by the holder as aforesaid during such period, giving application to all
adjustments called for during such period under this section with respect to the
rights of the holder of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of
------------------------------------------
Common Stock issuable upon the conversion of this Note shall be changed into the
same or different number of shares of any class or classes of capital stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for
3
<PAGE>
above, or a reorganization, merger, consolidation or sale of assets provided for
in subsection (e) below), then and in each such event, the holder of this Note
shall have the right thereafter to convert this Note into the kind and amount of
shares of capital stock and other securities and property receivable upon such
reorganization, reclassification or other change, as the holder of the number of
shares of Common Stock into which this Note might have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(e) Reorganization, Merger, Consolidation or Sale of Assets. If, at any
-------------------------------------------------------
time or from time to time, there shall be a capital reorganization of the shares
of Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this section) or a merger or
consolidation of the Maker with or into another corporation, or the sale of all
or substantially all of the Maker's properties and assets to any other person or
entity, then as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holder of this Note shall thereafter be
entitled to receive upon conversion of this Note, the number of shares of
capital stock or other securities or property of the Maker, or of the successor
corporation resulting from such merger or consolidation or sale, to which the
holder of shares of Common Stock deliverable upon conversion would have been
entitled on such reorganization, merger, consolidation, or sale. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this section with respect to the rights of the holder of this Note after the
reorganization, merger, consolidation or sale to the end that the provisions of
this section (including adjustment of the Conversion Price then in effect and
the number of shares of Common Stock receivable upon conversion of this Note)
shall be applicable after that event as nearly equivalent hereto as may be
practicable.
(f) Minimum Adjustment. Notwithstanding anything to the contrary set
------------------
forth herein, no adjustment of the Conversion Price shall be made in an amount
equal to less than one cent ($.01), but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to one cent ($.01) or more.
(g) Certificate of Adjustment. Upon the occurrence of each adjustment or
-------------------------
readjustment of the applicable Conversion Price pursuant to this section, the
Maker shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to the holder of this Note a
certificate, signed by the Chairman of the Board, the President or the Chief
Financial Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(h) Notices of Record Date. If and in the event that:
----------------------
(i) the Maker shall set a record date for the purpose of entitling
the holders of shares of Common Stock to receive a dividend, or any other
distribution, payable otherwise than in cash;
4
<PAGE>
(ii) the Maker shall set a record date for the purpose of
entitling the holders of shares of Common Stock to subscribe for or purchase any
shares of any class or to receive any other rights;
(iii) there shall occur any capital reorganization of the Maker,
reclassification of the shares of capital stock of the Maker (other than a
subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Maker with or into another corporation, or sale
of all or substantially all of the assets of the Maker; or
(iv) there shall occur a voluntary or involuntary dissolution,
liquidation, or winding up of the Maker;
then, and in any such case, the Maker shall cause to be mailed to the holder of
record of this Note, at least thirty (30) days prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution, or rights; or (B) on which such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the record date as of which the
holder of record shall be entitled to exchange this Note for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, dissolution, liquidation or winding up.
(i) Exceptions. The Maker proposes to acquire all of the assets of ILINK,
----------
Ltd., a Utah limited partnership, in exchange for the issuance of securities of
the Maker (the "ILINK Acquisition"). Notwithstanding anything to the contrary
set forth elsewhere herein, the provisions hereof relating to adjustments shall
not be operative and no adjustment which otherwise may have been required
pursuant hereto shall be made as a result of the issuance of securities by the
Company in connection with or related in any way to the ILINK Acquisition.
5. Reservation. The Maker covenants that, during the period within which
-----------
the Conversion Right may be exercised, the Maker will at all times have
authorized and reserved for the purpose of issuance upon exercise of the
Conversion Right, a sufficient number of shares of Common Stock (or other
securities subject to the Conversion Right) to provide for the exercise of the
Conversion Right in full.
6. Fractional Shares. No fractional shares of Common Stock shall be issued
-----------------
upon conversion of this Note. In lieu of any fractional shares of Common Stock
to which the Payee would otherwise be entitled, the Maker shall pay an amount
equal to the product of such fraction multiplied by the fair value of one share
of Common Stock on the Conversion Date, as determined in good faith by the Board
of Directors of the Maker.
5
<PAGE>
7. Registration Rights. The Maker hereby covenants and agrees as follows:
-------------------
(a) Definitions. For purposes of this section:
-----------
(i) The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration of effectiveness of such registration
statement or other document by the Securities and Exchange Commission (the
"SEC").
(ii) The term "Registrable Securities" means: (A) the shares of
Common Stock issued or issuable upon conversion of this Note; or (B) any other
securities of the Maker issued as (or issuable upon the conversion or exercise
of any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, in exchange for or in replacement of the shares of
Common Stock referenced in subsection (A) immediately above, excluding in all
cases, however, any Registrable Securities sold to the public pursuant to a
registration or an exemption from registration.
(iii) The number of shares of "Registrable Securities then
outstanding" shall be the number of securities outstanding which are Registrable
Securities.
(iv) The term "Holder" as used hereinafter in this Section 7 means
any person or entity owning of record Registrable Securities.
(b) Reserved.
--------
(c) Piggy-Back Registration Rights. In the event that (but without
------------------------------
any obligation to do so) the Maker proposes to register any of its securities
under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration on Form S-4, Form S-8 or
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Maker shall promptly give each Holder written
notice of such registration (the "Piggy-Back Notice"); provided, however, that
-------- -------
the Maker shall have no obligation to so notify Holders with respect to any
registration subsequent to the first of such registrations to occur after the
issuance of this Note and shall have no obligation if the managing underwriter
of the subject proposed offering expresses its objection thereto to the Maker.
Upon the written request of each Holder given within twenty (20) days after
receipt of such Piggy-Back Notice from the Maker, the Maker shall, subject to
the provisions of Section 7(h) below, cause to be included in the registration
statement filed by the Maker under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered; provided,
--------
however, that the Maker shall have no such obligation if the managing
- - -------
underwriter of the subject proposed offering has expressed its objection to the
same to the Maker. To the extent that a Holder is offered the opportunity under
this Section 7 to include all of its Registrable Securities in a registration
6
<PAGE>
statement, such Holder will be deemed to have exercised its sole piggy-back
registration right provided by this Section 7(c).
(d) Obligations of the Maker. Whenever required under this section to
------------------------
file a registration statement to effect the registration of any Registrable
Securities, the Maker shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of at least fifty percent (50%) of the Registrable Securities registered
thereunder, keep such registration statement effective for at least four (4)
months.
(ii) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus included therein as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(iii) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the Maker shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction.
(v) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such offering.
(vi) Notify the Holders promptly after the Maker shall have
received notice thereof, of the time when the registration statement becomes
effective or any supplement to any prospectus forming a part of the registration
statement has been filed.
(vii) Notify the Holders of any stop order suspending the
effectiveness of the registration statement and use its reasonable best efforts
to remove such stop order.
(e) Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Maker to take any action pursuant hereto that any Holder
seeking to include any of its Registrable Securities in a registration statement
filed by the Maker pursuant hereto shall furnish
7
<PAGE>
to the Maker such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of its Registrable Securities. In that
connection, each such Holder shall be required to represent to the Maker that
all such information which is given is both complete and accurate in all
material respects. Each of such Holders shall deliver to the Maker a statement
in writing from the beneficial owners of such securities that such beneficial
owners bona fide intend to sell, transfer or otherwise dispose of such
securities.
(f) Definition of Expenses.
----------------------
(i) "Registration Expenses" shall mean all expenses incurred by the
---------------------
Maker in complying with Sections 7(c) and 7(d) hereof, including without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Maker, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Maker which shall be
paid in any event by the Maker).
(ii) "Selling Expenses" shall mean all underwriting discounts,
----------------
selling commissions and underwriters' expense allowance applicable to the sale
and all fees and disbursements of any special counsel (other than the Maker's
regular counsel) for any Holder.
(g) Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance herewith, shall be
borne by the Maker, and all Selling Expenses shall be borne by the Holders of
the securities so registered pro rata on the basis of the number of Registrable
Securities so registered; provided, however, that the Maker shall not be
required to pay any Registration Expenses if, as a result of the withdrawal of a
request for registration by Initiating Holders, the registration statement does
not become effective. In the case of such withdrawal and the failure of the
Holders to agree so to forfeit, the Holders shall bear such Registration
Expenses pro rata on the basis of the number of Registrable Securities so
included in the registration request.
(h) Underwriting Requirements. All Holders proposing to distribute their
-------------------------
securities through an underwriting pursuant hereto shall (together with the
Maker and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Maker.
Notwithstanding any other provision of this section, at the request of the
managing underwriter, the Holder shall delay the sale of Registrable Securities
which such Holder has requested be registered under this section for the ninety
(90) day period commencing with the effective date of the registration
statement. Notwithstanding anything to the contrary herein, no such delay shall
be required with respect to securities offered by holders of securities who have
requested the Maker to register such securities pursuant to a mandatory
registration obligation of the Maker if other security holders of the Maker who
have not made requests pursuant to such an obligation are not subject to a
similar delay. If any Holder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Maker and the
8
<PAGE>
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(i) Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this section.
(j) Indemnification. In the event that any Registrable Securities are
---------------
included in a registration statement pursuant hereto:
(i) To the extent permitted by law, the Maker will indemnify and
hold harmless each Holder, the officers, directors and partners of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person or entity, if any, that controls such Holder or underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), against any losses, claims, damages or liabilities (joint
or several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"Violation"): (A) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (B) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (C) any violation or alleged violation by the Maker
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Maker will reimburse each such Holder, officer, director
or partner, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Maker (which consent shall not
be unreasonably withheld), nor shall the Maker be liable in any such case for
any such loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person;
and further provided, however, that the foregoing indemnity agreement is subject
to the condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in the definitive prospectus, such
indemnity agreement shall not inure to the benefit of the underwriter (or the
benefit of any person or entity that controls such underwriter), if a copy of
the definitive prospectus was not sent or given to such person or entity with or
prior to the confirmation of the sale of such securities to such person or
entity.
9
<PAGE>
(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Maker, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Maker within the meaning of the Securities Act or the Exchange Act,
any underwriter (within the meaning of the Securities Act) for the Maker, any
person who (or entity that) controls such underwriter, and any other Holder
selling securities in such registration statement or any of its directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Maker or any such
director, officer, controlling person (or entity), or underwriter or controlling
person, or other such Holder or director, officer or controlling person may
become subject, under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Maker or any
such director, officer, controlling person (or entity), underwriter or
controlling person (or entity), other Holder, officer, director or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld.
(iii) Promptly after receipt by an indemnified party under this
Section 7(j) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7(j), notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 7(j), but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 7(j).
(k) Reports Under Securities Exchange Act of 1934. With a view toward
---------------------------------------------
making available to Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Maker to the public without
registration, the Maker agrees to:
10
<PAGE>
(i) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all times;
(ii) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Maker under the Securities Act
and the Exchange Act; and
(iii) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request such information as may be
reasonably requested in order to allow any Holder to avail himself of any rule
or regulation of the SEC which permits the selling of any such securities
without registration.
l. Termination of the Maker's Obligations.
--------------------------------------
(i) The Maker shall have no obligation pursuant to Section 7(c)
with respect to any request made by any Holder after the second anniversary of
the Maturity Date.
(ii) Notwithstanding any provision hereof to the contrary, the Maker
shall not be required to effect any registration under the Securities Act or
under any state securities laws on behalf of any Holder or Holders if, in the
opinion of counsel for the Maker, the offering or transfer by such Holder or
Holders in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred and the method of offering or
transfer) is exempt from the registration requirements of the Securities Act and
the securities laws of applicable states.
8. Miscellaneous.
-------------
(a) Restricted Securities. By acceptance hereof, the Payee understands
---------------------
and agrees that this Note and the shares of Common Stock issuable upon
conversion hereof are "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Maker in a transaction not
involving a public offering and have not been the subject of registration under
the Securities Act and that under such laws and applicable regulations such
securities may be resold in the absence of registration under the Securities Act
only in certain limited circumstances. The Payee hereby represents that it is
familiar with Rule 144 promulgated under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
(b) Further Limitations on Disposition. This Note may not be negotiated,
----------------------------------
assigned or transferred by Payee. The Payee further agrees not to make any
disposition of all or any portion of this Note (or of the securities issuable
upon conversion hereof) unless and until:
(i) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement;
11
<PAGE>
(ii) such disposition is made in accordance with Rule 144 under the
Securities Act; or
(iii) the Payee shall have notified the Maker of the proposed
disposition and shall have furnished the Maker with a detailed statement of the
circumstances surrounding the proposed disposition, and the Payee shall have
furnished the Maker with an opinion of counsel, which opinion of counsel shall
be reasonably satisfactory to the Maker, that such disposition will not require
registration under the Securities Act and will be in compliance with applicable
state securities laws.
(c) Legends. It is understood that this Note and each certificate
-------
evidencing shares of Common Stock issuable upon conversion hereof (or evidencing
any other securities issued with respect thereto pursuant to any stock split,
stock dividend, merger or other form of reorganization or recapitalization)
shall bear the legends (in addition to any legends which may be required in the
opinion of the Maker's counsel by the securities laws of the state where the
Payee is located) set forth on the first page of this Note.
9. Presentment. Except as set forth herein, Maker waives presentment, demand
-----------
and presentation for payment, notice of nonpayment and dishonor, protest and
notice of protest and expressly agrees that this Note or any payment hereunder
may be extended from time to time by the Payee without in any way affecting the
liability of Maker.
10. Notices.
-------
(a) Notices to the Payee. Any notice required by the provisions of this
--------------------
Note to be given to the holder hereof shall be in writing and may be delivered
by personal service, facsimile transmission or by registered or certified mail,
return receipt requested, with postage thereon fully prepaid or overnight
delivery courier. All such communications shall be addressed to the Payee of
record at its address appearing on the books of the Maker. Service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing, whichever
is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note requires a
--------------------
notice to be given or a request to be made to the Maker by the Payee or the
holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event affecting this Note, then and
in each such case, any such notice or request shall be in writing and shall be
sent by registered or certified mail, return receipt requested with postage
thereon fully prepaid to the Maker at its principal place of business.
No notice given or request made hereunder shall be valid unless signed by
the Payee of this Note or other holder giving such notice or request (or, in the
case of a notice or request by Holders of a specified percent in aggregate
principal amount of outstanding Notes, unless signed
12
<PAGE>
by each Holder of a Note whose Note has been counted in constituting the
requisite percentage of Notes required to give such notice or make such
request).
11. Events of Default.
-----------------
(a) Each of the following shall constitute an event of default (an "Event
of Default") hereunder: (i) the failure to pay when due any principal or
interest hereunder and the continuance of such failure for a period of thirty
(30) days after written notice from the Payee to the Maker of such failure; (ii)
the violation by the Maker of any covenant or agreement contained in this Note
and the continuance of such violation for a period of thirty (30) days after
written notice from the Payee to the Maker of such failure; (iii) any change in
control of the Maker which the Board of Directors of the Maker deems to be
hostile or unfriendly; (iv) the assignment for the benefit of creditors by the
Maker; (v) the application for the appointment of a receiver or liquidator for
the Maker or for property of the Maker; (vi) the filing of a petition in
bankruptcy by or against the Maker; (vii) the issuance of an attachment or the
entry of a judgment against the Maker in excess of $50,000; (viii) a default by
the Maker with respect to any other indebtedness due to the Payee; (ix) the
making or sending of a notice of an intended bulk sale by the Maker; or (x) the
termination of existence, dissolution or insolvency of the Maker. Upon the
occurrence of any of the foregoing Events of Default, this Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder hereof become
immediately due and payable in full. Upon the occurrence of an Event of Default
which remains uncured as set forth herein and the placement of this Note in the
hands of an attorney for collection, the Maker agrees to pay reasonable
collection costs and expenses, including reasonable attorneys' fees and interest
from the date of the default at the rate of fifteen percent (15%) per annum
computed on the unpaid principal balance.
(b) The Payee waives any Event of Default hereunder. Such waiver shall be
evidenced by written notice or other document specifying the Event or Events of
Default being waived and shall be binding on all existing or subsequent Payees
under this Note.
12. Construction; Governing Law. The validity and construction of this Note
---------------------------
and all matters pertaining hereto are to be determined in accordance with the
laws of the State of Florida without regard to the conflicts of law principles
thereof.
* * * * *
13
<PAGE>
IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this convertible promissory note and affixed its
corporate seal as of this 21st day of February, 1996.
MEDCROSS, INC.
By: _______________________________
Henry Y.L. Toh, President
ATTEST:
____________________________________
Stephanie E. Giallourakis, Secretary
14
<PAGE>
CONVERSION FORM
The undersigned hereby elects to convert the following principal amount of
the attached Non-Negotiable 10% Convertible Promissory Note (the "Note") (not to
exceed $5,000) into shares of Common Stock of the Maker:
State such amount: ______________________________________ ($___________ ).
Date:___________________ Signature:
_________________________________________________
(Sign exactly as your name appears on the Note)
<PAGE>
EXHIBIT 10(cc)
SECOND AMENDMENT
to
MEDCROSS, INC.
SHAREHOLDERS' AGREEMENT
This Second Amendment (the "Second Amendment") is entered into as of this
_____ day of November 1995, by and among Four M International, Ltd. ("Four M"),
Walnut Capital Corp. ("Walnut") and Windy City, Inc. ("Windy City"), for the
purpose of amending that certain Shareholders' Agreement entered into in
February 1992, as amended by that certain First Amendment to the Shareholders'
Agreement entered into in January 1995 (as so amended, the "Shareholders'
Agreement").
Capitalized terms used herein but not otherwise defined shall have the
respective meanings attributed to them in the Shareholders' Agreement.
RECITALS:
WHEREAS, the parties hereto are parties to the Shareholders' Agreement and
own an aggregate of 192,500 shares of Class A Variable Rate Cumulative
Convertible Preferred Stock, par value $10.00 per share (the "Class A Preferred
Stock") of Medcross, Inc. ("the Company");
WHEREAS, the shares of Class A Preferred Stock are convertible into an
aggregate of 4,710,919 shares of common stock, par value $.007 per share (the
"Common Stock");
WHEREAS, Walnut owns 25,000 shares of the Class A Preferred Stock
(convertible into 611,807 shares of Common Stock; Windy City owns 7,500 shares
of Class A Preferred Stock (convertible into 183,542 shares of Common Stock);
and Four M owns 160,000 shares of the Class A Preferred Stock (convertible into
3,915,570 shares of Common Stock);
WHEREAS, Canadian Imperial Bank of Commerce and Trust Company (Bahamas)
Limited, as trustee ("CIB") is a party to the Shareholders' Agreement but has
not been made a party hereto and owns 7,500 shares of Class A Preferred Stock
(convertible into 183,542 shares of Common Stock);
WHEREAS, Walnut, Windy City and Four M collectively own in excess of two-
thirds of the shares of Class A Preferred Stock subject to the Shareholders'
Agreement, as contemplated by Section 2 of the Shareholders' Agreement relating
to the permitted disposition of such shares;
WHEREAS, Walnut and Windy City own in excess of two-thirds of the shares of
Class A Preferred Stock owned by the Kanter Group, as contemplated by Subsection
22(c) of the Shareholders' Agreement relating to amendment of such agreement;
<PAGE>
WHEREAS, Four M owns all of the shares of Class A Preferred Stock owned by
the Four M Group, as contemplated by Subsection 22(c) of the Shareholders'
Agreement relating to amendment of such agreement;
WHEREAS, Walnut and Windy City have agreed pursuant to the terms of a
certain letter agreement to be executed contemporaneously herewith (the "Letter
Agreement") to sell, assign, transfer and convey to Four M (or its assignees)
all of the right, title and interest in and to the shares of Class A Preferred
Stock respectively owned by each of Walnut and Windy City;
WHEREAS, Joel S. Kanter, as the Kanter Group Representative, has agreed to
obtain the consent of CIB to become a party to the Letter Agreement and to sell,
assign, transfer and convey its shares of Class A Preferred Stock to Four M (or
its assignees);
WHEREAS, pursuant to the authority set forth in Subsection 22(c) of the
Shareholders' Agreement, it is the desire of Walnut, Windy City and Four M
(having ownership of the requisite amount of shares of Class A Preferred Stock
required to amend the provisions of the Shareholders' Agreement) to amend
Subsection 22(d) of the Shareholders' Agreement to provide for termination
thereof upon consummation of the transactions contemplated by the Letter
Agreement;
WHEREAS, the provisions of the Letter Agreement shall be subject to
amendment and termination of the Shareholders' Agreement as set forth herein;
and
WHEREAS, effectiveness of this Second Amendment shall be subject to
consummation of the transactions contemplated by the Letter Agreement as
hereinafter set forth in Section 2 below.
NOW, THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
1. Amendment of Subsection 22(d). Pursuant to the authority granted to
-----------------------------
the parties hereto by Subsection 22(c) of the Shareholders' Agreement, the
Shareholders Agreement is hereby amended to add to the list of events which
trigger automatic termination of the Shareholders' Agreement the sale of all of
the shares of Class A Preferred Stock owned by Walnut and Windy City to Four M
(or its assignees) as contemplated by the Letter Agreement, as follows:
(a) the word "or" appearing on the second to last line of Subsection
22(d) shall be deleted; and
2
<PAGE>
(b) the period at the end of the last line of Subsection 22(d) shall be
deleted and replaced with a semi-colon which shall be followed by "or (v) the
sale of all of the Shares owned by Walnut and Windy City to Four M (or its
assignees)."
2. Effectiveness. This Second Amendment shall become effective
-------------
automatically upon consummation of the transactions contemplated by the Letter
Agreement, at which time the Shareholders' Agreement shall terminate pursuant to
the terms hereof and shall be deemed to be of no further force or effect
whatsoever.
3. Condition Precedent. The effectiveness of this Second Amendment to the
-------------------
Shareholders' Agreement shall be subject to and specifically conditioned upon
consummation of the transactions contemplated by the Letter Agreement. In the
event that the foregoing condition is not met, this Second Amendment shall be
null and void and of no force or effect whatsoever.
4. Counterparts. This Second Amendment may be executed in counterparts,
------------
each of which shall be an original, but all of which shall constitute one and
the same agreement.
* * * * *
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as of the date first above written.
WALNUT CAPITAL CORP.
By:
---------------------------------
Joel S. Kanter, President
WINDY CITY, INC.
By:
--------------------------------
Joel S. Kanter, President
FOUR M INTERNATIONAL, LTD.
By:
--------------------------------
Henry Y.L. Toh
4
<PAGE>
Exhibit 10(dd)
THIRD AMENDMENT
to
MEDCROSS, INC.
SHAREHOLDERS' AGREEMENT
This Third Amendment (the "Third Amendment") is entered into as of this
31st day of January, 1996, by and among Four M International, Ltd. ("Four M"),
Walnut Capital Corp. ("Walnut") and Windy City, Inc. ("Windy City"), for the
purpose of amending that certain Shareholders' Agreement entered into in
February 1992, as amended by the First Amendment to the Shareholders' Agreement
entered into in January 1995 and the Second Amendment to the Shareholders'
Agreement entered into in November 1995 (as so amended, the "Shareholders'
Agreement").
Capitalized terms used herein but not otherwise defined shall have the
respective meanings attributed to them in the Shareholders' Agreement.
RECITALS:
WHEREAS, the parties hereto are parties to the Shareholders' Agreement and
own an aggregate of 192,500 shares of Class A Variable Rate Cumulative
Convertible Preferred Stock, par value $10.00 per share (the "Class A Preferred
Stock") of Medcross, Inc. ("the Company");
WHEREAS, the shares of Class A Preferred Stock are convertible into an
aggregate of 4,710,919 shares of common stock, par value $.007 per share (the
"Common Stock");
WHEREAS, Walnut owns 25,000 shares of the Class A Preferred Stock
(convertible into 611,807 shares of Common Stock; Windy City owns 7,500 shares
of Class A Preferred Stock (convertible into 183,542 shares of Common Stock);
and Four M owns 160,000 shares of the Class A Preferred Stock (convertible into
3,915,570 shares of Common Stock);
WHEREAS, Canadian Imperial Bank of Commerce and Trust Company (Bahamas)
Limited, as trustee ("CIB") is a party to the Shareholders' Agreement but has
not been made a party hereto and owns 7,500 shares of Class A Preferred Stock
(convertible into 183,542 shares of Common Stock);
WHEREAS, Walnut, Windy City and Four M collectively own in excess of two-
thirds of the shares of Class A Preferred Stock subject to the Shareholders'
Agreement, as contemplated by Section 2 of the Shareholders' Agreement relating
to the permitted disposition of such shares;
WHEREAS, Walnut and Windy City own in excess of two-thirds of the shares of
Class A Preferred Stock owned by the Kanter Group, as contemplated by Subsection
22(c) of the Shareholders' Agreement relating to amendment of such agreement;
<PAGE>
WHEREAS, Four M owns all of the shares of Class A Preferred Stock owned by
the Four M Group, as contemplated by Subsection 22(c) of the Shareholders'
Agreement relating to amendment of such agreement;
WHEREAS, Walnut and Windy City have agreed pursuant to the terms of a
certain letter agreement to be executed contemporaneously herewith (the "Letter
Agreement") to sell, assign, transfer and convey all of the right, title and
interest in and to the shares of Class A Preferred Stock respectively owned by
each of Walnut and Windy City;
WHEREAS, Joel S. Kanter, as the Kanter Group Representative, has agreed to
obtain the consent of CIB to become a party to the Letter Agreement and to sell,
assign, transfer and convey its shares of Class A Preferred Stock;
WHEREAS, pursuant to the authority set forth in Subsection 22(c) of the
Shareholders' Agreement, it is the desire of Walnut, Windy City and Four M
(having ownership of the requisite amount of shares of Class A Preferred Stock
required to amend the provisions of the Shareholders' Agreement) to amend
Subsection 22(d) of the Shareholders' Agreement to provide for termination
thereof upon consummation of the transactions contemplated by the Letter
Agreement;
WHEREAS, the provisions of the Letter Agreement shall be subject to
amendment and termination of the Shareholders' Agreement as set forth herein;
and
WHEREAS, effectiveness of this Third Amendment shall be subject to
consummation of the transactions contemplated by the Letter Agreement as
hereinafter set forth in Section 2 below.
NOW, THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
1. Amendment of Subsection 22(d). Pursuant to the authority granted to
-----------------------------
the parties hereto by Subsection 22(c) of the Shareholders' Agreement, the
Shareholders Agreement is hereby amended to add to the list of events which
trigger automatic termination of the Shareholders' Agreement the sale of all of
the shares of Class A Preferred Stock owned by Walnut and Windy City to a person
(or persons) approved by Four M as contemplated by the Letter Agreement, as
follows:
(a) the word "or" appearing on the second to last line of Subsection
22(d) shall be deleted; and
2
<PAGE>
(b) the period at the end of the last line of Subsection 22(d) shall be
deleted and replaced with a semi-colon which shall be followed by "or (v) the
sale of all of the Shares owned by Walnut and Windy City to a person or persons
approved by Four M."
2. Effectiveness. This Third Amendment shall become effective
-------------
automatically upon consummation of the transactions contemplated by the Letter
Agreement, at which time the Shareholders' Agreement shall terminate pursuant to
the terms hereof and shall be deemed to be of no further force or effect
whatsoever.
3. Condition Precedent. The effectiveness of this Third Amendment to the
-------------------
Shareholders' Agreement shall be subject to and specifically conditioned upon
consummation of the transactions contemplated by the Letter Agreement. In the
event that the foregoing condition is not met, this Third Amendment shall be
null and void and of no force or effect whatsoever.
4. Counterparts. This Third Amendment may be executed in counterparts,
------------
each of which shall be an original, but all of which shall constitute one and
the same agreement.
* * * * *
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
as of the date first above written.
WALNUT CAPITAL CORP.
By:
--------------------------------
Joel S. Kanter, President
WINDY CITY, INC.
By:
--------------------------------
Joel S. Kanter, President
FOUR M INTERNATIONAL, LTD.
By:
--------------------------------
Henry Y.L. Toh
4
<PAGE>
EXHIBIT 10(ee)
IBM Credit Corporation Stamford, CT 06904
Term Lease Master Agreement
Name and Address of Lessee: I-LINK WORLDWIDE INC. Agreement No.: 4486694
One Chishom Trail
Suite 4250
Round Rock, TX 78681 Branch Office No.: 5W3
Branch Office Address: SO TEXAS DMC Customer No. 4486694
1605 LBJ Freeway
Dallas, TX 75234-6094
The Lessor pursuant to this Term Lease Master Agreement ("Agreement") will
be (a) IBM Credit Corporation, or a subsidiary or affiliate thereof, (b) a
partnership in which IBM Credit Corporation is a partner, or (c) a related
business enterprise for whom IBM Credit Corporation is the agent ("Lessor").
The subject matter of the lease shall be machines, field installable upgrades,
feature additions or accessories marketed by International Business Machines
Corporation ("IBM") and shall be referred to as Equipment. Any lease
transaction requested by Lessee and accepted by Lessor shall be specified in a
Term Lease Supplement ("Supplement"). A Supplement shall refer to and
incorporated by reference this Agreement and, when signed by the parties, shall
constitute the lease ("Lease") for the Equipment specified therein. Additional
details pertaining to a Lease shall be specified in a Supplement. A Supplement
may also specify additional terms and conditions as well as other amounts to be
financed ("Financing"). Financing may include licensed program material charges
("LPM Charges") for licensed programs marketed by IBM under the referenced IBM
license agreement ("License Agreement").
1. OPTIONS. The Supplement shall designate various lease and financing
options. Option A is a Lease available only for Modifications (Paragraph 23) to
Equipment under Option A prior to enactment of the Tax Reform Act of 1986.
Option B is a Lease with a fair market purchase option at the end of the Lease.
For Equipment under Option B Prime (B), Lessor assumes for tax purposes that
Lessee is the owner. For financing LPM Charges, Option S will apply.
2. CREDIT REVIEW. For each Lease, Lessee consents to any reasonable
credit investigation and review by Lessor.
3. AGREEMENT TERM. This Agreement shall be effective when signed by both
parties and may be terminated by either party upon one month's written notice.
However, each Lease then in effect shall survive any termination of this
Agreement.
4. CHANGES. Lessor may, upon prior written notice, change the terms and
conditions of this Agreement. Any change will apply on the effective date
specified in the notice to Leases which have an Estimated Shipment Date, or
Effective Date for Additional License, one month or more after the date of
notice. By notice to Lessor in writing prior to delivery, or Effective Date for
Additional License, and within 15 days after receipt of such notice, Lessee may
terminate the Lease for an affected item. Otherwise, the change shall apply.
5. ADVANCE RENT. Lessee shall pay to Lessor, prior to Lessee's
acceptance of a Lease, Advance Rent, if specified. Advance Rent shall be
refunded if Lessor for any reason does not accept the Lease or Lessee terminates
the Lease in accordance with Paragraph 4, 12 or 15.
<PAGE>
6. SELECTION AND USE OF EQUIPMENT, PROGRAMMING AND LICENSED PROGRAM
MATERIALS. Lessee agrees that it shall be responsible for the selection, use
of, and results obtained from, the Equipment, any programming supplied by IBM
without additional charge for use on the Equipment ("Programming") licensed
program materials, and any other associated equipment, programs or services.
7. ASSIGNMENT TO LESSOR. Lessee hereby assigns, exclusively to Lessor,
Lessee's right to purchase the Equipment from IBM. This assignment is effective
when Lessor accepts the applicable Supplement and Lessor shall then be obligated
to purchase and pay for the Equipment. Other than the obligation to pay the
purchase price, all responsibilities and limitations applicable to Customer as
defined in the referenced IBM purchase agreement in effect at the time the Lease
is accepted by Lessor ("Purchase Agreement") shall apply to Lessee.
If the Equipment is subject to a volume procurement amendment to the
Purchase Agreement or to another discount offering, (a) Lessor will pay the same
amount for the Equipment that would have been payable by Lessee, and (b) Lessee
will remain responsible to IBM for any late order change charges, settlement
charges, adjustment charges or any other charges incurred under the volume
procurement amendment or other discount offering.
8. LEASE NOT CANCELLABLE; LESSEE'S OBLIGATIONS ABSOLUTE. Lessee's
obligation to pay shall be absolute and unconditional and shall not be subject
to any delay, reduction, set-off, defense, counterclaim or recoupment for any
reason whatsoever, including any failure of the Equipment, Programming or
licensed program materials or any representations by IBM. If the Equipment,
Programming or licensed program materials are unsatisfactory for any reason,
Lessee shall make any claim solely against IBM and shall, nevertheless, pay
Lessor all amounts payable under the Lease.
9. WARRANTIES. Lessor grants to Lessee the benefit of any and all
warranties made available by IBM in the Purchase Agreement. Lessor warrants
that neither Lessor nor anyone acting or claiming through Lessor, by assignment
or otherwise, will interfere with Lessee's quiet enjoyment of the use of the
Equipment so long as no event of default shall have occurred and be continuing
EXCEPT FOR LESSOR'S WARRANTY OF QUIET ENJOYMENT LESSOR MAKES NO WARRANTY,
EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
AS TO LESSOR, LESSEE LEASES THE EQUIPMENT AND TAKES ANY PROGRAMMING "AS IS." IN
NO EVENT SHALL LESSOR HAVE ANY LIABILITY FOR, NOR SHALL LESSEE HAVE ANY REMEDY
AGAINST LESSOR FOR, CONSEQUENTIAL DAMAGES, ANY LOSS OF PROFITS OR SAVINGS, LOSS
OF USE, OR ANY OTHER COMMERCIAL LOSS.
10. LESSEE AUTHORIZATION. So long as Lessee is not in default under the
Lease (a) Lessee is authorized to act on Lessor's behalf concerning delivery and
installation of the Equipment, any IBM warranty service for the Equipment, and
any programming services for the Programming, and (b) Lessee shall have, solely
for these purposes, all rights Lessor may have against IBM under the Purchase
Agreement. The foregoing authorization shall not constitute any surrender of
Lessor's interest in the Equipment.
11. DELIVERY AND INSTALLATION. Lessee shall arrange with IBM for the
delivery of the Equipment and Programming and for installation of the Equipment
at the Equipment Location. Lessee shall pay any delivery and installation
charges. Lessor shall not be liable to Lessee for any delay in, or failure of,
delivery of the Equipment and Programming. Lessee shall examine the Equipment
and Programming immediately upon delivery. If the Equipment is not in good
condition or the Equipment or Programming does not correspond to IBM's
specifications, Lessee shall promptly give IBM written notice and shall provide
IBM reasonable assistance to cure the defect or discrepancy.
2
<PAGE>
12. LATE DELIVERY. If the Equipment or licensed program materials are not
delivered to the Equipment Location on or before the 15th day after the
Estimated Shipment Date, Lessor may, upon written notice to Lessee, increase the
Lease Rate. Lessee may terminate the Lease for the affected item by giving
Lessor written notice prior to delivery. Otherwise, the Rent shall be adjusted
to reflect such increase.
13. RENT COMMENCEMENT DATE. The Rent Commencement Date, unless otherwise
specified in the Supplement, shall be the date payment is due IBM under the
applicable referenced agreement. Lessee shall be notified of the Rent
Commencement Date and the serial numbers of the Equipment.
14. LEASE TERM. The Lease shall be effective when signed by both parties.
The initial Term of the Lease shall expire at the end of the number of Payment
Periods, specified as "Term" in the Supplement, after the Rent Commencement
Date. However, obligations under the Lease shall continue until they have been
performed in full.
15. RATE PROTECTION. Unless modified pursuant to Paragraph 12, the Rent
shall be based on the Lease Rate specified in the Supplement or such greater
Lease Rate as may be specified by written notice to Lessee more than one month
before the Estimated Shipment Date or Effective Date for Additional License. By
notice to Lessor in writing prior to delivery, or Effective Date for Additional
License, and within 15 days after receipt of such notice, Lessee may terminate
the Lease for the affected item. Otherwise, the Rent shall be adjusted to
reflect the increase. The Unit Purchase Price and LPM Charges are subject to
change in accordance with the referenced agreements.
16. RENT. During the initial Term, Lessee shall pay Lessor, for each
Payment Period, Rent as determined in Paragraph 15. Lessee's obligation to pay
shall begin on the Rent Commencement Date. Rent will be invoiced in advance as
of the first day of each Payment Period and will be due on the day following the
last day of the Payment Period. When the Rent Commencement Date is not on the
first day of a calendar month and/or when the initial Term does not expire on
the last day of a calendar month, the applicable Rent will be prorated on the
basis of 30-day months. Advance Rent, if any, will be applied to the initial
invoice(s).
17. RENEWAL. If Lessee is not then in default under the Lease, Lessee may
renew the Lease one or more times but not beyond six years from the expiration
of the initial Term. Lessor shall offer renewal Terms of one year and may offer
longer Terms if then generally available. For a renewal Term, upon request by
Lessee, at least five months prior to Lease expiration, Lessor shall notify
Lessee, at least four months prior to expiration, of the Rent, any changes to
the Payment Period and due dates, and of any required Purchase Option or Renewal
Option Percents not specified in the Supplement. The Rent shall be objectively
determined by Lessor by using the projected fair market rental value of the
Equipment as of the commencement of such renewal Term. However, for Option B,
the Rent shall be as specified in the Supplement. Lessee may renew for any
renewal Term only by so notifying Lessor in writing at least three months before
expiration.
18. PURCHASE OF EQUIPMENT. If Lessee is not then in default under the
Lease, Lessee may, upon three months prior written notice to Lessor, purchase
Equipment upon expiration of the Lease. Under Option A or B, the purchase price
shall be objectively determined by Lessor by using the projected fair market
sales value of the Equipment as of such expiration date plus, for Equipment
under Option A, any recapture of investment tax credit and any tax due thereon.
Under Option B Prime (B) the purchase price shall be an amount determined by
multiplying the Unit Purchase Price by the Purchase Option Percent for such
Equipment.
If Lessee purchases any Equipment, Lessee shall, on or before the date
of purchase, pay to Lessor the purchase price, any applicable taxes, all Rent
due through the day preceding the date of purchase, any other amounts due, and
the prepayment of Financing (Paragraph 35). Lessor shall, on the date of
purchase, transfer to Lessee by bill of sale,
3
<PAGE>
without recourse or warranty of any kind, express or implied, all of Lessor's
right, title and interest in and to such Equipment on an "As Is, Where Is" basis
except that Lessor shall warrant title free and clear of all encumbrances.
19. OPTIONAL EXTENSION. If Lessee has not elected to renew or purchase,
and as long as Lessee is not in default under the Lease, the Lease will be
extended unless Lessee notifies Lessor in writing, not less than three months
prior to Lease expiration that Lessee does not want the extension. The
extension will be under the same terms and conditions then in effect, including
Rent (but, for Options A or B, not less than fair market rental value) and will
continue until the earlier of termination by either party upon three months'
prior written notice or six years after expiration of the initial Term.
20. INSPECTION; MARKING; FINANCING STATEMENT. Upon request, Lessee shall
make the Equipment and its maintenance records available for inspection by
Lessor during Lessee's normal business hours. Lessee shall affix to the
Equipment any labels indicating ownership supplied by Lessor. Lessee shall
execute and deliver to Lessor for filing any Uniform Commercial Code financing
statements or similar documents Lessor may reasonably request.
21. EQUIPMENT USE. Lessee agrees that Equipment will be operated by
competent, qualified personnel, in accordance with applicable operating
instructions, laws and government regulations and that Equipment under Option A
will be used only for business purposes.
22. MAINTENANCE. Lessee, at its expense, shall keep the Equipment in a
suitable environment as specified by IBM ad in good condition and working order,
ordinary wear and tear excepted.
23. ALTERATIONS; MODIFICATIONS; PARTS. Lessee may alter or modify the
Equipment only upon written notice to Lessor. Any non-IBM alteration is to be
removed and the Equipment restored to its normal, unaltered condition at
Lessee's expense prior to its return to Lessor. At Lessee's option, any IBM
field installable upgrade, feature addition or accessory added to any item of
Equipment (Modification) may be removed. If removed, the Equipment is to be
restored at Lessee's expense to its normal, unmodified condition. If not
removed, such Modification shall, upon return of the Equipment, become, without
charge, the property of Lessor free of all encumbrances. Restoration will
include replacement of any parts removed in connection with the installation of
an alteration or Modification. Any part installed in connection with warranty
or maintenance service shall be the property of Lessor.
24. LEASES FOR MODIFICATIONS AND ADDITIONS. Lessor will arrange for
leasing of Modifications and Additions under terms and conditions then generally
in effect, subject to satisfactory credit review. Additions shall be machines,
or LPM Charges for licensed program materials, which are associated with the
Equipment. These Modifications and Additions must be ordered by Lessee from
IBM. Any lease for Modifications shall, and any lease for Additions may, expire
at the same time as the Lease for the Equipment. The rent shall be determined
by Lessor and specified in a Supplement. If Lessee purchases Equipment prior to
Lease expiration, Lessee shall simultaneously purchase any Modifications under
the Lease.
25. RETURN OF EQUIPMENT. Upon expiration or termination of the Lease for
any item of Equipment, or upon demand by Lessor pursuant to Paragraph 38, Lessee
shall promptly return the Equipment, freight prepaid, to a location in the
continental United States specified by Lessor. Except for Casualty Loss, Lessee
shall pay any costs and expenses incurred by Lessor to inspect and qualify the
Equipment for IBM's maintenance agreement service. Any parts removed in
connection therewith shall become Lessor's property.
4
<PAGE>
26. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessor will maintain, at its own
expense, insurance covering loss of or damage to the Equipment (but excluding
any Modifications not subject to a Lease and any non-IBM alterations) with a
$5,000 deductible per incident. If any item of Equipment shall lost, stolen,
destroyed or irreparably damaged by any cause whatsoever ("Casualty Loss")
before the date of Installation as defined in the Purchase Agreement, the Lease
for that item shall terminate. If any item of Equipment suffers Casualty Loss,
or shall be otherwise damaged, on or after the Date of Installation, Lessee
shall promptly inform Lessor. If Lessor determines that the item can be
economically repaired, Lessee shall place the item in good condition and working
order and Lessor will reimburse Lessee the reasonable cost of such repair, less
the deductible. If not so repairable, Lessee shall pay Lessor the lesser of
$5,000 or the fair market value of the Equipment immediately prior to the
Casualty Loss. Upon Lessor's receipt of payment, the Lease for that item shall
terminate.
27. TAXES. Lessee shall promptly reimburse Lessor for, or shall pay
directly if so requested by Lessor, as additional Rent, all taxes, charges, and
fees imposed or levied by any governmental body or agency upon or in connection
with the purchase, ownership leasing, possession, use or relocation of the
Equipment or Programming or in connection with the financing of LPM Charges or
otherwise in connection with the transactions contemplated by the Lease,
excluding, however, all taxes on or measured by the net income of Lessor. Upon
request, Lessee will provide proof of payment. Any other taxes, charges and
fees relating to the licensing, possession or use of licensed program materials
will be governed by the License Agreement.
28. LESSOR'S PAYMENT. If Lessee fails to perform its obligations under
Paragraph 27 or 31 or to discharge any encumbrances created by Lessee, Lessor
shall have the right to substitute performance, in which case, Lessee shall pay
Lessor the cost thereof.
29. TAX INDEMNIFICATION (APPLIES ONLY FOR EQUIPMENT UNDER OPTIONS A OR B).
The Lease is entered into on the basis that under the Internal Revenue Code of
1986, as amended ("Code"), Lessor shall be entitled to (1) maximum Accelerated
Cost Recovery System ("ACRS") deductions for 5-year property and (2) deductions
for interest expense incurred to finance purchase of the Equipment. The
Bulletin "Lessor's Tax Assumptions" will be given to Lessee on request.
Lessee represents, warrants and covenants that at all times during the
Lease:
(a) no item of Equipment will constitute "public utility property" as
defined in the Code;
(b) Lessee will not make any election under the Code or take any
action, or fail to take any action, if such election, action or failure to act
would cause any item of Equipment to cease to be eligible for any ACRS
deductions or interest deductions;
(c) Lessee will keep and make available to Lessor the records required
to establish the matters referred to in this Paragraph 29; and
(d) for Equipment located in a United States possession, Lessee
represents that Lessee is a tax exempt entity as defined in the Code.
Furthermore, if Lessee is a tax exempt entity, Lessee covenants that it
will not renew or extend the Lease if such action shall cause Lessor a Tax Loss
as described below.
5
<PAGE>
If, as a result of any act, failure to act, misrepresentation, inaccuracy,
or breach of any warranty or covenant, or default under the Lease, by Lessee, an
affiliate of Lessee, or any person who shall obtain the use of possession of any
item of Equipment through Lessee, Lessor shall lose the right to claim or shall
suffer any disallowance or recapture of all or any portion of any ACRS
deductions or interest deductions ("Tax Loss") with respect to any item of
Equipment, then, promptly upon written notice to Lessee that a Tax Loss has
occurred, Lessee shall reimburse Lessor the amount determined below.
The reimbursement shall be an amount that, in the reasonable opinion of
Lessor, shall make Lessor's after-tax rate of return and cash flows ("Financial
Returns"), over the term of the Lease for such item of Equipment, equal to the
expected Financial Returns that would have been otherwise available. The
reimbursement shall take into account the effects of any interest, penalties and
additions to tax required to be paid by Lessor as a result of such Tax Loss and
all taxes required to be paid by Lessor as a result of any payments pursuant to
this paragraph. Financial Returns shall be based on economic and tax
assumptions used by Lessor in entering into the Lease.
All the rights and privileges of Lessor arising from this Paragraph 29
shall survive the expiration or termination of the Lease.
For purposes of determining tax effects under Paragraphs 18, 27, 29 and 30,
the term "Lessor" shall include, to the extent of interests, any partner in
Lessor and any affiliated group of corporations and each member thereof, of
which Lessor or any such partner is or shall become a member and with which
Lessor or any such partner joins in the filing of consolidated or combined
returns.
30. GENERAL INDEMNITY. This Lease is a net lease. Therefore, Lessee
shall indemnify Lessor against, and hold Lessor harmless from, any and all
claims, actions, damages, obligations, liabilities and liens; and all costs and
expenses, including legal fees, incurred by Lessor in connection therewith;
arising out of the Lease including, without limitation, the purchase, ownership
lease, licensing, possession, maintenance, condition, use or return of the
Equipment, Programming or licensed program materials; or arising by operation of
law; excluding, however, any of the foregoing which result from the sole
negligence or willful misconduct of Lessor. Lessee agrees that upon written
notice by Lessor of the assertion of any claim, action, damage, obligation,
liability or lien, Lessee shall assume full responsibility for the defense
thereof. Any payment pursuant to this paragraph shall be of such amount as
shall be necessary so that, after payment of any taxes required to be paid
thereon by Lessor, including taxes on or measured by the net income of Lessor,
the balance will equal the amount due hereunder. Lessee's obligations under
this paragraph shall not constitute a guarantee of the residual value or useful
life of any item of Equipment or a guarantee of any debt of Lessor. The
provisions of this paragraph with regard to matters arising during the Lease
shall survive the expiration or termination of the Lease.
31. LIABILITY INSURANCE. Lessee shall obtain and maintain comprehensive
general liability insurance, in an amount of $1,000,000 or more for each
occurrence, with an insurer having a "Best's Policyholders" rating of B+ or
better. The policy shall name Lessor as an additional insured as Lessor's
interests may appear and shall contain a clause requiring the insurer to give
Lessor at least one month's prior written notice of the cancellation, or any
alteration in the terms, of the policy. Lessee shall furnish to Lessor, upon
request, evidence that such insurance coverage is in effect.
32. SUBLEASE AND RELOCATION OF EQUIPMENT; ASSIGNMENT BY LESSEE. Upon
Lessor's prior written consent, which will not be unreasonably withheld, Lessee
may sublet the Equipment or relocate it from the Equipment Location. No
sublease or relocation shall relieve Lessee of its obligations under the Lease.
In no event shall Lessee remove the Equipment from the United States. Lessee
shall not assign, transfer or otherwise dispose of the Lease
6
<PAGE>
or Equipment, or any interest therein, or create or suffer any levy, lien or
encumbrance thereof except those created by Lessor.
33. ASSIGNMENT BY LESSOR. Lessor acknowledges and understands that the
terms and conditions of the Lease have been fixed to enable Lessor to sell and
assign its interest or grant a security interest or interests in the Lease and
the Equipment individually or together, in whole or in part, for the purpose of
securing loans to Lessor or otherwise. If Lessee is given written notice of any
assignment, it shall promptly acknowledge receipt thereof in writing. Each such
assignee shall have all of the rights of Lessor under the Lease. Lessee shall
not assert against any such assignee any set-off, defense or counterclaim that
Lessee may have against Lessor or any other person. Lessor shall not be
relieved of its obligations hereunder as a result of any such assignment unless
Lessee expressly consents thereto.
34. FINANCING. If the Lease provides for financing of LPM Charges, Lessor
will pay such Charges directly to IBM. Any other charges due IBM under the
License Agreement shall be paid directly to IBM by Lessee. Lessee's obligation
to pay Rent shall not be affected by any discontinuance, return or destruction
of any license or licensed program materials under the License Agreement on or
after the date LPM Charges are due. If Lessee discontinues any of the licensed
program materials in accordance with the terms of the License Agreement prior to
the date LPM Charges are due, the financing of affected LPM Charges shall be
cancelled.
35. FINANCING PREPAYMENT (Does Not Apply For Items of Equipment). Lessee
may terminate an item of Financing (but not an item of Equipment) by prepaying
its remaining Rent. Lessee shall provide Lessor with notice of the intended
prepayment date which shall be at least one month after the date of the notice.
Lessor may, depending on market conditions at the time, make an adjustment in
the remaining Rent to reflect such prepayment and shall advise Lessee of the
balance to be paid. If, prior to Lease expiration, Lessee purchases the
Equipment or if the Lease is terminated, Lessee shall at the same time prepay
any related Financing including that for programs licensed to the Equipment.
36. DELINQUENT PAYMENTS. If any amount to be paid to Lessor is not paid
on or before its due date, Lessee shall pay Lessor on demand 2% of such late
payment for each month or part thereof from the due date until the date paid or,
if less, the maximum allowed by law.
37. DEFAULT; NO WAIVER. Lessee shall be in default under the Lease upon
the occurrence of any of the following events: (a) Lessee fails to pay when due
any amount required to be paid by Lessee under the Lease and such failure shall
continue for a period of seven days after the due date; (b) Lessee fails to
perform any other provisions under the Lease or violates any of the covenants or
representations made by Lessee in the Lease, or Lessee fails to perform any of
its obligations under any other Lease entered into pursuant to this Agreement,
and such failure or breach shall continue unremedied for a period of 15 days
after written notice is received by Lessee from Lessor; (c) Lessee violates any
of the covenants or representations made by Lessee in any application for credit
or in any agreement with IBM with respect to the Equipment or licensed program
materials or fails to perform any provision in any such agreement (except the
obligation to pay the purchase price or LPM Charges); (d) Lessee makes an
assignment for the benefit of creditors, whether voluntary or involuntary, or
consents to the appointment of a trustee or receiver, or if either shall be
appointed for Lessee or for a substantial part of its property without its
consent; (e) any petition or proceeding if filed by or against Lessee under any
Federal or State bankruptcy or insolvency code or similar law; or (f) if
applicable, Lessee makes a bulk transfer subject to the provisions of the
Uniform Commercial Code.
Any failure of Lessor to require strict performance by Lessee or any waiver
by Lessor of any provision in the Lease shall not be construed as a consent or
waiver of any breach of the same or of any other provision.
7
<PAGE>
38. REMEDIES. If Lessee is in default under the Lease, Lessor shall have
the right, in its sole discretion, to exercise any one or more of the following
remedies in order to protect its interests, reasonably expected profits and
economic benefits. Lessor may (a) declare any Lease entered into pursuant to
this Agreement to be in default; (b) terminate in whole or in part any Lease;
(c) recover from Lessee any and all amounts then due and to become due; (d) take
possession of any or all items of Equipment, wherever located, without demand or
notice, without any court order or other process of law; and (e) demand that
Lessee return any or all such items of Equipment to Lessor in accordance with
Paragraph 25 and, for each day that Lessee shall fail to return any or all such
items of Equipment, Lessor may demand an amount equal to the Rent, prorated on
the basis of a 30-day month, in effect immediately prior to such default. Upon
repossession or return of such item or items of Equipment, Lessor shall sell,
lease or otherwise dispose of such item or items in a commercially reasonable
manner, with or without notice and on public or private bid, and apply the net
proceeds thereof towards the amounts due under the Lease but only after
deducting (i) in the case of sale, the estimated fair market value of such item
or items as of the scheduled expiration of the Lease; or (ii) in the case of any
replacement lease, the rent due for any period beyond the scheduled expiration
of the Lease for such item or items; (iii) in either case, all expenses,
including legal fees, incurred in connection therewith; and (iv) where
appropriate, any amount in accordance with Paragraph 29. Any excess net
proceeds are to be retained by Lessor. Lessor may pursue any other remedy
available at law or in equity, including, but not limited to, seeking damages,
specific performance and an injunction.
No right or remedy is exclusive of an other provided herein or permitted by
law or equity. All such rights and remedies shall be cumulative and may be
enforced concurrently or individually from time to time.
39. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all costs and
expense, including legal and collection fees incurred by Lessor in enforcing the
terms, conditions or provisions of the Lease or in protecting Lessor's rights
and interests in the Lease and the Equipment.
40. OWNERSHIP; PERSONAL PROPERTY; LICENSED PROGRAM MATERIALS. The
Equipment under Lease is and shall be the property of Lessor. Lessee shall have
no right, title or interest therein except as set forth in the Lease. The
Equipment is and shall at all times be and remain, personal property and shall
not become a fixture or realty. Licensed program materials are licensed and
provided by IBM directly to Lessee under the terms and conditions of the License
Agreement.
41. NOTICES; ADMINISTRATION. Service of all notices under the Lease shall
be sufficient if delivered personally or mailed to Lessee at its address
specified in the Supplement or to IBM Credit Corporation as Lessor in care of
the IBM Branch Office specified in the Supplement. Notice by mail shall be
effective when deposited in the United States mail, duly addressed and with
postage prepaid. Notices, consents and approvals from or by Lessor shall be
given by Lessor or on its behalf by IBM and all payments shall be made to IBM
until Lessor shall notify Lessee otherwise.
42. LESSEE REPRESENTATION. If the Lease includes Financing, Lessee
represents that it is (a) a corporation if any item of Equipment is located in
Ohio, Mississippi, Virginia or West Virginia, and/or (b) a business corporation
if any item of Equipment is located in Pennsylvania.
43. REVISIONS FOR PREVIOUSLY INSTALLED EQUIPMENT. Equipment installed
with Lessee under an IBM lease or rental agreement may be purchased by Lessor,
on the Effective Date of Purchase (as defined in the Purchase Agreement), for
lease to Lessee under Option B or B prime. For such Equipment, the Lease shall
be revised as follows:
8
<PAGE>
Paragraphs 4 and 26 -- replace "Estimated Shipment Date" by "Intended
Effective Date of Purchase;" replace "delivery" and "Date of Installation" by
"Effective Date of Purchase;"
Paragraph 7 -- add at the end of the first paragraph, "Assignment of the
option to purchase installed Equipment at the net purchase option price under an
IBM lease or rental agreement will be permitted only when Lessee submits the
Supplement in sufficient time to achieve the intended Effective Date of
Purchase. The Effective Date of Purchase under this assignment shall be the
later of the first day of the Quotation Month or the day on which the applicable
Supplement is accepted by Lessor. If the Quotation Month expires and the
purchase of Equipment is not concluded, this assignment and Lease will be null
and void regarding any such Equipment and all rights, duties and obligations of
Lessee and IBM will remain in accordance with the provisions of the IBM
agreement under which the Equipment is currently installed;"
Paragraphs 11 and 12 -- delete both paragraphs; and
Paragraph 15 -- replace the entire paragraph with the following: "The Rent
shall be based on the Lease Rate specified in the Supplement or such greater
Lease Rate as may be specified by written notice to Lessee more than one month
before the Effective Date of Purchase. The Unit Purchase Price is subject to
change in accordance with the referenced Purchase Agreement. Lessee may
terminate the Lease for any item subject to an increase by giving Lessor written
notice on or before the Effective Date of Purchase."
44. APPLICABLE LAW; SEVERABILITY. The Lease shall be governed by the laws
of the State of Connecticut. If any provision shall be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions shall
not in any way be affected or impaired.
THE ADDITIONAL TERMS AND CONDITIONS ON PAGES __ THROUGH __ ARE PART OF
AGREEMENT.
LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND ITS SUPPLEMENT,
UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS.
FURTHER, LESSEE AGREES THAT THIS AGREEMENT AND ITS SUPPLEMENT ARE THE COMPLETE
AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, SUPERSEDING ALL
PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS
BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER THEREOF.
[ ] INITIAL IF AGREEMENT PAGE IS ATTACHED
Accepted by:
IBM Credit Corporation I-LINK WORLD INC.
-------------------------------
CUSTOMER
For or as Lessor
By: /s/ Ronald Thomas By: /s/ Kevin Burke
--------------------------- ----------------------------
Authorized Signature Authorized Signature
Ronald Thomas 5/29/96 Kevin Burke 5/29/96
- - ------------------------------ -------------------------------
Name (Type or Print) Name (Type or Print)
9
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- --------------------------
1996 1995 1996 1995
-------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Earnings per common and common equivalent share
Net loss available to common and
equivalent shares $(2,495,918) $( 206,060) $(6,675,080) $( 650,658)
========= ========= ========= =========
Weighted average common shares
outstanding 9,051,408 1,749,841 5,519,449 1,710,593
Adjustments
Assumed issuance of shares purchased
under stock option and stock purchase
plans 14,656 - 29,080 -
Assumed exercise of warrants and other
options - - 15,626 -
Assumed conversion of convertible debt 211,283 - 280,506 -
Assumed conversion of Class A Variable Rate
Cumulative Convertible Preferred Stock - - 2,768,152 -
Assumed conversion of Class B Variable Rate
Cumulative Convertible Preferred Stock - - - 38,796
--------- --------- --------- ---------
Total common and equivalent shares 9,277,347 1,749,841 8,612,813 1,749,389
========= ========= ========= =========
Loss per common and equivalent share
after preferred dividends $( .27) $( .12) $( .78) $( .37)
========= ========= ========= =========
Fully diluted earnings per common and common equivalent share
Net loss available to common and
equivalent share $(2,495,918) $( 206,060) $(6,675,080) $( 650,658)
========= ========= ========= =========
Weighted average common shares
outstanding 9,051,408 1,749,841 5,519,449 1,710,593
Adjustments
Assumed issuance of shares purchased
under stock option and stock purchase
plans 14,950 - 32,083 -
Assumed exercise of warrants and other
options - - 19,394 -
Assumed conversion of convertible debt 211,523 - 294,729 -
Assumed conversion of Class A Variable Rate
Cumulative Convertible Preferred Stock - - 2,768,152 -
Assumed conversion of Class B Variable Rate
Cumulative Convertible Preferred Stock - - - 38,796
--------- --------- --------- ---------
Total common and equivalent shares 9,277,881 1,749,841 8,633,807 1,749,389
========= ========= ========= =========
Loss per common and equivalent share
after preferred dividends $( .27) $( .12) $( .77) $( .37)
========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 21
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME AND STATE OF INCORPORATION
AND ORGANIZATION TRADE NAME
- - ------------------------------------- -------------------------------
WATERS EDGE SCANNING ASSOCIATES, INC., WATERS EDGE SCANNING ASSOCIATES
A FLORIDA CORPORATION TAMPA MRI
MEDCROSS IMAGING, LTD., MEDCROSS IMAGING
A FLORIDA LIMITED PARTNERSHIP
MEDCROSS ASIA, LTD., ---
A HONG KONG CORPORATION
SHENYANG MEDCROSS HUAMEI MEDICAL ---
EQUIPMENT CO., LTD., A PEOPLES
REPUBLIC OF CHINA CORPORATION
I-LINK WORLDWIDE, INC., I-LINK
A UTAH CORPORATION
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of our
report dated March 26, 1996, on our audit of the financial statements of
Medcross, Inc. and subsidiaries. We also consent to the reference to our firm
under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Tampa, Florida
December 12, 1996
17130011.428
