UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 0-17973
MEDCROSS, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 59-2291344
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3227 Bennet Street North, St. Petersburg, Florida 33713
(Address of principal executive offices)
(813) 521-1793
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common Stock, par value $0.007 11,093,065
Traditional Small Business Disclosure Format (Check One): Yes No X
<PAGE> 1
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
Assets
June 30
1996
<S> <C>
Current assets
Cash and cash equivalents $ 383,954
Accounts receivable less allowance of $681,600 910,124
Inventory 830,098
Prepaid expenses 95,383
Total current assets 2,219,559
Property and equipment 4,304,454
Less accumulated depreciation 2,045,950
Net property and equipment 2,258,504
Investment in unconsolidated subsidiary 6,250
Intangible assets, net of amortization of $881,901 3,243,844
Other assets 30,482
Total assets $ 7,758,639
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 2,483,634
Advance deposits received 233,728
Accrued royalty fees 450,000
Note payable - related party 663,500
Note payable - other 1,805,000
Current portion of long-term debt - related party 39,230
Current portion of long-term debt - other 488,957
Current obligations under capital lease 230,918
Total current liabilities 6,394,967
Long-term debt - related 68,579
Obligations under capital leases 396,762
Minority equity interest in consolidated subsidiaries 333,165
Commitments and contingencies
Stockholders' equity
Preferred stock 75,000
Common stock 59,112
Other stockholders' equity 431,054
Total stockholders' equity 565,166
Total liabilities and stockholders' equity $ 7,758,639
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 2
<TABLE>
<CAPTION>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Health care service revenue $ 582,490 $ 758,359 $1,174,670 $ 1,537,963
Equipment sales and service - - - 337,889
Network service revenue 61,290 - 72,364 -
Net operating revenue 637,828 758,359 1,247,034 1,875,852
Cost of goods sold - equipment sales and service - 54,641 - 239,798
Salaries and benefits 542,635 311,487 795,083 640,418
Repairs and maintenance 74,944 77,542 143,907 154,488
Network expenses 224,302 - 322,535 -
Provision for doubtful accounts 49,619 ( 3,943) 90,863 323,645
Depreciation and amortization 515,923 116,741 797,626 234,693
Purchased research and development - - 2,034,103 -
Other operating expenses 623,103 297,748 1,129,888 614,536
Operating loss (1,392,698) ( 95,857) (4,066,971) ( 331,726)
Interest expense 75,127 41,692 122,766 80,820
Other (income) expense 2,765 ( 19,583) ( 12,762) ( 23,399)
Loss before minority interest in net loss
of consolidated subsidiaries and income
tax provision (1,470,590) ( 117,966) (4,176,975) ( 389,147)
Minority interest in net loss of consolidated
subsidiaries ( 2,006) ( 20,623) ( 63) ( 7,844)
Loss before income tax provision (1,468,584) ( 97,343) (4,176,912) ( 381,303)
Income tax provision - - - -
Net loss $(1,468,584) $( 97,343) $(4,176,912) $( 381,303)
Loss per common and equivalent share after
preferred dividends $( .17) $( .07) $( .52)$( .25)
Weighted average common and equivalent shares
outstanding 8,420,712 1,749,163 7,989,391 1,749,163
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 3
<TABLE>
<CAPTION>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Cash provided (used) by operating activities $( 253,491) $ 105,914 $( 866,315) $ 155,982
Cash flows from investing activities
Purchase of property and equipment ( 659,888) ( 375) ( 666,715) ( 15,375)
Proceeds from sale of property and equipment 3,171 4,500 3,251 4,500
Net cash provided (used) by
investing activities ( 656,717) 4,125 ( 663,464) ( 10,875)
Cash flows from financing activities
Proceeds (reduction) of notes payable - related party 5,500 - ( 117,833) 218,000
Proceeds (reduction) of notes payble - other 284,860 - 1,300,425 ( 101,000)
Release of certificate of deposit as collateral - - 60,000 -
Reduction of long-term debt - other - ( 97,285) - ( 194,571)
Proceeds from capital leases 659,888 - 659,888 -
Reduction of long-term debt - related ( 9,676) - ( 51,751) -
Reduction of capital lease obligations ( 213,065) ( 60,851) ( 286,354) (120,251)
Issuance of common stock 1,336 - 1,979 -
Additional paid-in capital 180,433 - 304,086 -
Minority interest distributions ( 36,865) - ( 36,865) ( 36,500)
Net cash provided (used) by
financing activities 872,411 ( 158,136) 1,833,575 (234,322)
Effect of foreign currency translation
on cash flows - ( 1,870) 1 ( 1,858)
Increase (decrease) in cash and cash equivalents ( 39,797) ( 49,967) 303,797 ( 91,073)
Cash and cash equivalents at beginning of period 421,751 320,051 80,157 361,157
Cash and cash equivalents at end of period $ 383,954 $ 270,084 $ 383,954 $ 270,084
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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 issued and 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 are held in escrow.
<PAGE> 4
Supplemental Cash Flow Information - continued
In February 1996, a holder of Class A Preferred Stock converted 40,000 shares
into 978,891 shares of Common Stock.
In April and June 1996, holders of promissory notes issued by the Company
converted 190,822 in the aggregate into a total of 204,372 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.
<PAGE> 5
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 six-month periods ended June 30, 1996 and
June 30, 1995, (b) the financial position at June 30, 1996, and (c) cash flows
for the three-month and six-month periods ended June 30, 1996 and June 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 six-month periods ended June 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 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
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 is marketed under the name "Fax4Less[TM]".
<PAGE> 6
Note 2 - Acquisition of subsidiary - continued
The following presents the proforma financial information of the Company and I-
Link, as applicable for the six months ended June 30, 1996 assuming such
transaction had occurred on January 1, 1996 and for the six months ended
June 30, 1995 assuming such transaction had occurred on January 1, 1995:
<TABLE>
<CAPTION>
Six Months Ended Net Loss Per Common
June 30, 1996 Revenue Net Loss and Equivalent Share
<S> <C> <C> <C>
Company1/ $1,247,034 $(4,176,192) $( .52)
I-Link2/ 48,585 ( 139,683)
Combined 1,295,619 (4,315,875)
Proforma adjustment - ( 190,378)
Proforma combined $ 1,295,619 $(4,506,253) $( .57)
<CAPTION>
Six Months Ended Net Loss Per Common
June 30, 1995 Revenue Net Loss and Equivalent Share
<C> <C> <C> <C>
Company $ 1,875,852 $( 381,303) $( .25)
I-Link 102,368 ( 571,879)
Combined 1,978,220 ( 952,182)
Proforma adjustment - (2,796,813)
Proforma combined $ 1,978,220 $(4,748,995) $(1.51)
<FN>
<F1> 1/Includes I-Link operations from February 13, 1996 through June 30, 1996
<F2> 2/For the period January 1, 1996 through February 12, 1996.
</FN>
</TABLE>
Note 3 - 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:
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
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 approved, the research and development was amortized immediately and the
goodwill is amortized over 24 months.
Note 4 - 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 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 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
<PAGE> 7
Note 4 - Notes Payable - continued
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 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. The
proceeds of the promissory notes were used for I-Link working capital purposes.
Note 5 - Long Term Debt
As part of the common stock acquisition of I-Link, the Company assumed the
obligations under capital leases in the amount of $99,001. The leases vary in
rates and have terms from 36 to 41 months expiring February 1998. Monthly
payments total approximately $2,000.
Note 6 - Commitments and Contingencies
The portion of the I-Link common stock purchase price placed in escrow will be
released upon the satisfaction of the contingencies 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.
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 convertible preferred stock. Fully diluted
earnings per share are not presented because it approximates earnings per common
share.
Note 8 - Geographic Segment Information
The Company's operations consist of providing 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:
<TABLE>
<CAPTION>
Domestic
Six Months Ended Network Corporate/
June 30, 1996 Health Care Services China Management Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 1,052,090 $ 72,364 $ - $ 167,675 $( 45,095) $ 1,247,034
Operating Profit (Loss) $ 93,233 $(3,929,400) $( 18,098) $( 167,611) $( 45,095) $(4,066,971)
Identifiable Assets $ 2,753,208 $ 3,881,981 $1,011,818 $ 261,482 $( 149,850) $ 7,758,639
</TABLE>
<PAGE> 8
Note 8 - Geographic Segment Information - continued
<TABLE>
<CAPTION>
Domestic
Six Months Ended Network Corporate/
June 30, 1995 Health Care Services China Management Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 1,373,862 $ - $ 337,889 $ 245,315 $( 81,214) $ 1,875,852
Operating Profit (Loss) $ 237,130 $ - $( 242,151) $( 245,491) $( 81,214) $( 331,726)
Identifiable Assets $ 3,363,018 $ - $ 1,009,718 $ 201,175 $( 66,064) $ 4,507,847
</TABLE>
Item 2 - Management's Discussion and Analysis
The following discussion should be read in conjunction with the information
contained in the financial statements of the Company and the notes thereto
appearing elsewhere herein and in conjunction with the Management's Discussion
and Analysis set forth in the Company's Form 10-KSB/A#1 for the fiscal year
ended December 31, 1995.
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 develpments, 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
The following Table represents the net operating revenue and operating profit
(loss) of the Company for each category of service offered. The net operating
revenue and operating profit (loss) shown are net of intercompany transactions
that were eliminated in consolidation.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1996 1995 1996 1995
NET OPERATING REVENUE
<S> <C> <C> <C> <C>
Diagnostic Imaging $ 521,200 $ 677,044 $1,052,090 $ 1,373,862
Sales and Services of Medical Equipment - - - 337,889
Network Services 55,338 - 72,364 -
Management and Other 61,290 81,315 122,580 164,101
$ 637,828 $ 758,359 $ 1,247,034 $ 1,875,852
<CAPTION>
OPERATING PROFIT (LOSS)
<S> <C> <C> <C> <C>
Diagnostic Imaging $ 26,271 $ 90,945 $ 93,233 $ 237,130
Sales and Services of Medical Equipment ( 16,326) ( 31,164) ( 18,098) ( 242,151)
Network Services (1,305,830) - (3,929,400) -
Management and Other ( 96,813) ( 155,638) ( 212,706) ( 326,705)
$(4,066,971) $( 331,726) $(1,392,698) $( 95,857)
</TABLE>
<PAGE> 9
Diagnostic Imaging
Net operating revenue from diagnostic imaging services decreased by 23.4% for
the three and six months ended June 30, 1996, respectively, as compared to the
same periods in 1995. Medcross Imaging, Ltd. accounted for $107,802 and
$260,783 of the decrease for the three and six months ending June 30, 1996, as
compared to the same period in 1995. This decrease in revenue is mainly 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
minimums quotas.
The decrease in average revenue per patient was offset by an increase of 39% and
5% in the number of procedures performed for the three months and six months
ended June 30, 1996, respectively, compared to the corresponding period in 1995.
MRI revenue of Tampa MRI decreased $34,273 and $20,472 for the three and six
ending June 30, 1996, respectively, as compared to the same periods in 1995.
This decrease in due to a decrease in the average revenue per patient offset by
increases in the number of procedures performed of 19% for the three-month
period ending June 30, 1996 and 28% for the six-month period ended June 30,
1996, as 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 significantly offset
by increases in the number of procedures performed. The revenue of the
ultrasound operations decreased 16% and 21% for the three-month and six-month
periods ending June 30, 1996, respectively, as compared to the same periods in
1995. This decrease is mainly due to the decrease in the number of procedures
performed of 12% and 13% for the three months and six months ending June 30,
1996, respectively, as compared to the same periods in 1995.
The operating profit from diagnostic imaging services, while remaining
profitable, decreased by $64,674 and $143,897 for the three and six month
periods ended June 30, 1996, respectively, as compared to the same periods in
1995. These decreases were caused by a decline in operating profit from
Medcross Imaging, Ltd. of $79,791 and $182,665 for the three-month and six-month
periods ending June 30, 1996, respectively, compared to the corresponding
periods of the prior year. This decline was offset by an increase in operating
profit from MRI operations of Tampa MRI of $11,515 for the three months ended
June 30, 1996 and $53,836 for the six months ended June 30, 1996, as compared to
the same periods in 1995. In addition, the operating profit from the ultrasound
operations increased $3,602 for the three months ended June 30, 1996 and
decreased $15,068 for the six months ended June 30, 1996 as compared to the
prior year. The decline in the MRI operating profit for the three-month and
six-month periods ending June 30, 1996 was a result of the decrease in MRI
revenue, offset by a decrease in total other operating expenses for diagnostic
imaging of $91,170 for the three months ended June 30, 1996 and $177,875 for the
six months ended June 30, 1996 as compared to the same period in 1995.
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 "Item 3. Legal Proceedings" in the
Company's Annual Report on Form 10-KSB/A#1 for the year ended December 31, 1995.
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 June 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.
<PAGE> 10
Management and Other
Net operating revenue from management and other activities decreased by $20,025
in the second quarter of 1996 as compared to the same period in 1995 and by
$41,521 for the six months ended June 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
$23,550 in management fees for the three and six month periods in 1995,
respectively, and no management fees in 1996. The net operating loss from
management and other activities decreased 38% and 35% in the three-month and
six-month periods ended June 30, 1996, respectively, as compared to the same
periods in 1995. This decrease in net operating loss was due to the decreased
corporate overhead expenses of $78,850 and $155,520 for the three-month and six-
month periods ended June 30, 1996, respectively, as compared to the same periods
in the prior year. These decreases were offset by the decreases in net
operating revenue. Salaries and benefits decreased 42% and 48% for the three-
month and six-month periods ended June 30, 1996, respectively, as compared to
the same periods of 1995.
Network and Related Services
The operating revenue of network and related services from I-Link, was $55,338
for the second quarter of 1996 and $72,364 for the six months ended June 30,
1996. The net operating loss from network and related services was $1,305,830
and $3,929,400 for the three and six months ending June 30, 1996. This was
mainly 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 $307,609 and $461,408 for the three and six months ending June
30, 1996, respectively. These intangible assets were recorded pursuant to the
purchase of the common stock of I-Link by the Company. Excluding the research
and development costs written-off and the additional amortization, the operating
loss of network and related services was $998,221 and $1,448,424 for the three
and six months ending June 30, 1996.
Consolidated Operating Results
Net operating revenue of the Company decreased $120,531 in the second quarter of
1996 as compared to the same quarter of 1995 and $628,818 for the six months
ended June 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 not in 1996 and the decrease in the net operating revenue
of diagnostic imaging services in 1996 as compared to 1995. Salaries and
benefits decreased by $91,638 and $218,249 for the three and six months ending
June 30, 1996, respectively, as compared to the same periods in 1995. The
decrease was offset by the inclusion of salaries and benefits of $322,786 and
$372,914 from network and related services during the second quarter 1996 and
the six months ended June 30, 1996, respectively. The decrease in repairs and
maintenance was mainly due to diagnostic imaging. Depreciation and amortization
increased $399,812 in the second quarter of 1996 as compared to the second
quarter of 1995 due to the inclusion of I-Link, offset by a decrease from
diagnostic imaging. Depreciation and amortization increased $562,933 for the
six months ended June 30, 1996 compared to the six months ended June 30, 1995
due to the inclusion of I-Link, offset by a decrease from diagnostic imaging.
The provision for doubtful accounts increased $53,562 in the second quarter of
1996 as compared to second quarter of 1995 and decreased $232,782 for the six
months ended June 30, 1996 compared to the six months ended June 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 $325,355 in the second quarter of 1996
compared to the second quarter of 1995. This increase is due to the inclusion
of $402,750 from network and related services, offset by decreases of $77,395
from diagnostic imaging, sales and service of medical equipment, and management
and other activities. In the six months ended June 30, 1996, other operating
expenses increased $515,352 compared to six months ended June 30, 1995. This
increase is due to the inclusion of operating expenses from network and related
services of $684,318 offset by a decrease of $168,966 from diagnostic imaging,
sales and service of medical equipment, and management and other activities.
<PAGE> 11
Liquidity and Capital Resources
Working capital used by operations was $908,219 for the second quarter of 1996
as compared to working capital used by operations of $49,190 in the second
quarter of 1995. The working capital used by operations for the six months
ended June 30, 1996 was $1,257,634, compared to working capital provided by
operations of $173,212 for the six months ended June 30, 1995. The working
capital position of the Company was a deficit of $4,175,408 at June 30, 1996 and
$315,573 at December 31, 1995, which includes $488,957 at June 30, 1996 and
$669,799 at December 31, 1995 of the current portion of long-term debt, which
is payable in common stock of the Company, and $1,465,000 million in promissory
notes issued concurrent with and subsequent to the I-Link acquisition. Cash
flow used by operating activities was $253,491 and $866,315 for the three and
six months ending June 30, 1996 compared to cash flow provided by operations
of $105,914 and
$155,982 for the same periods in 1995. Cash flow used by operating activities
includes $206,597 and $807,153 attributable to the inclusion of I-Link in 1996.
Investing activities expenditures during the first six months of 1996 related to
the purchase of additional computer equipment for I-Link.
During the six months ending June 30, 1996, the Company reduced its long term
debt and capital lease obligations by $51,754 and $286,354, respectively, notes
payable to related parties by $73,333, notes payable to others by $24,435 and
the outstanding balance of its line of credit by $60,000. These reductions
include indebtedness of I-Link. The inclusion of I-Link 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 June 30,
1996, the balance outstanding under the line of credit was $340,000. The
Company was in violation of loan covenants regarding cash balances, consolidated
equity ratios, debt to equity ratios, cash flow coverage ratios and past days
sales in accounts receivable under the line of credit at June 30, 1996, However,
the FUNB has waived such non-compliance through June 30, 1996. The Company and
FUNB have 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. The Company was unable to secure such financing, so
that the Company will be 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 thereafter. Concurrent with the Company's acquisition of the
securities of I-Link 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 I-Link. In the second quarter of 1996, three loans evidenced by promissory
notes were made, totalling $500,000, were made to the Company. The proceeds of
these notes were used to pay operating expenses and certain outstanding
indebtedness of I-Link. Warrants to purchase up to 145,000 shares of the common
stock of the Company were issued in conjunction with these promissory notes.
During the first quarter of 1995, the Company received advances totaling
$218,000 from Mortgage Network International, payable on demand. The Company's
Vice Chairman/President 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.
The Company will require additional financing in order to successfully integrate
the business of I-Link, to fund the cash flow operating deficit of I-Link, to
expand its business and to discharge outstanding indebtedness, including the 10%
Notes, the Mortgage Network International advances, and the outstanding balance
of the Company's line of credit with First Union National Bank. Additional
funding through one or more debt or equity offerings in the capital markets will
be necessary to continue to implement the growth of the Company's business and
expand its operations, including those of I-Link. 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 available or that the Company
will not be required to issue significant debt or equity securities in order to
obtain such financing.
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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; andrequests 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.
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 warrants, and interest and costs.
Item 5. Other Information
In August 1996, William Flury, Vice President of Sales & Marketing of I-Link
loaned I-Link 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 funds from the loan were
used to general working capital purposes of I-Link.
On August 6, 1996, John Edwards, President and Chief Executive Officer of
I-Link, loaned I-Link the sum of $131,250 (including a $6,250 original issued
discount), which sums are 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.
Effective July 30, 1996, Joel S. Kanter, previously a Director of the Company,
resigned for personal reasons.
On July 17, 1996, the Company announced that it has commenced a Private
Placement of up to 240,000 shares of its Class C Preferred Convertible
Cummulative Redeemable Preferred Stock, $10 par value per share, at $60 per
share. The offering is being conducted on a "best efforts, minimum-maximum"
basis as to an aggregate of $4.8 and $14.4 million, respectively. The Company
prepared and disseminated the information in accordance with Rule 135c under
the Securities Act of 1933.
On June 21, 1996, I-Link entered into an Agreement for Terminal Facility
Collocation Space with MFS Telecom, Inc. ("MFS"). Under the agreement, I-Link
has the right, but is not obligated, to elect to occupy certain office and
storage space and to utilize MFS co-location services within commercial
buildings at one or more lease hold sites held by MFS for the placement and
operation of I-Link's telecommunications equipment and cabling. The agreement
provides that MFS will make facilities in 21 major cities throughout the U.S.
available to I-Link and excepts to have an additional 30 sites in the US and 7
international sites available to I-Link by year end. I-Link may elect to occupy
any of such sites on a location-by-location basis. Although minimum occupancy
terms, rentals, and service charges vary some from site to site and will be set
forth in schedules to the agreement, rentals presently range from $500-1,000 per
month with a $500 per month average and an $800 one-time initial charge per site
and certain other additional charges for power, cross-connection fees, and alike
to be agreed upon at the time of the election to occupy that site. Management
of I-Link believes that the MFS agreement provides agreement 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.
<PAGE> 13
In June 1996, John Edwards, President and Chief Executive Officer of I-Link, was
selected to fill a vacancy on the Board of Directors of the Company as a Class
III Director.
On April 29, 1996, the Company was notified that I-Link was in breach of its
contractual obligation to make payments to Spyglass. Spyglass provides software
licenses to I-Link. I-Link was obligated to pay Spyglass Initial and Quarterly
Minimum License Fees in the amount of $45,000 and $63,750, respectively no later
than 30 days subsequent to the end of each calendar quarter that the payments
were due. Total indebtedness claimed by Spyglass is $273,606, including late
payment fees. The Company was notified by Spyglass that it claims the right to
terminate the agreement in its entirety in the event the breach of the agreement
is not cured within 30 days. Management of I-Link is discussing the matter with
Spyglass but there can be no assurance that a satisfactory resolution will be
obtained.
On April 8, 1996, I-Link entered into a three year Employment Agreement with
John Edwards. Pursuant to the terms of the Employment Agreement, Mr. Edwards
will be employed as the Chief Executive Officer and a Director of I-Link, and
will be required to devote substantially all of his working time to the business
and affairs of I-Link. 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 I-Link 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 1 million shares of Common Stock of the Company at an exercise price
of $7.00. Of such options, 83,333 vest and become exercisable upon the first
calendar day of each quarter for the 12 quarters after April 8, 1996. In the
event of termination by I-Link or in the event of a "Change in Control" (as
defined in the agreement), Mr. Edwards is entitled to receive, as liquidated
damages and severance pay, an amount equal to the monthly capital and
Compensation (as defined in the agreement) for the remaining term of the
agreement. The agreement contains non-competition and confidentiality
provisions.
I-Link is a party to a 12-month consulting agreement with Benchmark Equity
Group, Inc., dated August 10, 1995, pursuant to which I-Link is obligated to
pay $6,000 per month to Benchmark Equity Group, Inc. for consulting services
rendered. Those payments accrued and are deferred pending the Company's
obtaining stockholders equity of $2,500,000. $73,000 in consulting fees are
due and payable to Benchmark Equity Group, Inc. Benchmark Equity Group, Inc. is
also party to certain options to purchase shares of Common Stock owned by Four M
International, Ltd. and party to certain options to purchase shares of Common
Stock owned by R. Huston Babcock, M.D. See Item 11 - Security Ownership of
Certain Beneficial Owners and Management in the Company's Form 10-KSB/A#1 for
the year ended December 31, 1995.
I-Link has 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 requires the payment of $70,000 payable monthly over 24
months. In addition, I-Link is indebted to T6-G Limited Partnership in the
amount of $300,000. T6-G Limited Partnership owns a 9.5% interest in ILINK,
Ltd.
Item 6(a) - Exhibits
Page
3(a) Amendment to the Amended and Restated Articles of
Incorporation dated August 15, 1996. 3(a).1
3(b) Composite copy of the Amended and Restated Articles
of Incorporation incorporating all amendments through
the date of the filing of this Form 10-QSB. 3(b).2
10(a) Agreement for Terminal Facility Collocation Space,
dated June 21, 1996, by and between I-Link Worldwide, Inc.
and MFS Telecom, Inc. 10(a).1
11 Statement regarding computation of earnings per common share. 11.1
27 Financial Data Schedule 27.1
<PAGE> 14
99(c) Press Release dated July 17, 1996 99(c).1
Item 6(b) - Reports on Form 8-K
An amendment to the report on Form 8-K dated February 23, 1996 was filed by the
Company regarding the acquisition of the securities of I-Link Worldwide Inc.,
the completion of a private placement of $1,000,000 in aggregate principal
amount of convertible promissory notes, and the conversion of Class A Preferred
Stock into Common Stock. The amendment included financial statements of the
business acquired and proforma financial statements.
A report on Form 8-K was filed by the Company regarding the complaint filed by
JW Charles Financial Services, Inc., the appointment of Clay Wilkes as a
director of the Company and appending an updated Statement of Risk Factors.
A report on Form 8-K was filed by the Company regarding the resignation of Po
Shin Wong as the Chairman of the Board of Directors and a director of the
Company, for personal reasons.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
MEDCROSS, INC.
(Registrant)
Date: August 19, 1996 By: /s/ HENRY TOH
Henry Toh
President, Chief Executive
Officer and Acting Chief
Financial Officer
<PAGE> 16
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MEDCROSS, INC.
Pursuant to Article III of the Amended and Restated Articles of
Incorporation of the Corporation (the "Articles of Incorporation"), and the
provisions of Section 607.0602 of the Florida Business Corporation Act, the
board of directors of the Corporation (the "Board of Directors") has resolved
to amend Article III of the Articles of Incorporation.
1. The name of the corporation is Medcross, Inc.
2. Article III is hereby ameded by deleting Section III(f) an replacing
it with the following:
"(f) Of the 500,000 shares of Preferred Stock authorized hereunder,
240,000 shares of Preferred Stock shall be designated as Class C Convertible
Cumulative Redeemable Preferred Stock (the "Class C Preferred Stock"), shall
have a par value of $10.00 per share, and shall have the following rights and
preferences:
1. Dividends. The holders of the Class C Preferred Stock
("Holders") shall be 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 eight percent
(8%) per annum of the liquidation preference per share of $60.00. in the event
the Corporation has not filed a registration statement relating to the
Conversion Shares (as herinafter defined) under the Securities Act of 1933, as
amended (the "Act"), within 12 months of the final closing of the private
placement of the Class C Preferred Stock by the Corporation (the "Final
Closing") and such registration statement is not declared effecrive under the
Act within such 12-month period, the cumulative preferential dividend rate
shall be increased to twelve (12%) per annum of the liquidation preference per
share of $60.00. Dividends may 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, in shares (the "Dividend Shares") of
common stock of the Corporation, par value $.007 per share (the "Common Stock")
(based upon the last sale price of a share of Common Stock for the five (5)
trading days preceding the record date for a particular dividend) provided that
such dividend Shares are covered by a registration statement which has been
declared effective under the Act.
2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, each share of Class C Preferred Stock shall be entitled to receive
$60.00 per share.
3. Voting Rights. Except as otherwise required by applicable
law, the Class C Preferred Stock shall have no voting rights.
4. Redemption. The Corporation may, at ist option, (a) redeem
shares of Class C Preferred Stockat any time prior to the fourth anniversary of
the Final Closing on not less that thirty (30) nor more that sizty (60) days'
written notice to such holders at a redemption price equal to $60.00 per share
plus accrued and unpaid dividends provided that: (i) shares of Common Stock
issuable upon conversion of shares of Class C Preferred Stock (the "Conversion
<PAGE> 3(a)1
Shares") are covered by a registration statement which has been declared
effective under the Act, or the Conversion Shares are otherwise exempt from
registration under the Act in the opinion of counsel to the Company, and
(ii) during the immediately preceding thirty (30) consecutive trading days
ending within fifteen (15) days of the date of notice of redemption to the
holders, the closing bid price of the Corporation's Common Stock is not less
than $8.00 per share.
(b) redeem shares of Class C Preferred Stock at any time
after the fourth anniversary of the Final Closing on not less that thirty (30)
nor more that sixty (60) days' written notice to such holders at a redemption
price equal to $90.00 per share plus accrued and unpaid dividends provided that
the Conversion Shares are covered by a regitration statement whcih has been
declared effective under the Act or the Conversion Shares are otherwise exempt
from registration under the Act in the opinion of counsel to the Company.
5. Conversion Into Common Stock. (a) Subject to the terms and
conditions subsections (a) and (b) of this Section 5, and unless previously
redeemed, issued and outstanding shares of Class C Preferred Stock may be
converted, at the option of the holder, at any time after three (3) months from
the First Closing of the private placement of the Class C Preferred Stock by the
Corporation (the "First Closing") into such number of shares of the
Corporation's Common Stock (the "Conversion Shares") as shall equal $60.00
shares divided by the lower of (a) $2.50 or (b) the closing bid price for any
five consecutive trading days during the period commending on the Final Closing
and ending eighteen months thereafter (but in no event less than $1.25) (the
"Conversion Price") subject to adjustment as set forth below.
(b) On the fifth anniversary of the Final Closing (the
"Conversion Date"), and with no other action required by the Corporation or the
holder of the Class C Preferred Stock, the shares of Class C Preferred Stock
held by each holder thereof shall be converted into such number of whole shares
of Common Stock at a conversion price equal to the lower of the then current
Conversion price or 505 of the average closing bid price of the Common Stock
for the ten (10) trading days immediately preceding the fifth anniversary of the
Final Closing.
(c) The Conversion Price shall be subject to adjustment as
follows:
(i) In the case the Corporation shall subdivide the
number of outstanding shaes of the Common Stock into a greater number of shares
or shall contract the number of outstanding shares of its Common Stock into a
lesser number of shares, the Conversion Price then in effect shall be adjusted,
effective at the close of business on the record date for the determination of
stockholders entitled to receive the same, to the price (computed to the nearest
cent) determined by dividing (A) the product obtained by multiplying the
Conversion Price in effect immediately prior to the close of business on such
record date by the number of shares of Common Stock outstanding prior to such
subdivision or contraction, by (B) the number of shares of Common Stock
outstanding immediately after such subdivision or contraction.
(ii) In the event that the Corporation shall issue or
sell shares of its Common Stock (except for shares issueable upon exercise or
conversion of securities outstanding or issuable upon exercise or conversion of
securities outstanding or issuable by the Company as of the date hereof) at a
price per share less that the then current Conversion Price (the "New Issue
Price"), the Conversion Price shall be reduced to the greater of the New Issue
<PAGE> 3(a)2
Price or $1.25 per share; and
(iii) In the event that the Corporation's registration
statement under the Act registering the Conversion Shares is not declared
effective within twelve (12) months after the Final Closing, the Conversion
Price shall be subject to an additional reduction of 10% for each 90-day delay
in the effecrive date of such registration statement, provided however that in
no event shall the Conversion Price be less than $1.25 per share.
(d) Promptly after the receipt of certificates
representing Class C Preferred Stock and surrender of Class C Preferred Stock,
the Corporation shall issue and deliver, or cause to be issued and delivered,
to the Holder a certificate or certificates for the number of whole shares of
Common Stock issuable upon the conversion of such Class C Preferred Stock. No
fractional shares shall be issued upon conversion of the Class C Preferred Stock
into shares of Common Stock. To the extent permitted by law, the conversion
shall be deemed to have been effected as of the close of business on the
Conversion Date (or on the next preceding business day if the Conversion Date
is not a business day) and at that time the rights of the holder of Class C
Preferred Stock, as such holder, shall cease, and the holder of the Class C
Preferred Stock shall become the holder of record of shares of Common Stock.
(e) Notwithstanding anything herein to the contrary, on any
liquidation of the Corporation, the right of conversion of the Class C Preferred
Stock shall terminate at the close of business on the last full business day
before the date fixed for payment of the amount distributable on the Class C
Preferred Stock.
6. Registration Rights. The Corporation, within twelve (12)
months of the Final Closing, shall file a registraton statement registering the
reoffer and resale of the Conversion Shares by the Holders thereof; provided,
however, that in the event the Company files a registration statement prior to
the expiration of twelve (12) months from the Final Closing, the Conversion
Shares shall be included in such registration statement to the extent permitted
by law. In the event that the registration statement is not declared effective
within such 12-month period, the Conversion Price will be reduced as provided by
Subsection 5(a) hereof, and dividends payable on the Class C Preferred Stock
will be increased as provided by Subsection 1 hereof.
7. Lock-up. The Conversion Shares and Dividend Shares may not
be publicly sold until after the first anniversary of the Final Closing without
the prior written consent of Commonwealth Associates.
8. Rank. With respect to the payment of dividends and upon
liquidation, the shares of the Class C Preferred Stock shall be subordinate to
any issued and outstanding shares of Class A Preferred Stock and Class B
Preferred Stock of the Corporation and shall rank senior to the shares of
Preferred Stock and to the shares of Common Stock of the Corporation."
3. The foregoing amendment was duly adopted by the Board of Directors without
the requirement of shareholder action by meeting held on July 31, 1996, pursuant
to the provisions of the Florida Business Corporation Act.
IN WITNESS WHEREOF, Medcross, Inc. has caused this Certificate of Amendment to
the Articles of Incorporation to be executed by its Vice President and attested
to by its Secretary this 15th day of August, 1996.
<PAGE> 3(a)3
MEDCROSS, INC.
By: /s/ Dorothy L. Michon
Dorothy L. Michon, Vice President
ATTEST: /s/ Stephanie E. Giallourakis
Stephanie E. Giallourakis, Secretary
<PAGE> 3(a)4
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MEDCROSS, INC.
MEDCROSS, INC., a corporation organized and existing under the laws of the
State of Florida, hereby certifies as follows:
1. The name of the corporation is MEDCROSS, INC. and the name under which
the corporation was originally incorporated is Mobile Medical, Inc. The date of
filing its original Articles of Incorporation with the Department of State was
April 21, 1983.
2. These Amended and Restated Articles of Incorporation have been adopted
by the shareholders and the Board of Directors pursuant to Sections 607.194(4)
and 607.194(2), respectively, Florida Statutes.
ARTICLE I
NAME
The name of this corporation is MEDCROSS, INC.
ARTICLE II
PURPOSES
This corporation may engage in any activity or business permitted under the
laws of the United States of America and of this State.
ARTICLE III
CAPITAL STOCK
The maximum number of shares of stock which this corporation is authorized
to have at any time is:
(a) 20,000,000 shares of common stock, having a par value of $.007
per share (the "Common Stock"); and
(b) 500,000 shares of preferred stock, having a par value of $10.00
per share (the "Preferred Stock"). The Preferred Stock may be issued in one or
more series. The Board of Directors shall have the authority to divide the
Preferred Stock into one or more series and, subject to the provisions and
limitations set forth herein, to determine the relative rights and preferences
of the shares of any series so established with regard to the rate or manner of
payment of dividends, whether such shares may be redeemed and, if so, the
redemption price and the terms and conditions of redemption, sinking fund
provisions, if any, for the redemption or purchase of such shares, the terms and
conditions, if any, on which such shares may be converted, and voting rights, if
any. Provided, however, except as to any rights and preferences as determined
by the Board of Directors as set forth above, all shares of such Preferred Stock
regardless of series shall be identical.
(c) Of the 250,000 shares of Preferred Stock authorized hereunder,
7,500 shares of Preferred Stock shall be designated 12% Cumulative Convertible
Preferred Stock, shall have a par value of $10 per share, and shall have the
following rights and preferences:
<PAGE> 3(b)1
1. Dividends. The holders of the shares of 12% Cumulative
Convertible Preferred Stock shall be entitled to receive out of any assets at
the time legally available therefor and when and as declared by the Board of
Directors dividends at the rate of One Dollar and Twenty Cents ($1.20) per
share per annum, and no more, payable in cash quarterly commencing on April 1,
1992, and continuing on the first day of July, October, January, and April of
each year that any shares of 12% Cumulative Convertible Preferred Stock are
outstanding. Such dividends are prior and in preference to any declaration or
payment of any distribution (as defined below) on the Common Stock of the
Company. Such dividends shall accrue on each share of 12% Cumulative
Convertible Preferred Stock from day to day from the date of initial issuance
thereof whether or not earned or declared, so that if such dividends with
respect to any previous dividend period at the rate provided for herein have not
been paid on, or declared and set apart for, all shares of 12% Cumulative
Convertible Preferred Stock at the time outstanding, the deficiency shall be
fully paid on, or declared and set apart for, such shares before any
distribution shall be paid on, or declared and set apart for, the Common Stock.
For purposes hereof, unless the context otherwise requires,
the term "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock, on the repurchase or redemption of shares of capital stock of the
Company (other than redemptions provided for in Subsection 3 hereof or
repurchases of Common Stock held by employees of the Company upon termination of
their employment pursuant to agreements providing for such repurchase) for cash
or property.
2. Voting Rights. Each share of 12% Cumulative Convertible
Preferred Stock shall entitle the holder thereof to 40 votes on all matters
submitted to a vote of the Company's shareholders.
3. Redemption.
(a) The Company may, at any time after issuance of the 12%
Cumulative Convertible Preferred Stock, call for redemption at the Redemption
Price (as defined below) any or all of the outstanding shares of 12% Cumulative
Convertible Preferred Stock in accordance with this Subsection 3. If the
Company redeems less than all the outstanding shares of 12% Cumulative
Convertible Preferred Stock, the Company shall redeem from each holder a number
of shares of 12% Cumulative Convertible Preferred Stock that bears the same
proportion to all the shares of 12% Cumulative Convertible Preferred Stock to
be redeemed as the shares of 12% Cumulative Convertible Preferred Stock held of
record by the holder bears to all the shares of 12% Cumulative Convertible
Preferred Stock at the time outstanding. However, if a fraction of a share
would be redeemed from any holder, the Company may, in order to avoid the
redemption of a fractional share, redeem the next higher whole number of shares
from the holder or, at its option, add that fraction to the shares to be
redeemed from any other holder or holders.
(b) The Company shall mail notice of any redemption by
certified mail, postage prepaid, to each holder of record of the shares of the
12% Cumulative Convertible Preferred Stock to be redeemed, at his or her address
registered with the Company, which notice shall be accompanied by payment in
full of the Redemption Price. The date of the mailing of notice of redemption
shall be the Redemption Date.
(c) If notice of redemption has been mailed and the Company
has made payment of the Redemption Price, on the Redemption Date all rights of
the holders of the shares, as shareholders of the Company by reason of the
<PAGE> 3(b)2
ownership of the shares, shall cease, and after the Redemption Date the shares
shall not be outstanding. If less than all the shares represented by any
certificate are redeemed, a new certificate, representing the unredeemed shares,
shall be issued to the holder thereof without cost (except for the payment of
any applicable transfer taxes) to the holder.
(d) To facilitate the redemption of any shares of 12%
Cumulative Convertible Preferred Stock, the Board of Directors is authorized to
cause the transfer books of the Company to be closed as to such shares as of
the record date for determining the holders of 12% Cumulative Convertible
Preferred Stock entitled to notice of redemption.
(e) For purposes hereof, the term "Redemption Price" shall
mean $10.50 per share of 12% Cumulative Convertible Preferred Stock.
(f) In the event that the shares of 12% Cumulative
Convertible Preferred Stock are redeemed, the Board of Directors reserves the
right to further amend the Company's Articles of Incorporation to amend and
re-designate the rights and preferences applicable to the shares of Preferred
Stock designated herein as 12% Cumulative Convertible Preferred Stock.
4. Optional Conversion Into Common Stock.
(a) Subject to the provisions of Subsection 3 hereof
regarding redemption, and subject to the terms and conditions of this Subsection
4, the holder of any share or shares of 12% Cumulative Convertible Preferred
Stock has the right at any time after the expiration of six months after the
issuance of the shares of 12% Cumulative Convertible Preferred Stock at its
option to convert all or a portion of the shares of 12% Cumulative Convertible
Preferred Stock held by it into such number of whole shares of Common Stock as
is determined by multiplying the number of shares of 12% Cumulative Convertible
Preferred Stock converted by 40. However, on any liquidation of the Company,
the right of conversion shall terminate at the close of business on the last
full business day before the date fixed for payment of the amount distributable
on the 12% Cumulative Convertible Preferred Stock. The holder may exercise this
right of conversion only by giving written notice that the holder elects to
convert a stated number of shares of the 12% Cumulative Convertible Preferred
Stock into shares of Common Stock on the date specified in the notice and
surrendering to the Company a certificate or certificates for the 12% Cumulative
Convertible Preferred Stock to be converted, at its principal office, at any
time during its usual business hours on or before the date set forth in the
notice, together with a statement of the name or names (with addresses) in which
the certificate or certificates for Common Stock should be issued.
(b) Promptly after the receipt of the written notice
referred to above and surrender of the share or shares of 12% Cumulative
Convertible Preferred Stock to be converted, the Company shall issue and
deliver, or cause to be issued and delivered, to the holder a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such share or shares. No fractional shares shall be issued upon
conversion of the 12% Cumulative Convertible Preferred Stock into shares of
Common Stock. To the extent permitted by law, the conversion shall be deemed
to have been effected as of the close of business on the date specified in the
written notice, and at that time the rights of the holder of the share or
shares, as such a holder, shall cease, and the holder of the 12% Cumulative
Convertible Preferred Stock shall become the holder of record of the shares of
Common Stock.
<PAGE> 3(b)3
5. Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the Company, the holders
of shares of the 12% Cumulative Convertible Preferred Stock then outstanding
shall be entitled to be paid, out of the assets of the Company available for
distribution to its stockholders, whether from capital, surplus, or earnings,
before any payment shall be made in respect of the Common Stock, an amount
equal to Ten Dollars ($10.00) per share, plus all accrued and unpaid dividends
thereon to the date fixed for distribution. After setting apart or paying in
full the preferential amounts due the holders of the 12% Cumulative Convertible
Preferred Stock, the remaining assets of the Company available for distribution
to stockholders, if any, shall be distributed exclusively to the holders of
Common Stock, each such issued and outstanding share of Common Stock entitling
the holder thereof to receive an equal proportion of said remaining assets. If
upon liquidation, dissolution, or winding up of the Company, the assets of the
Company available for distribution to its shareholders shall be insufficient to
pay the holders of the 12% Cumulative Convertible Preferred Stock the full
amounts to which they respectively shall be entitled, the holders of the 12%
Cumulative Convertible Preferred Stock shall share ratably in any distribution
of assets according to the respective amounts which would be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to said shares were paid in full. Neither a consolidation nor
merger of the Company into or with any other corporation or corporations, nor
the merger of any other corporation into the Company, nor the sale or transfer
by the Company of all or any part of its assets, nor a reorganization of the
Company, nor the purchase or redemption of all or part of the outstanding
shares of any class or classes of the capital stock of the Company, nor a
reduction of the capital stock of the Company shall be deemed to be a
liquidation, dissolution, or winding up of the Company within the meaning of any
of the provisions of this Subsection 5.
(d) Of the 250,000 shares of Preferred Stock authorized hereunder,
200,000 shares of Preferred Stock shall be designated Class A Variable Rate
Cumulative Convertible Preferred Stock ("Class A Preferred Stock"), shall have
par value of $10.00 per share, and shall have the following rights and
preferences:
1. Dividends. The holders of the shares of Class A Preferred
Stock shall be entitled to receive out of any assets at the time legally
available therefor and when and as declared by the Board of Directors cumulative
dividends at the rate of 5.55% per annum; provided, however, the dividend rate
shall be adjusted monthly commencing on April 1, 1992, and continuing on the
first day of each and every month thereafter while each share of Class A
Preferred Stock is outstanding. The dividend rate for each such month shall be
equal to the published rate paid by Texas Commerce Bank, National Association,
Houston, Texas, on 30-day certificates of deposit in effect on the first day of
each such month plus 2%. Dividends shall be payable in cash quarterly
commencing on April 1, 1992, and continuing on the first day of July, October,
January, and April of each year that any shares of Class A Preferred Stock are
outstanding. Such dividends are prior and in preference to any declaration or
payment of any distribution (as defined below) on the Common Stock of the
Company. Such dividends shall accrue on each share of Class A Preferred Stock
from day to day from the date of initial issuance thereof whether or not there
are funds legally available for payment of dividends, or such dividends are
earned or declared, so that if such dividends with respect to any previous
dividend period at the rate provided for herein have not been paid on, or
declared and set apart for, all shares of Class A Preferred Stock at the time
outstanding, the deficiency shall be fully paid on, or declared and set apart
for, such shares before any distribution shall be paid on, or declared and set
<PAGE> 3(b)4
apart for, the Common Stock.
For purposes hereof, unless the context otherwise requires,
the term "distribution" shall mean the transfer of cash or property without
consideration, or issuance of indebtedness, whether by way of dividend or
otherwise, payable other than in Common Stock, as a dividend on any class or
series of capital stock of the Company on the repurchase or redemption of shares
of capital stock of the Company (other than repurchases of Common Stock held by
employees of the Company upon termination of their employment pursuant to
agreements providing for such repurchase) for cash or property or as a payment
by the Company in liquidation of all or a portion of its assets.
2. Voting Rights. Each share of Class A Preferred Stock shall
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
pursuant to Subsection 4 at the time the vote is taken, on all matters submitted
to a vote of the Company's shareholders. Except as otherwise provided herein or
required by law, holders of shares of Class A Preferred Stock shall vote with
the holders of shares of Common Stock and any other class of stock entitled to
vote and not as a separate class.
3. [Intentionally omitted.]
4. Optional Conversion Into Common Stock.
(a) Subject to the terms and conditions of this Subsection
4, the holder of any share or shares of Class A Preferred Stock has the right at
any time after the issuance of the shares of Class A Preferred Stock at its
option to convert all or a portion of the shares of Class A Preferred Stock
held by it 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 $10.00 and the denominator is the Conversion Price (as
hereinafter defined). However, on any liquidation of the Company, the right of
conversion shall terminate at the close of business on the last full business
day before the date fixed for payment of the amount distributable on the Class A
Preferred Stock. The holder may exercise this right of conversion only by
giving written notice that the holder elects to convert a stated number of
shares of the Class A Preferred Stock into shares of Common Stock on the date
specified in the notice and surrendering to the Company a certificate or
certificates for the Class A Preferred Stock to be converted, at its principal
office, at any time during its usual business hours on or before the date set
forth in the notice, together with a statement of the name or names (with
addresses) in which the certificate or certificates for Common Stock should be
issued.
(b) Promptly after the receipt of the written notice
referred to above and surrender of the share or shares of Class A Preferred
Stock to be converted, the Company shall issue and deliver, or cause to be
issued and delivered, to the holder a certificate or certificates for the number
of whole shares of Common Stock issuable upon the conversion of such share
or shares. No fractional shares shall be issued upon conversion of the Class
A Preferred Stock into shares of Common Stock. To the extent permitted by
law, the conversion shall be deemed to have been effected as of the close of
business on the date specified in the written notice, and at that time the
rights of the holder of the share or shares, as such a holder, shall cease, and
the holder of the Class A Preferred Stock shall become the holder of record of
the shares of Common Stock.
<PAGE> 3(b)5
(c) The conversion price per share of Common Stock as of
any date (the "Conversion Price") shall be $.058375 (the "Initial Conversion
Price"), as adjusted from time to time in accordance with paragraph (d) of this
Subsection 4.
(d) (1) In the event that the Company shall make any
distribution of its assets upon or with respect to its Common Stock, as a
liquidating or partial liquidating dividend, each holder of a share of Class A
Preferred Stock shall, upon the exercise of his right to convert after the
record date for such distribution or, in the absence of a record date, after the
date of such distribution, receive, in addition to the shares subscribed for,
the amount of such assets (or, at the option of the Company, a sum equal to the
value thereof at the time of distribution as determined by the Board of
Directors in its sole discretion) which would have been distributed to such
holder if he had exercised his right to convert immediately prior to the record
date for such distribution or, in the absence of a record date, immediately
prior to the date of such distribution.
(2) If at any time the Company shall subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced and conversely, in case the outstanding shares of Common
Stock of the Company shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(3) If any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its assets
to another corporation, shall be effected in such a way that holders of shares
of Common Stock shall be entitled to receive stock, securities, or assets with
respect to or in exchange for their shares of Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger, or
sale, each holder of a share(s) of Class A Preferred Stock shall have the right
thereafter for so long as such share(s) is outstanding to convert such share(s)
into the kind and amount of stock, securities, or assets receivable upon such
reorganization, reclassification, consolidations, merger, or sale by a holder of
the number of shares of Common Stock into which such share(s) of Class A
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, consolidations, merger, or sale, subject to
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for herein.
(4) Before taking any action which would cause an
adjustment reducing the Conversion Price at any time in effect below the then
par value of the shares of Common Stock issuable upon conversion of shares of
Class A Preferred Stock, the Company shall take any corporate action which may
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable shares of such Common Stock at such Conversion Price as so
adjusted.
(5) Whenever the Conversion Price is adjusted, as
herein provided, the Company shall send to each holder of a share of Class A
Preferred Stock a certificate of a firm of independent public accountants (who
may be the accountants regularly employed by the Company) selected by the Board
of Directors setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
<PAGE> 3(b)6
be a liquidation, dissolution, or winding up of the Company within the meaning
of any of the provisions of this Subsection 5.
(e) Of the 250,000 shares of Preferred Stock authorized hereunder,
22,500 shares of Preferred Stock shall be designated Class B Variable Rate
Cumulative Convertible Preferred Stock ("Class B Preferred Stock"), shall have
a par value of $10.00 per share, and shall have the following rights and
preferences:
1. Dividends. The holders of the shares of Class B Preferred
Stock shall be entitled to receive out of any assets at the time legally
available therefor and when and as declared by the Board of Directors
cumulative dividends at the rate of 5.55% per annum; provided, however, the
dividend rate shall be adjusted monthly commencing on April 1, 1992, and
continuing on the first day of each and every month thereafter while each share
of Class B Preferred Stock is outstanding. The dividend rate for each such
month shall be equal to the published rate paid by Texas Commerce Bank, National
Association, Houston, Texas, on 30-day certificates of deposit in effect on the
first day of each such month plus 2%. Dividends shall be payable in cash
quarterly commencing on April 1, 1992, and continuing on the first day of July,
October, January, and April of each year that any shares of Class B Preferred
Stock are outstanding. Such dividends are prior and in preference to any
declaration or payment of any distribution (as defined below) on the Common
Stock of the Company. Such dividends shall accrue on each share of Class B
Preferred Stock from day to day from the date of initial issuance thereof
whether or not there are funds legally available for payment of dividends, or
such dividends are earned or declared, so that if such dividends with respect
to any previous dividend period at the rate provided for herein have not been
paid on, or declared and set apart for, all shares of Class B Preferred Stock
at the time outstanding, the deficiency shall be fully paid on, or declared and
set apart for, such shares before any distribution shall be paid on, or declared
and set apart for, the Common Stock.
For purposes hereof, unless the context otherwise requires,
the term "distribution" shall mean the transfer of cash or property without
consideration, or issuance of indebtedness, whether by way of dividend or
otherwise, payable other than in Common Stock, as a dividend on any class or
series of capital stock of the Company on the repurchase or redemption of shares
of capital stock of the Company (other than redemptions provided for in
Subsection 3 hereof or repurchases of Common Stock held by employees of the
Company upon termination of their employment pursuant to agreements providing
for such repurchase) for cash or property or as a payment by the Company in
liquidation of all or a portion of its assets.
2. Voting Rights. Except as otherwise provided by law, the
shares of Class B Preferred Stock shall have no voting rights.
3. Redemption.
(a) The Company may, at any time after issuance of the
Class B Preferred Stock, call for redemption at the Redemption Price (as
defined below) any or all of the outstanding shares of Class B Preferred Stock
in accordance with this Subsection 3. The Company shall mail notice of any
redemption by certified mail, postage prepaid, to each holder of record of the
shares of the Class B Preferred Stock to be redeemed, at his or her address
registered with the Company, which notice shall be accompanied by payment
in full of the Redemption Price. The date of the mailing of notice of
redemption shall be the Redemption Date.
<PAGE> 3(b)7
(b) If notice of redemption has been mailed and the
Company has made payment of the Redemption Price, on the Redemption Date all
rights of the holders of the shares, as shareholders of the Company by reason
of the ownership of the shares, shall cease, and after the Redemption Date the
shares shall not be outstanding. If less than all the shares represented by
any certificate are redeemed, a new certificate, representing the unredeemed
shares, shall be issued to the holder thereof without cost (except for the
payment of any applicable transfer taxes) to the holder. If called for
redemption, the right to convert Class B Preferred Stock to Common Stock
pursuant to Subsection 4 shall terminate on the close of business on the day
before the date fixed for actual payment of the Redemption Price unless the
Company shall default in paying the Redemption Price.
(c) To facilitate the redemption of any shares of Class B
Preferred Stock, the Board of Directors is authorized to cause the transfer
books of the Company to be closed as to such shares as of the record date for
determining the holders of Class B Preferred Stock entitled to notice of
redemption.
(d) For purposes hereof, the term "Redemption Price" shall
mean $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 the Redemption
Price is paid.
4. Optional Conversion Into Common Stock.
(a) Subject to the provisions of Subsection 3 hereof
regarding redemption, and subject to the terms and conditions of this Subsection
4, the holder of any share or shares of Class B Preferred Stock has the right at
any time after the issuance of the shares of Class B Preferred Stock at its
option to convert all or a portion of the shares of Class B Preferred Stock
held by it into such number of whole shares of Common Stock as is determined
by multiplying the number of shares of Class B Preferred Stock by a fraction,
the numerator of which is $10.00 and the denominator is the Conversion Price (as
hereinafter defined). However, on any liquidation of the Company, the right of
conversion shall terminate at the close of business on the last full business
day before the date fixed for payment of the amount distributable on the Class
B Preferred Stock. The holder may exercise this right of conversion only by
giving written notice that the holder elects to convert a stated number of
hares of the Class B Preferred Stock into shares of Common Stock on the date
specified in the notice and surrendering to the Company a certificate or
certificates for the Class B Preferred Stock to be converted, at its principal
office, at any time during its usual business hours on or before the date set
forth in the notice, together with a statement of the name or names (with
addresses) in which the certificate or certificates for Common Stock should be
issued.
(b) Promptly after the receipt of the written notice
referred to above and surrender of the share or shares of Class B Preferred
Stock to be converted, the Company shall issue and deliver, or cause to be
issued and delivered, to the holder a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion of such
share or shares. No fractional shares shall be issued upon conversion
of the Class B Preferred Stock into shares of Common Stock. To the extent
permitted by law, the conversion shall be deemed to have been effected as of the
close of business on the date specified in the written notice, and at that time
the rights of the holder of the share or shares, as such a holder, shall cease,
and the holder of the Class B Preferred Stock shall become the holder of record
<PAGE> 3(b)8
of the shares of Common Stock.
(c) The conversion price per share of Common Stock as of
any date (the "Conversion Price") shall be $.058375 (the "Initial Conversion
Price"), as adjusted from time to time in accordance with paragraph (d) of this
Subsection 4.
(d) (1) In the event that the Company shall make any
distribution of its assets upon or with respect to its Common Stock, as a
liquidating or partial liquidating dividend, each holder of a share of Class B
Preferred Stock shall, upon the exercise of his right to convert after the
record date for such distribution or, in the absence of a record date, after
the date of such distribution, receive, in addition to the shares subscribed
for, the amount of such assets (or, at the option of the Company, a sum
equal to the value thereof at the time of distribution as determined by the
Board of Directors in its sole discretion) which would have been distributed to
such holder if he had exercised his right to convert immediately prior to the
record date for such distribution or, in the absence of a record date,
immediately prior to the date of such distribution.
(2) If at any time the Company shall subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller number of shares,
the Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(3) If any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its assets
to another corporation, shall be effected in such a way that holders of shares
of Common Stock shall be entitled to receive stock, securities, or assets with
respect to or in exchange for their shares of Common Stock, then, as a condition
of such reorganization, reclassification, consolidation, merger, or sale, each
holder of a share(s) of Class B Preferred Stock shall have the right hereafter
for so long as such share(s) is outstanding to convert such share(s) into the
kind and amount of stock, securities, or assets receivable upon such
reorganization, reclassification, consolidations, merger, or sale by a holder
of the number of shares of Common Stock into which such share(s) of Class B
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, consolidations, merger, or sale, subject to
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for herein.
(4) Before taking any action which would cause an
adjustment reducing the Conversion Price at any time in effect below the then
par value of the shares of Common Stock issuable upon conversion of shares of
Class B Preferred Stock, the Company shall take any corporate action which may
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable shares of such Common Stock at such Conversion Price as so
adjusted.
(5) Whenever the Conversion Price is adjusted, as
herein provided, the Company shall send to each holder of a share of Class B
Preferred Stock a certificate of a firm of independent public accountants (who
may be the accountants regularly employed by the Company) selected by the Board
of Directors setting forth the Conversion Price after such adjustment and
<PAGE> 3(b)9
setting forth a brief statement of the facts requiring such adjustment.
(6) In case:
(1) the Company shall declare a dividend (or
any other distribution) on its Common Stock; or
(2) the Company shall authorize the granting
to holders of shares of Common Stock of rights to subscribe for or purchase
(f) Of the 500,000 shares of Preferred Stock authorized hereunder,
240,000 shares of Preferred Stock shall be designated as Class C Convertible
Cumulative Redeemable Preferred Stock (the "Class C Preferred Stock"), shall
have a par value of $10.00 per share, and shall have the following rights and
preferences:
1. Dividends. The holders of the Class C Preferred Stock
("Holders") shall be 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 eight percent
(8%) per annum of the liquidation preference per share of $60.00. in the event
the Corporation has not filed a registration statement relating to the
Conversion Shares (as herinafter defined) under the Securities Act of 1933, as
amended (the "Act"), within 12 months of the final closing of the private
placement of the Class C Preferred Stock by the Corporation (the "Final
Closing") and such registration statement is not declared effecrive under the
Act within such 12-month period, the cumulative preferential dividend rate
shall be increased to twelve (12%) per annum of the liquidation preference per
share of $60.00. Dividends may 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, in shares (the "Dividend Shares") of
common stock of the Corporation, par value $.007 per share (the "Common Stock")
(based upon the last sale price of a share of Common Stock for the five (5)
trading days preceding the record date for a particular dividend) provided that
such dividend Shares are covered by a registration statement which has been
declared effective under the Act.
2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, each share of Class C Preferred Stock shall be entitled to receive
$60.00 per share.
3. Voting Rights. Except as otherwise required by applicable
law, the Class C Preferred Stock shall have no voting rights.
4. Redemption. The Corporation may, at ist option, (a) redeem
shares of Class C Preferred Stockat any time prior to the fourth anniversary of
the Final Closing on not less that thirty (30) nor more that sizty (60) days'
written notice to such holders at a redemption price equal to $60.00 per share
plus accrued and unpaid dividends provided that: (i) shares of Common Stock
issuable upon conversion of shares of Class C Preferred Stock (the "Conversion
Shares") are covered by a registration statement which has been declared
effective under the Act, or the Conversion Shares are otherwise exempt from
registration under the Act in the opinion of counsel to the Company, and
(ii) during the immediately preceding thirty (30) consecutive trading days
ending within fifteen (15) days of the date of notice of redemption to the
holders, the closing bid price of the Corporation's Common Stock is not less
than $8.00 per share.
<PAGE> 3(b)10
(b) redeem shares of Class C Preferred Stock at any time
after the fourth anniversary of the Final Closing on not less that thirty (30)
nor more that sixty (60) days' written notice to such holders at a redemption
price equal to $90.00 per share plus accrued and unpaid dividends provided that
the Conversion Shares are covered by a regitration statement whcih has been
declared effective under the Act or the Conversion Shares are otherwise exempt
from registration under the Act in the opinion of counsel to the Company.
5. Conversion Into Common Stock. (a) Subject to the terms and
conditions subsections (a) and (b) of this Section 5, and unless previously
redeemed, issued and outstanding shares of Class C Preferred Stock may be
converted, at the option of the holder, at any time after three (3) months from
the Firsr Closing of the private placement of the Class C Preferred Stock by the
Corporation (the "First Closing") into such number of shares of the
Corporation's Common Stock (the "Conversion Shares") as shall equal $60.00
shares divided by the lower of (a) $2.50 or (b) the closing bid price for any
five consecutive trading days during the period commending on the Final Closing
and ending eighteen months thereafter (but in no event less than $1.25) (the
"Conversion Price") subject to adjustment as set forth below.
(b) On the fifth anniversary of the Final Closing (the
"Conversion Date"), and with no other action required by the Corporation or the
holder of the Class C Preferred Stock, the shares of Class C Preferred Stock
held by each holder thereof shall be converted into such number of whole shares
of Common Stock at a conversion price equal to the lower of the then current
Conversion price or 505 of the average closing bid price of the Common Stock
for the ten (10) trading days immediately preceding the fifth anniversary of the
Final Closing.
(c) The Conversion Price shall be subject to adjustment as
follows:
(i) In the case the Corporation shall subdivide the
number of outstanding shaes of the Common Stock into a greater number of shares
or shall contract the number of outstanding shares of its Common Stock into a
lesser number of shares, the Conversion Price then in effect shall be adjusted,
effective at the close of business on the record date for the determination of
stockholders entitled to receive the same, to the price (computed to the nearest
cent) determined by dividing (A) the product obtained by multiplying the
Conversion Price in effect immediately prior to the close of business on such
record date by the number of shares of Common Stock outstanding prior to such
subdivision or contraction, by (B) the number of shares of Common Stock
outstanding immediately after such subdivision or contraction.
(ii) In the event that the Corporation shall issue or
sell shares of its Common Stock (except for shares issueable upon exercise or
conversion of securities outstanding or issuable upon exercise or conversion of
securities outstanding or issuable by the Company as of the date hereof) at a
price per share less that the then current Conversion Price (the "New Issue
Price"), the Conversion Price shall be reduced to the greater of the New Issue
Price or $1.25 per share; and
(iii) In the event that the Corporation's registration
statement under the Act registering the Conversion Shares is not declared
effective within twelve (12) months after the Final Closing, the Conversion
Price shall be subject to an additional reduction of 10% for each 90-day delay
in the effective date of such registration statement, provided however that in
<PAGE> 3(b)11
no event shall the Conversion Price be less than $1.25 per share.
(d) Promptly after the receipt of certificates
representing Class C Preferred Stock and surrender of Class C Preferred Stock,
the Corporation shall issue and deliver, or cause to be issued and delivered,
to the Holder a certificate or certificates for the number of whole shares of
Common Stock issuable upon the conversion of such Class C Preferred Stock. No
fractional shares shall be issued upon conversion of the Class C Preferred Stock
into shares of Common Stock. To the extent permitted by law, the conversion
shall be deemed to have been effected as of the close of business on the
Conversion Date (or on the next preceding business day if the Conversion Date
is not a business day) and at that time the rights of the holder of Class C
Preferred Stock, as such holder, shall cease, and the holder of the Class C
Preferred Stock shall become the holder of record of shares of Common Stock.
(e) Notwithstanding anything herein to the contrary, on any
liquidation of the Corporation, the right of conversion of the Class C Preferred
Stock shall terminate at the close of business on the last full business day
before the date fixed for payment of the amount distributable on the Class C
Preferred Stock.
6. Registration Rights. The Corporation, within twelve (12)
months of the Final Closing, shall file a registraton statement registering the
reoffer and resale of the Conversion Shares by the Holders thereof; provided,
however, that in the event the Company files a registration statement prior to
the expiration of twelve (12) months from the Final Closing, the Conversion
Shares shall be included in such registration statement to the extent permitted
by law. In the event that the registration statement is not declared effective
within such 12-month period, the Conversion Price will be reduced as provided by
Subsection 5(a) hereof, and dividends payable on the Class C Preferred Stock
will be increased as provided by Subsection 1 hereof.
7. Lock-up. The Conversion Shares and Dividend Shares may not
be publicly sold until after the first anniversary of the Final Closing without
the prior written consent of Commonwealth Associates.
8. Rank. With respect to the payment of dividends and upon
liquidation, the shares of the Class C Preferred Stock shall be subordinate to
any issued and outstanding shares of Class A Preferred Stock and Class B
Preferred Stock of the Corporation and shall rank senior to the shares of
Preferred Stock and to the shares of Common Stock of the Corporation.
ARTICLE IV
VOTING RIGHTS
Each holder of Common Stock is entitled to one vote for each share of
Common Stock that he holds on each matter submitted to a vote at a meeting of
shareholders.
ARTICLE V
BOARD OF DIRECTORS
1. Number. The property, business, and affairs of the corporation shall
be managed and controlled by the Board of Directors. The number of directors
of the corporation shall not be less than five nor more than nine, the exact
<PAGE> 3(b)12
number of directors to be determined from time to time by resolution adopted by
affirmative vote of a majority of the whole Board of Directors, and such exact
number shall be five until otherwise determined by resolution adopted by
affirmative vote of a majority of the whole Board of Directors; provided,
however, that the number of directors shall not be reduced so as to shorten the
term of a director at that time in office. As used in this Article V, the term
"whole Board" means the total number of directors which the corporation would
have if there were no vacancies.
2. Classes. The Board of Directors shall be divided into three classes,
as nearly equal in number as the then total number of directors constituting
the whole Board permits, with the term of office of one class expiring each
year. Directors of the first class shall be elected to hold office for a term
expiring at the next succeeding annual meeting, directors of the second class
shall be elected to hold office for a term expiring at the second succeeding
annual meeting, and directors of the third class shall be elected to hold
office for a term expiring at the third succeeding annual meeting. Any
vacancies in the Board of Directors for any reason, and any newly created
directorships resulting from any increase in the number of directors, may be
filled by the Board of Directors acting by a majority of the directors then in
office and any directors so chosen would hold office until the next election of
the class for which such directors have been chosen and until their successors
are elected and qualified. No decrease in the number of directors shall
shorten the term of any incumbent director. At each annual meeting of
shareholders the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting.
3. Removal. Any director may be removed by the vote of a majority of
the whole Board of Directors, but only for cause. Except as may otherwise be
provided by law, cause for removal shall be construed to exist only if: (a)
the director whose removal is proposed has been convicted of a felony by a
court of competent jurisdiction; or (b) such director has been adjudicated by a
court of competent jurisdiction to be liable for negligence or misconduct in
the performance of his duty to the corporation in a matter of substantial
importance to the corporation and such adjudication is no longer subject to
direct appeal. In addition, any director or the entire Board of Directors may
be removed, with or without cause, by the affirmative vote of the holders of at
least 67% of the outstanding shares of the corporation then entitled to vote
generally in the election of directors cast at a meeting of the shareholders
called for that purpose.
4. Vacancies. Any vacancies in the Board of Directors resulting from
death, resignation, retirement, removal from office, the creation of a new
directorship by an increase in the authorized number of directors, or otherwise
shall be filled by a majority vote of the directors then in office, though less
than a quorum of the entire Board of Directors. Directors so chosen to fill
any vacancy shall hold office for a term expiring at the annual meeting of
shareholders at which the term of the class to which they have been elected
expires.
5. Amendment, Alteration, Repeal, Etc. Notwithstanding anything
contained in these Articles of Incorporation to the contrary, the affirmative
vote of the holders of at least 67% of the outstanding shares of the
corporation then entitled to vote in the election of directors shall be
required to amend, alter, or repeal or to adopt any provision inconsistent
with, this Article V.
<PAGE> 3(b)13
ARTICLE VI
LIQUIDATION, REORGANIZATION, MERGER, CONSOLIDATION,
SALE OF SUBSTANTIALLY ALL ASSETS, OR RECLASSIFICATION OF
SECURITIES
Any liquidation, reorganization, merger, consolidation, sale of
substantially all of the corporation's assets, or the reclassification of its
securities shall be approved by (a) the holders of at least a majority of the
issued and outstanding Common Stock held by other than officers, directors, and
those persons who hold 5% or more of the outstanding Common Stock, and (b) a
vote of a majority of shares of issued and outstanding Common Stock held by the
Company's officers, directors, and those persons who hold 5% or more of the
outstanding Common Stock. Notwithstanding anything contained in these Articles
of Incorporation to the contrary, the affirmative vote of the holders of at
least 67% of the outstanding shares of the corporation then entitled to vote in
the election of directors shall be required to amend, alter, or repeal, or to
adopt any provision inconsistent with, this Article VI.
<PAGE> 3(b)14
AGREEMENT FOR TERMINAL FACILITY COLLOCATION SPACE
THIS AGREEMENT made this 21st day of June, 1996, (the "Effective Date") by and
between MFS Telecom, Inc., a Delaware corporation, hereinafter called "MFS",
and I-Link Worldwide, Inc., a(n) Utah corporation, hereinafter called
"Customer".
RECITALS
WHEREAS, MFS owns, controls, or is affiliated with entities
(hereinafter, "MFS Affiliates") having leasehold interests in certain office and
storage space within commercial buildings throughout the United States
(generally described herein as the "Premises") which may be suitable for the
placement and operation of telecommunications equipment; and
WHEREAS, Customer desires access to the Premises in one or more locations
for the purpose of placing therein certain telecommunications equipment and
cabling (hereinafter, the "Equipment") each individual location for such.
Equipment to be referred to herein as a "Terminal Facility"; and
WHEREAS, one or more of the MFS Affiliates may be willing to grant
Customer licenses to occupy or use portions of the Terminal Facilities upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, MFS and Customer (collectively the "Parties") hereby agree as follows:
1. LICENSE TO OCCUPY, PERMISSIBLE USE AND RELOCATION PROVISIONS.
A. This document shall comprise a complete and binding agreement between
Customer and an MFS Affiliate only upon execution by the MFS Affiliate and
Customer of a Collocation Schedule pertaining to an individual Terminal
Facility, of which the MFS Affiliate has a leasehold interest. Each
Collocation Schedule, and any amendments thereto, when dated and subscribed by
Customer and the applicable MFS affiliate, shall incorporate the terms and
conditions of this Agreement. References in this Agreement to rights or
obligations of MFS shall refer to the rights and obligations of the MFS
affiliate named in the appropriate Collocation Schedule for the Terminal
Facility to which it pertains, In the event of any conflict or inconsistency
between this Agreement and the terms set forth in a Collocation Schedule, terms
of the Collocation Schedule shall in all cases prevail, but only for the
Terminal Facility identified in the conflicting or inconsistent Collocation
Schedule.
B. Each Collocation Schedule shall have attached thereto the following Exhibits:
Facility Drawings, identified as "Exhibit 1"; Description of Work Tasks and
Special Terms and Conditions, identified as "Exhibit 2"; and Dispatch Labor
Charges, identified as "Exhibit 3".
C. Except as expressly provided in this paragraph 1.C, Customer shall utilize
the Space only for interconnection of the Equipment to the network services of
MFS. If Customer requires telecommunications services that MFS is unable or
unwilling to provide (after having been given a reasonable opportunity by
Customer to provide the required services) Customer shall have the right to
interconnect the Equipment to facilities of the dominant local exchange carrier
(LEC). With respect to the preceding sentence, Customer shall have the right to
interconnect the Equipment to facilities of the dominant LEC in any specific
instance in which MFS' price is not less than the dominant LEC's price for a
requested service. Customer must obtain the prior written consent of MFS before
<PAGE> 10(a)1
allowing the Equipment to be interconnected with the LEC network, which consent
shall not be unreasonably withheld, and any consent not given or denied within
three business days after such written notice shall be deemed to be granted.
D. In connection with the Space made available hereunder, MFS shall perform
services which support the overall operation of the Terminal Facility (e.g.,
janitorial services, environmental systems maintenance, and power plant
maintenance) at no additional charge to Customer. However, Customer shall be
required to maintain the Collocation Space in an orderly manner and shall be
responsible for the removal of trash, packing, cartons, etc. from any caged area
reserved for Customer's exclusive use, if any. Further, Customer shall maintain
the Space in a safe condition, including but not limited to the preclusion of
storing combustible materials in the Space.
E. Unless otherwise provided in the Collocation Schedule, each visit by Customer
to the Space will be deemed to utilize escort services furnished by MFS from the
time Customer's Employee(s) sign(s) in upon entering the Terminal Facility to
the time Customer's employee(s) sign(s) out upon leaving the Terminal Facility.
Charges for escort services are consistent with the dispatch labor charges (the
"Dispatch Labor Charges") depicted in Exhibit 3 to the Collocation Schedule.
F. Customer acknowledges that it has been granted only a license to occupy the
Space and that it has not been granted any real property interests in the Space.
II. TERM OF AGREEMENT, TERMINATION AND RENEWAL.
A. Customer's license to occupy each Collocation Space shall begin on the
"Requested Service Date," as set forth in paragraph 3 of each individual
Collocation Schedule or on the date MFS completes the build out of the Space,
whichever is later. The minimum term of the Customer's license to occupy the
Space shall be the period set forth in the Collocation Schedule (the "Minimum
Term").
B. If MFS fails for any reason to tender possession of the Space to Customer on
or before the Requested Service Date (specified in the Collocate Schedule
relevant thereto) this Agreement shall not be void or voidable. Notwithstanding
the foregoing, if MFS fails to tender possession of the Space to Customer within
a sixty (60) day period after such Requested Service Date (due to any reason
other than the acts or omissions of Customer), Customer may, upon written notice
to MFS, declare relevant Collocate Schedule null and void with no further
obligation by Customer under the relevant Collocate Schedule, and MFS shall
refund all fees and charges paid in advance by Customer. In the event that
MFS is delayed in tendering possession of the Space to Customer for any reason
other than the acts or omissions of Customer, Customer shall not be obligated to
pay the Occupancy Fee or Service Fee (as hereinafter defined) hereunder until
such time as MFS tenders possession of the Space to the Customer. Except as
provided herein, MFS shall not be liable lo Customer in any way as a result of
such delay or failure to tender possession.
C. Subject to the conditions specified in this Section II, and provided Customer
is not in default of its Agreements with MFS, Customer shall have the option,
upon thirty (30) days prior written notice to MFS, to renew its license to
occupy the Space (the "Renewal Periods") for the period(s) of time and on the
terms and conditions which are set forth in this Agreement and the Collocation
Schedule relevant thereto. The Minimum Term and any Renewal Periods may be
collectively referred to as the "Term."
D. Any option granted to Customer to renew its license to occupy the Space shall
<PAGE> 10(a)2
be contingent on the election of MFS to continue to own or lease the Premises in
which the Space is located for the duration of the Renewal Period(s), such
election to be exercised at the sole discretion of MFS. MFS agrees that
Customer shall receive the maximum possible notice of any relocation required
under this paragraph, which with the exception of emergencies shall be no less
than sixty (60) days.
E. Following the expiration of the Term for each Space or failure of the Parties
to enter into any Renewal Periods. Customer's license shall continue in effect
on a month-to-month basis upon the same terms and conditions specified herein,
unless terminated by either Customer or MFS upon thirty (30) days prior written
notice.
F. Upon termination or expiration of the Term for each Space, Customer agrees to
remove the Equipment and other property that has been installed by Customer or
Customer's agents. ln the event such Equipment or property has not been removed
within thirty (30) days of the effective termination or expiration date, the
Equipment shall be deemed abandoned and Customer shall lose all rights and
title thereto.
G. In the event the Terminal Facility becomes the subject of a taking by eminent
domain by any authority having such power, MFS shall have the right to terminate
this Agreement. MFS shall attempt to give Customer reasonable advance notice of
the removal schedule. Customer shall have no claim against MFS for any
relocation expenses, any part of any award that may be made for such taking or
the value of any unexpired term or renewed periods that result from a
termination by MFS under this provision, or any loss of business from full or
partial interruption or interference due to any termination. However, nothing
contained in this Agreement shall prohibit Customer from seeking any relief or
remedy against the condemning authority in the event of an eminent domain
proceeding or condemnation that affects the Space.
III. PRICES AND PAYMENT TERMS.
A. Customer shall pay MFS monthly recurring fees (the "Recurring Fees"), which
shall include charges for use and occupancy of the Space (the "Occupancy Fees"),
as well as cross-connect fees and power charges (the "Power Charges"), if
applicable. In addition to any Recurring Fees, Customer shall be charged non-
recurring fees for build-out of the Space (the "Build-Out Charges"), including,
where applicable, cross-connect installation fees and/or Dispatch Labor Charges,
where applicable, which shall be set forth in the relevant Collocation Schedule
and the Exhibits thereto. If Customer requests that MFS provide services not
delineated herein or in the collocation schedules at any time during the Term,
Customer agrees to pay MFS' price for such services in effect at the time such
service was rendered.
B. Prices do not include taxes, except as specifically stated herein. Customer
agrees to pay or reimburse MFS for any applicable taxes that are levied based on
the transactions hereunder, exclusive of taxes on MFS' income and real estate
taxes on the Terminal Facility. Any such charges shall be invoiced and payable
within the payment terms of this Agreement. MFS agrees to provide Customer with
reasonable documentation to support invoiced amounts for taxes within thirty
(30) calendar days of receipt of a Customer's written request.
C. The Occupancy Fee and/or Power Charges shall be increased by any increases
incurred by MFS and required under the lease relevant to the Premises in which
the Space is located. Customer shall pay to MFS its pro rata share of any such
increases based on the number of square feet of the Space compared to the number
<PAGE> 10(a)3
of square feet leased by MFS under the applicable lease. MFS shall notify
Customer of any such increase as soon as practicable.
D. All Recurring Fees shall be invoiced in the beginning of each month
commencing on the first day of the Term as identified in the Collocation
Schedule and thereafter, on the first day of each calendar month. Charges
for partial months shall be prorated accordingly. All Recurring Fees shall be
payable net thirty (30) days from date of invoice. Late payments shall be
subject to late charges if payment is not received within the payment term
period. The late payment charges will be calculated based on 1.5% per month
of the unpaid amount.
E. Charges delineated in the Collocation Schedule for build out of the Space
shall be invoiced and paid by Customer when invoiced. MFS may require payment
of up to fifty percent (50%) of the "Build Out Fees" prior to commencing
construction.
F. Customer agrees to reimburse MFS for all reasonable repair or restoration
costs associated with damage or destruction caused by Customer's personnel,
Customer's agents or Customer's suppliers/contractors or Customer's visitors
during the Term or as a consequence of Customer's removal of the Equipment or
property installed in the Space. Removal of approved Customer installations
shall not be charged to Customer unless otherwise indicated in the Collocation
Schedule.
IV. ADDITIONAL TERMS GOVERNING USE OF COLLOCATION SPACE:
INSTALLATION OF EQUIPMENT.
A. Before beginning any delivery, installation, replacement or removal work,
Customer must obtain MFS' written approval of Customer's choice of suppliers
and contractors which approval shall not be unreasonable withheld or unduly
delayed. MFS may request additional information before granting approval and
may require scheduling changes and substitution of suppliers and contractors as
conditions of its approval. Approval by MFS is not an endorsement of Customer's
supplier or contractor, and Customer will remain solely responsible for the
selection of the supplier or contractor and all payments for construction work.
B. Customer shall must make any construction changes or material alterations to
the interior or exterior portions of the Space, including any cabling or power
supplies for the Equipment, without obtaining MFS' written approval for Customer
to have the work performed or have MFS perform the work. MFS reserves the right
to perform and manage any construction or material alterations within the
Terminal Facility and Collocation Space areas at rates to be negotiated between
the Parties hereto.
C. Customers use of the Space, installation of Equipment and access to the
Terminal Facility shall at all times be subject to Customer's adherence to the
generally accepted industry standards, security rules and rules of conduct
established by MFS for the Terminal Facility. Customer agrees not to erect any
signs or devices to the exterior portion of tho Space without submitting the
request to MFS and obtaining MFS' written approval.
D. Customer may not provide, or make available to any third party, space within
the Collocation Space without MFS' prior written consent. If Customer should
provide, or make available to any third party, space within the Collocation
Space without obtaining the written consent of MFS, Customer shall be in breach
of this Agreement and MFS may pursue any legal or equitable remedy, including
but not limited to the immediate termination of the license pursuant to Section
<PAGE> 10(a)4
VI, below.
E. MFS shall not arbitrarily or discriminatorily require Customer to relocate
the Equipment; however, upon sixty (60) days prior written notice or, in the
event of an emergency, such time as may be reasonable, MFS reserves the right
to change the location of the Space or the Terminal Facility to a site which
shall afford comparable environmental conditions for the Equipment and
comparable accessibility to the Equipment. MFS and Customer will work together
in good faith to minimize any disruption of Customer's services as a result of
such relocation. MFS shall be responsible for the cost of improving the Space
to which the Equipment may be relocated, and for relocation of Equipment
interconnected to MFS services, except that MFS shall not be responsible for
relocating facilities installed in violation of Section IV(B) above. In lieu
of relocation at MFS expense, Customer may elect to terminate without penalty
the Collocation Schedule to which the relocation applies.
V. INSURANCE.
Customer agrees to maintain, at Customer's expense, during the entire time this
Agreement is in effect for each Collocation Space (i) Comprehensive General
Liability Insurance in the amount not less than One Million Dollars
($l,000,000.00) per occurrence for bodily injury or property damage,
(ii) Employers Liability in an amount not less than Five Hundred Thousand
Dollars ($500,000.00) per occurrence, and (iii) Workers' Compensation in an
amount not less than that prescribed by statutory limits. Prior to taking
occupancy of the Collocation Space, Customer shall furnish MFS with certificates
of insurance which evidence the minimum levels of insurance set forth herein and
which name MFS as an additional insured.
VI. DEFAULT
A. If either party fails to perform its obligations, or fails to pay for
services renderedhereunder, the nondefaulting party may, at its sole option and
with written notice, issue a default notice letter to the defaulting party,
demanding the default condition be cured. If the default condition is not
remedied within the time period specified in the notice letter, which shall not
be less than fourteen (14) calendar days for defaults that can be cured by the
payment of money and thirty (30) calendar days for all other defaults, the non-
defaulting party may then, without the necessity of any futher notice,
discontinue performance and terminate this Agreement, and pursue any other
remedies available at law or in equity. Either party's failure to exercise any
of its rights hereunder shall not constitute or be construed being a waiver of
any past, present, or future right or remedy.
B. At any time during the term of this Agreement, MFS may, at MFS' sole option,
immediately terminate this Agreement if Customer is not then maintaining the
Equipment solely for the purpose of originating and/or terminating
telecommunications transmissions carried over the MFS Network or as otherwise
set forth in Paragraph I of this Agreement, or pursuant to the terms and
conditions, if any, contained in any Collocation Schedule identified herewith.
C. If Customer commits an act of default under, any Collocation Schedule to
which this agreement pertains, MFS and MFS Affiliats may, in their sole
discretion, declare Customer to be in default of any and all other Collocation
Schedules then in effect, without the necessity of showing separate failures,
acts or ommissions by Customer.
D. If Customer commits an act of default with respect to the purchase of
<PAGE> 10(a)5
telecommunications services from MFS, which would entitle MFS under its
separate tariffs and agreements to terminate its services to Customer, then
MFS and all MFS Affiliates shall be entitled to terminate this Agreement and
all Collocation Sehedules to which this Agreement pertains.
VII. WARRANTIES, REMEDIES AND DISCLAIMERS.
A. MFS shall, at MFS' own expense defend Customer against any and all claims
that the Collocation Space used by Customer hereunder infringes on any third
party's property or ownership rights. MFS shall, at MFS' sole option and
expense, either (I) settle any such claim, (ii) secure valid rights for
Customer's continued use, or (iii) furnish equivalent Collocation Space that is
not infringing and that can be used to satisfy the original specifications in
MFS' determination. This warranty and remedy by MFS shall be valid only if (I)
Customor gives MFS prompt written notice upon Customer's receipt of any such
claim, (ii) Customer provides MFS with all pertinent information in its
possession relative to such claim and (iii) MFS shall have sole control over
the settlement or defense of such claim.
B. THE SPACE IS ACCEPTED "AS IS" BY CUSTOMER. CUSTOMER ACKNOWLEDGES THAT NO
REPRESENTATION HAS BEEN MADE BY MFS AS TO THE FITNESS OF THE COLLOCATION SPACE
FOR CUSTOMER'S INTENDED PURPOSE. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS
ARTICLE, THERE ARE NO WARRANTIES, WHETHER EXPRESS, IMPLIED, ORAL, OR WRITTEN,
WITH RESPECT TO THE COLLOCATION SPACE OR SERVICES COVERED OR FURNISHED PURSUANT
TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. MOREOVER, THE REMEDIES
PROVIDED IN THIS ARTICLE ARE EXCLUSIVE AND lN LIEU OF ALL OTHER REMEDIES.
VIII. EXCUSED PERFORMANCE.
Neither Party shall be liable to the other Party under this Agreement for any
failure nor delay in performance that is due to causes beyond its reasonable
control, including but not limited to, acts of nature, governmental actions,
fires, civil disturbances, interruptions of power, or transporation problems.
IX. ASSIGNMENT OR TRANSFER
Customer shall not assign or transfer the rights or obligations associated with
this Agreement, in whole or in part, without MFS' prior written consent, which
consent shall not be unreasonably withheld or unduly delayed, except that
Customer may (upon written notice to MFS) assign its rights and/or obligations
hereunder: (a) to any subsidiary, parent company or afilliate of Customer; (b)
pursuant to any sale or transfer of substantially all the business of Custormer;
or (c) pursuant to any financing, merger or reorganization of Customer.
X. PUBLlCITY.
Customer shall not use MFS' name in publicity or press releases without MFS'
prior written consent and MFS shall not use Customer's name in publicity or
press releases without Customer's prior written consent.
XI. LIMITATION OF LIABILITY.
A. In no event shall MFS, MFS Affiliates, Customer, or any of their respective
officers or employees, be liable, one to the other, for any loss of profit or
revenue or for indirect, incidental, special, punitive or exemplary damages
incurred or suffered by each other, arising from or pertaining to Customer's
use of occupancy of the Collocation Space including (without limitation)
<PAGE>10(a)6
damages arising from interruption of electrical power or HVAC services.
B. Customer shall indemnify and hold harmless MFS, MFS Affiliates, and their
respcctive officers and employees, servants, and agents from and against any
and all claims, cost, expenses or liability (including reasonable attorney's
fees) arising out of Customer's use of the Collocation Space or Customer's
operation of the Equipment within the Collocation Space.
C. Each Party shall be liable to the other for damage to property and death or
injury to persons if such damnage, loss, or injury is caused by the negligent
or willful acts or omissions of such Party, or its officers, employees,
servants. agents, affiliates or contractors, or by the malfunction of any
equipment supplied or operated by said Party.
XII. SURVIVAL PROVISIONS
The Parties' rights and obligations which by their nature would extend beyond
the termination, cancellation or expiration of this Agreement, shall survive
such termination, cancellation or expiration.
XIII. NOTICES.
All formal notifications and transmittals to MFS issued pursuant to the
provisions of this Agreement shall be sent to:
MFS Telecom, Inc.
One Tower Lane, Suite #1600
Oakbrook Terrace, IL 60181
ATTN: General Counsel/Real Estate
All formal notices and transmittals to Customer shall be sent to:
I-Link Worldwide, Inc.
4030 West Braker - Suite 320
Austin, Texas 78759
ATTN: Clay Wilkes
Either Party may change the notice address or addressee by providing prior
written notice.
XIV. APPLICABILE LAW.
This Agreement shall be governed by the laws of the State of Illinois, without
regard to Illinois' choice of law principles.
XV. ENTIRE AGREEMENT.
This Agreement, including all Attachments, constitutes the entire agreement
between the Parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements of such Parties in connection herewith.
Customer acknowledges that it has not been induced to enter into ths Agreement
by any representative or promise not specifically expressed in this Agreement.
Any modification made hereto shall not be valid and binding unless it is in
writing and signed by both Parties.
<PAGE> 10(a)7
IN WITNESS WHEREOF, the Parties have executed this agreement as of the
date first above written.
MFS TELECOM, INC.
BY: /s/ Mark Gershien
TITLE; President
I-LINK WORLDWIDE, INC.
BY: /s/ John Edwards
TITLE: President/CEO
<PAGE> 10(a)8
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended Six Months Ended
June 30 June 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 $(1,451,309) $( 129,675) $(4,194,187) $( 444,598)
Weighted average common and equivalent
shares outstanding 4,535,539 1,749,163 3,753,470 1,690,970
Adjustments
Assumed issuance of shares purchased under
stock option and stock purchase plans 1,528 - 2,309 -
Assumed exercise of warrants and other options 7,879 - 23,439 -
Assumed conversion of convertible debt 46,249 - 57,946 -
Assumed conversion of:
Class A Variable Rate Cumulative Convertible
Preferred Stock 3,829,517 - 4,152,227 -
Class B Variable Rate Cumulative Convertible
Preferred Stock - - - 58,193
Total common and equivalent shares 8,420,712 1,749,163 7,989,391 1,749,163
Loss per common and equivalent share
after preferred dividends $( .17) $( .07) $( .52) $( .25)
<CAPTION>
Fully diluted earnings per common and common equivalent share
<S> <C> <C> <C> <C>
Net loss available to common and equivalent shares $(1,451,309) $( 129,675) $(4,194,187) $( 444,598)
Weighted average common and equivalent
shares outstanding 4,535,539 1,749,163 3,753,470 1,690,970
Adjustments
Assumed issuance of shares purchased under
stock option and stock purchase plans 1,528 - 2,147 -
Assumed exercise of warrants and other options 7,064 - 29,092 -
Assumed conversion of convertible debt 46,249 - 72,745 -
Assumed conversion of:
Class A Variable Rate Cumulative Convertible
Preferred Stock 3,829,516 - 4,152,227 -
Class B Variable Rate Cumulative Convertible
Preferred Stock - - - 58,193
Total common and equivalent shares 8,419,896 1,749,163 8,009,681 1,749,163
Loss per common and equivalent share
after preferred dividends $( .17) $( .07) $( .52) $( .25)
</TABLE>
<PAGE> 11 1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS DATED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 383954 383954
<SECURITIES> 0 0
<RECEIVABLES> 1592524 1592524
<ALLOWANCES> 681600 681600
<INVENTORY> 830098 830098
<CURRENT-ASSETS> 2219559 2219559
<PP&E> 4304454 4304454
<DEPRECIATION> 2045950 2045950
<TOTAL-ASSETS> 7758639 7758639
<CURRENT-LIABILITIES> 6394967 6394967
<BONDS> 0 0
0 0
75000 75000
<COMMON> 59112 59112
<OTHER-SE> 431054 431054
<TOTAL-LIABILITY-AND-EQUITY> 7758639 7758639
<SALES> 0 0
<TOTAL-REVENUES> 637828 1247034
<CGS> 0 0
<TOTAL-COSTS> 2030526 5314005
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 75127 122766
<INCOME-PRETAX> (1468584) (4176912)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1468584) (4176912)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1468584) (4176912)
<EPS-PRIMARY> (.17) (.52)
<EPS-DILUTED> (.17) (.52)
<PAGE>
</TABLE>
EXHIBIT 99(c)
FOR IMMEDIATE RELEASE: 17 JULY, 1996
MEDCROSS, INC. ANNOUNCES COMMENCEMENT OF
PRIVATE PLACEMENT
St. Petersburg, Florida - Medcross, Inc. (NASDAQ: ILNK) announced today that it
has commenced a Private Placement of up to 240,000 share of its Class C
Convertible Cumulative Redeemable Preferred Stock, $10 par value, at $60 per
share. The offering is being conducted on a "best efforts, minimum-maximum"
basis as to an aggregate of $4.8 and $14.4 million, respectively.
Funds from the Private Placement are earmarked for furthering operations of its
subsidiary, I-Link Worldwide, Inc. including payment of short-term debt, key
licensing fees, network operations, and general working capital purposes.
The securities reffered to herein have not been nor will they be registered
under the Securities Act of 1933 and may not be offered or sold in the United
States absent registration under or exemption from the registration provisions
of the Securities Act of 1933.
Medcross, Inc. through its subsidiary I-Link Worldwide, Inc., is in the business
of delivering business communications services via the emerging worldwide data
communications networks (which includes the Internet). In addition, Medcross,
Inc. is an owner and operator of medical diagnostic and therapeutic facilities
and equipment including MRI, kidney lithotripsy, and ultrasound. Medcross is a
joint venture partner with China National Equipment and Supplies Import and
Export Shenyang Corporation which exports medical equipment to China.
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Contact: Henry Toh
813-521-1793
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