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 March 31, 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 April 30, 1996
Common Stock, par value $0.007 7,063,705
Traditional Small Business Disclosure Format (Check One): Yes No X
<PAGE> 1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
Assets
March 31
1996
<S> ----------
Current assets <C>
Cash and cash equivalents $ 421,751
Accounts receivable less allowance of $682,565 941,174
Inventory 830,292
Prepaid expenses 107,143
---------
Total current assets 2,300,360
---------
Property and equipment 3,644,566
Less accumulated depreciation 1,905,334
---------
Net property and equipment 1,739,232
---------
Investment in unconsolidated subsidiary 6,250
Intangible assets, net of amortization of $464,216 3,619,151
Other assets 19,116
---------
Total assets $ 7,684,109
=========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 1,810,927
Advance deposits received 233,728
Accrued royalty fees 450,000
Notes payable - related party 658,000
Notes payable - other 1,520,140
Current portion of long-term debt - related party 39,230
Current portion of long-term debt - other 669,799
Current obligations under capital lease 109,856
---------
Total current liabilities 5,491,680
Long-term debt 78,255
Obligations under capital leases 71,001
Minority interest equity in consolidated subsidiaries 372,036
Commitments and contingencies -
Stockholders' equity
Preferred stock 1,675,000
Common stock 29,917
Other stockholders' equity ( 33,780)
---------
Total stockholders' equity 1,671,137
---------
Total liabilities and stockholders' equity $ 7,684,109
=========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
2
<PAGE> 2
<TABLE>
<CAPTION>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net health care service revenue $ 592,180 $ 779,604
Equipment sales and service - 337,889
Network service revenue 17,026 -
--------- ---------
Net operating revenue 609,206 1,117,493
--------- ---------
Cost of goods sold - equipment sales and service - 185,157
Salaries and benefits 252,448 328,931
Repairs and maintenance 68,963 76,946
Network expenses 98,233 -
Provision for doubtful accounts 41,244 327,588
Depreciation and amortization 281,703 117,952
Write off purchased research and development 2,034,103 -
Other operating expenses 506,785 316,788
--------- ---------
Operating loss (2,674,273) ( 235,869)
Interest expense ( 47,639) ( 39,128)
Other income 15,527 3,816
--------- ---------
Loss before minority interest in net income of
consolidated subsidiaries and income tax provision (2,706,385) ( 271,181)
Minority interest in net income of consolidated subsidiary 1,943 12,779
--------- ---------
Loss before income tax provision (2,708,328) ( 283,960)
Income tax provision - -
--------- ---------
Net loss $(2,708,328) $( 283,960)
========= =========
Loss per common share after preferred dividends $( .77) $( .18)
========= =========
Weighted average common and equivalent shares outstanding 3,570,784 1,749,163
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 3
<TABLE>
<CAPTION>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31
-------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash provided (used) by operating activities $( 612,824) $ 50,068
--------- ---------
Cash flows from investing activities
Purchase of property and equipment ( 6,827) ( 15,000)
Proceeds from sale of property and equipment 80 -
--------- ---------
Net cash used by investing activities ( 6,747) ( 15,000)
--------- ---------
Cash flows from financing activities
Proceeds (reduction) of note payable - related party ( 73,333) 218,000
Proceeds (reduction) of note payable - other 965,565 ( 101,000)
Release of Certificate of Deposit held as collateral 60,000 -
Reductions of long-term debt ( 42,075) ( 97,286)
Reduction of capital lease obligations ( 73,289) ( 59,400)
Minority interest distributions - ( 36,500)
Issuance of common stock 643 -
Additional paid-in capital 123,653 -
--------- ---------
Net cash provided (used) by financing activities 961,164 ( 76,186)
--------- ---------
Effect of foreign currency translation on cash flows 1 12
--------- ---------
Increase (decrease) in cash and cash equivalents 341,594 ( 41,106)
Cash and cash equivalents at beginning of period 80,157 361,157
--------- ---------
Cash and cash equivalents at end of period $ 421,751 $ 320,051
========= =========
</TABLE>
Supplemental cash flow information
In February 1995, the holder of Class B Preferred Stock converted 9,350 shares
into 227,714 shares of common stock of the Company.
In February 1996, the Company acquired all of the issued and outstanding stock
of I-Link Worldwide, Inc. in exchange for the issuance of an aggregate of
4,000,000 shares of common stock of the Company, of which 2,600,000 shares are
held in escrow.
In February 1996, a holder of Class A Preferred Stock converted 40,000 shares
into 978,891 shares of common stock of the Company.
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 4
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 periods ended March 31, 1996 and March 31, 1995,
(b) the financial position at March 31, 1996, and (c) cash flows for the three-
month periods ended March 31, 1996 and March 31, 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 period ended March 31, 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 provides network and related services, including Internet services, to
individuals and businesses in the United States. I-Link is the owner of a
proprietary technology (patent pending) which enables the transmission of
information via facsimile over the Internet.
The following presents the proforma financial information of the Company and
I-Link, as applicable for the three months ended March 31, 1996 assuming such
transaction had occurred on January 1, 1996 and for the three months ended March
31, 1995 assuming such transaction had occurred on January 1, 1995:
5
<PAGE> 5
<TABLE>
<CAPTION>
Three Months Ended Net Loss Per Common
March 31, 1996 Revenue Net Loss and Equivalent Share
---------------------- ---------- ------------ --------------------
<S> <C> <C> <C>
Company $ 609,206 $(2,708,328) $( .77)
I-Link<F1> 48,585 ( 139,683) ====
-------- ---------
Combined 657,791 (2,848,011)
Proforma adjustment - ( 190,378)
-------- ---------
Proforma combined $ 657,791 $(3,038,389) $( .86)
======= ========= ====
<CAPTION>
Three Months Ended Net Loss Per Common
March 31, 1995 Revenue Net Loss and Equivalent Share
--------------------- ----------- ------------ --------------------
<S> <C> <C> <C>
Company $ 1,117,493 $( 283,960) $( .18)
I-Link 30,697 ( 216,078) ====
--------- ---------
Combined 1,148,190 ( 500,038)
Proforma adjustment - (2,415,458)
--------- ---------
Proforma combined $ 1,148,190 $(2,915,496) $(1.68)
========= ========= ====
<FN>
<F1> (1) 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 has been 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 approximately $.0714 per share, subject to certain anti-
dilution 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.
6
<PAGE> 6
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
-------------------------
Three Months Ended Network Corporate/
March 31, 1996 Health Care Services China Management Eliminations Consolidated
----------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 530,890 $ 17,026 $ - $ 83,914 $( 22,624) $ 609,206
========= ========= ========= ========= ========= =========
Operating Profit (Loss) $ 66,962 $(2,623,570) $( 1,772) $( 93,269) $( 22,624) $(2,674,273)
========= ========= ========= ========= ========= =========
Identifiable Assets $ 2,821,013 $ 3,668,368 $ 1,013,881 $ 266,668 $( 85,821) $ 7,684,109
========= ========= ========= ========= ========= =========
<CAPTION>
Domestic
-------------------------
Three Months Ended Network Corporate/
March 31, 1995 Health Care Services China Management Eliminations Consolidated
----------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 696,818 $ - $ 337,889 $ 133,412 $( 50,626) $ 1,117,493
========= ========= ========= ========= ========= =========
Operating Profit (Loss) $ 146,185 $ - $( 210,987) $( 120,441) $( 50,626) $( 235,869)
========= ========= ========= ========= ========= =========
Identifiable Assets $ 3,533,507 $ - $ 1,044,902 $ 255,319 $( 46,978) $ 4,786,750
========= ========= ========= ========= ========= =========
</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 for the fiscal year ended
December 31, 1995.
7
<PAGE> 7
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
Ended March 31
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
NET OPERATING REVENUE
Diagnostic Imaging $ 530,890 $ 696,818
Sales and Services of Medical Equipment - 337,889
Network Services 17,026 -
Management and Other 61,290 82,786
--------- ---------
$ 609,206 $ 1,117,493
OPERATING PROFIT (LOSS) ========= =========
Diagnostic Imaging $ 66,962 $ 146,185
Sales and Services of Medical Equipment ( 1,772) ( 210,987)
Network Services (2,623,570) -
Management and Other ( 115,893) ( 171,067)
--------- ---------
$(2,674,273) $( 235,869)
========= =========
</TABLE>
Diagnostic Imaging
Net operating revenue from diagnostic imaging services decreased by 23.8% in the
first quarter of 1996 as compared to the first quarter of 1995. Medcross
Imaging, Ltd. accounted for $152,981 of the decrease. This decrease in revenue
is mainly due to the decrease in the average revenue per patient. The decrease
in average revenue per patient was caused by a decrease in the per procedure
charge to the hospital clients pursuant to service contracts placed into effect
on October 1, 1995. These contracts extended the service period to the hospital
from February 29, 1996 to February 28, 1997. While the charge per procedure is
reduced, each hospital must meet specific monthly minimum quotas. The decrease
in the diagnostic imaging revenue of Medcross Imaging, Ltd. was offset by an
increase in the MRI revenue of Tampa MRI of $13,801 in the first quarter of 1996
as compared to the first quarter of 1995. The increase is due to an increase in
the number of procedures performed of 39% offset by a decrease in the average
revenue per procedure of 23% for the first quarter of 1996 as compared to the
corresponding period of 1995. 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 25%
in the first quarter of 1996 as compared to the first quarter of 1995. This
decrease is mainly due to the decrease in the number of procedures performed of
17% in the first quarter of 1996 as compared to the corresponding period of
1995.
The operating profit from diagnostic imaging services decreased by $79,223 in
the first quarter of 1996 as compared to the same period of 1995. This decrease
is mainly due to a decrease in the operating profit of Medcross Imaging, Ltd. of
$102,874 and the ultrasound operations of $18,670, offset by an increase in the
operating profit from MRI operations of Tampa MRI of $42,321. The net decrease
in operating profit from diagnostic imaging services was due to a decrease in
operating revenue, as described above, offset by a decrease in total operating
expenses of $86,705 in the first quarter of 1996 as compared to the same period
of 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
8
<PAGE> 8
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 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 March 31, 1996.
The Company has decided to sell its Beijing operation, and has held discussions
regarding the sale of these operations. No assurance can be given regarding the
outcome of such negotiations.
Management and Other
Net operating revenue from management and other activities decreased by $21,496
in the first quarter of 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 in management
fees in the first quarter of 1995 and no management fees in the first quarter of
1996. The net operating loss from management and other activities decreased
$55,174 in the first quarter of 1996 to $115,893. This decrease in net
operating loss was due to the decreased corporate overhead expenses of $76,670,
offset by the decrease in net operating revenue. Salaries and benefits
decreased $89,260 in the first quarter of 1996 as compared to the same period
of 1995, which was offset by an increase in professional fees.
Network and Related Services
The operating revenue of network and related services from I-Link, was $17,026
in the first quarter of 1996. The net operating loss from network and related
services was $2,623,570. This was mainly due to the write-off of research and
development costs purchased of $2,034,103 and the additional amortization of
intangibles of $139,268. These were recorded pursuant to the purchase of the
common stock of I-Link. Excluding the research and development costs written-
off and the additional amortization, the operating loss of network and related
services was $450,199.
Consolidated Operating Results
Net operating revenue of the Company decreased $508,287 in the first quarter of
1996 as compared to the same quarter of 1995. 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 the first quarter of 1996 as compared to the first quarter of
1995. Salaries and benefits decreased by $126,611 in the first quarter of 1996
as compared to the same period of 1995. This decrease was offset by the
inclusion of salaries and benefits of $50,128 from network and related services
during the first quarter of 1996. The decrease in repairs and maintenance was
mainly due to diagnostic imaging. Depreciation and amortization increased
$163,751 due to the inclusion of I-Link, offset by a decrease in diagnostic
imaging. The provision for doubtful accounts decreased $286,344 in 1996 as
compared to 1995, due to the reserve for the receivable from the Beijing
operations, which did not occur in 1996. Other operating expenses increased a
total of $189,997 in the first quarter of 1996 compared to the first quarter of
1995. This is due to the inclusion of I-Link and an increase in management and
other activities, offset by a decrease from diagnostic imaging and foreign
operations. Total operating expenses increased $1,930,117. This increase in
the first quarter of 1996 as compared to the first quarter of 1995 was caused by
the inclusion of expenses of $2,640,596 for I-Link, offset by decreases in
diagnostic imaging of $86,705, foreign operations of $547,104, and management
and other activities of $76,670.
9
<PAGE> 9
Liquidity and Capital Resources
Working capital used by operations during the first quarter of 1996 was
$349,415, compared to working capital provided by operations of $222,402 in the
first quarter of 1995. The working capital position of the Company was a
deficit of $3,191,320 at March 31, 1996 and $315,573 at December 31, 1995,
which includes $669,799 of the current portion of long term debt which is
payable in common stock of the Company, and $1,000,000 in promissory notes
issued concurrent with the I-Link acquisition. Cash flow used by operating
activities was $612,824 in the first quarter of 1996 compared to cash flow
provided by operating activities of $50,068 for the same period in 1995. Cash
flow used by operating activities includes $600,556 attributable to the
inclusion of I-Link in the first quarter of 1996.
Investing activities expenditures during the first quarter of 1996 related to
the purchase of additional computer equipment for I-Link.
During the first quarter of 1996, the Company reduced its long term debt and
capital lease obligations by $115,364, 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 March 31, 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 March 31, 1996. The bank has waived those covenant
violations through June 30, 1996. 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. 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.
Although the Company is presently negotiating for alternative financing to repay
First Union National Bank and Mortgage Network International, there can be no
assurance such negotiations will be successful. 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.
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
10
<PAGE> 10
250,000 shares of the Company's Common Stock subject to adjustment. On or about
February 12, 1996, JWC made written demand to the Company to invoke its rights
to have the common shares underlying the Warrant registered pursuant to the
terms of the Warrant. The Complaint alleges that the Company breached the terms
of the Warrant by failing to prepare and file with the Securities and Exchange
Commission ("SEC"), a registration statement covering the common stock
underlying JWC's Warrant. JWC alleges a breach of contract; and requests
specific performance, i.e., registering the shares with the SEC, against the
Company. JWC also demands damages in the amount of $2,728,478.00 plus interest,
reasonable attorneys fees, and forum costs. The Company believes that it has a
meritorious defenses to the Complaint.
On May 6, 1996, the Company filed an Answer, Affirmative Defenses and Counter-
claim to the Complaint filed by JWC. The Company's counterclaim seeks damages,
cancellation of warrants, and interest and costs.
Item 5. Other Information
The Company entered into a consulting agreement with Windy City, Inc. for the
period beginning January 1, 1996 and ending December 31, 1998. Mr. Joel Kanter,
a director of the Company, is the President and a Director of Windy City, Inc.
Pursuant to such agreement, Windy City, Inc. was engaged to provide such
consulting services as requested by the Company in exchange for compensation at
the rate of $6,250 per calendar quarter.
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.
Item 6(a) - Exhibits Page
3(a) Amendment to the Amended and Restated Articles of
Incorporation dated April 29, 1996. 13
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. 21
10(a) Consulting Agreement, effective January 1, 1996, by and
between Windy City, Inc. and Medcross, Inc. 42
11 Statement regarding computation of earnings per common
share. 45
27 Financial Data Schedule. 46
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.
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<PAGE> 11
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: May 20, 1996 By: /s/ HENRY TOH
Henry Toh
President, Chief Executive Office
and Acting Chief Financial Officer
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<PAGE> 12
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 (the "Articles of Incorporation") of Medcross, Inc. (the
"Corporation"), and the provisions of Section 607.0602 of the Florida Business
Corporation Act, the board of directors of the Corporation (the "Board of
Directors") previously designated 240,000 shares of Class C Preferred Stock on
or about December 18, 1995, when the Corporation filed with the Secretary of
State of the State of Florida, Articles of Amendment to the Amended and Restated
Articles of Incorporation of Medcross, Inc. No Class C Preferred Stock shares
were issued pursuant to such designation. At its meeting on April 17, 1996,
the Board of Directors has resolved to further amend Article III of the Articles
of Incorporation and specifically to modify the rights and preferences relating
to the 240,000 shares of Class C Preferred Stock as set forth hereinbelow.
1. The name of the corporation is Medcross, Inc.
2. Article III is hereby ameded by adding Section III(f), which shall
read in its entirety as follows:
(f) Of the 500,000 shares of Preferred Stock authorized hereunder,
240,000 shares of Preferred Stock shall be designated as Class C 12% Cumulative
Convertible 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 in an amount equal to 12% per annum
of the liquidation preference per share of $40.00. 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 and/or shares of Common Stock (or
any combination thereof), at the option of the Corporation. To the extent that
Dividends are paid in shares of Common Stock, the shares will be valued at last
reported sale price, or, in case no such reported sale takes place on such day,
the average of the last reported sales prices for the last three trading days,
in either case as officially reported by the principal securities exchange on
which the Common Stock is listed or admitted to trading or as reported in the
Nasdaq National Market System, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the Nasdaq National
Market System, the last reported sale price as furnished by the National
Association of Securities Dealers, Inc. through Nasdaq or similar organization
if Nasdaq is no longer reporting such information, or if the Common Stock is
not quoted on Nasdaq, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it for the
two days immediately preceding such issuance or sale and the day of such
issuance or sale.
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<PAGE> 13
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
$40.00 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 not redeem any shares of
Class C Preferred Stock; provided, however, that nothing herein shall prohibit
the Corporation in its sole discretion from repurchasing the Class C Preferred
Stock in negotiation transaction(s) with the Holders.
5. Conversion Into Common Stock.
(a) Subject to the terms and conditions of this subsection,
issued and outstanding shares of Class C Preferred Stock are convertible at the
option of the holder thereof into shares of common stock, par value $.007 per
share (the "Common Stock") of the Corporation ninety days after issuance,
provided, however, on May 31, 1997, (the "Conversion Date"), all of the out-
standing Class C Preferred Stock shall automatically be converted, provided
urther that such Common Stock is the subject of an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), without
further action of the Corporation or the Holders of the Class C Preferred Stock,
into shares of Common Stock as set forth herein. The shares of Class C
Preferred Stock held by each holder thereof shall be converted into seven (7)
shares of Common Stock. However, on any liquidation of the Corporation, the
right of conversion shall terminate at the close of business on the last full
usiness day before the date fixed for payment of the amount distributable on
the Class C Preferred Stock, provided that thirty days prior written notice
of the same by the Company is sent to the Holders at their address of record.
(b) 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.
6. Rank. With respect to the payment of dividends and upon
liquidation, the shares of the Class C Preferred Stock shall be subordinate to
the issued and outstanding shares of Class A Preferred Stock and Class B
Preferred Stock of the Corporation and shall rank senior to the shares of
Preferred Stock and to the shares of Common Stock of the Corporation."
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<PAGE> 14
7. Registration Rights. The Corporation hereby covenants and
agrees as follows:
(a) Definitions. As used herein, the following terms
shall have the meanings set forth below:
(1) The terms "register," "registered" and
"registration" shall refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of the effectiveness of such registration statement or
document.
(2) The term "Registrable Securities" shall mean:
(a) the Common Stock issuable upon conversion of the Class C Preferred Stock
and (b) any Common Stock issued in payment of dividends on the Class C Preferred
Stock.
(b) Registration Rights. The Corporation shall file a
registration statement on one occasion covering the Registrable Securities as
soon as practicable and use its best-efforts to have such registration statement
declared effective on or before the Conversion Date. The registration statement
filed pursuant to this section may, subject to the provisions of this section,
include other securities of the Corporation and may include securities of the
Corporation being sold for the account of the Corporation.
If the Holders intend to distribute the Registrable
Securities covered by the registration statement by means of an underwriting,
they shall so advise the Corporation in writing, and the Corporation shall
include such information in the written notice referred to in this subsection.
The right of any party hereto to registration pursuant to this section shall
be conditioned upon such party's participation in such underwriting and the
inclusion of such party's Registrable Securities in the underwriting to the
extent requested (unless otherwise mutually agreed by a majority in interest of
the Holders and such party) to the extent provided herein.
If the underwriter (or managing underwriter on behalf of
all the underwriters) has not limited the number of Registrable Securities to be
underwritten, the Corporation may include securities for its own account or for
the account of other shareholders in such registration if the underwriters in
their absolute discretion so agree and if the number of Registrable Securities
which would otherwise have been included in such registration and underwriting
will not thereby be limited.
(c) Obligations of the Corporation. Whenever required
hereunder to effect the registration of any Registrable Securities, the
Corporation shall, as expeditiously as reasonably possible:
(1) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for at least nine (9) months.
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<PAGE> 15
(2) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(3) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other Corporate Materials as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(4) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdiction as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the Corporation shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction.
(5) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement with
terms generally satisfactory to the managing underwriter of such offering.
(6) Notify the Holders, promptly after the
Corporation shall have received notice thereof, of the time when the
registration statement becomes effective or any supplement to any prospectus
forming a part of the registration statement has been filed.
(7) Notify the Holders of any stop order suspending
the effectiveness of the registration statement and use its reasonable best
efforts to remove such stop order.
(d) Furnish Information. It shall be a condition
precedent to the obligations of the Corporation to take any action pursuant
hereto that the Holder, having chosen to have its Registrable Securities
included for registration, shall furnish to the Corporation such information
regarding the Holder, its Registrable Securities and the intended method of
disposition of such securities as shall be required to effect the registration
thereof. The Holder shall be required to represent to the Corporation that all
such information which is given is complete and accurate in all material
respects. The Holder shall deliver to the Corporation a statement in writing
from the beneficial owners of such securities that such beneficial owners bona
fide intend to sell, transfer or otherwise dispose of such securities.
(e) Expenses.
(1) Registration Expenses. All expenses incurred by
the Corporation in complying with this section, including with out limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Corporation, "Blue Sky" fees and expenses, and the expense of
any special audits incident to or required by any such registration shall be
borne by the Corporation.
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<PAGE> 16
(2) Selling Expenses. All underwriting discounts,
underwriters' expense allowance, and selling commissions applicable to the sale
of Registrable Securities by the Holders and all fees and disbursements of any
special counsel (other than the Corporation's counsel) shall be borne by the
Holders of the Registrable Securities so registered pro rata on the basis of the
number of Registrable Securities so registered.
(f) Underwriting Requirements. All Holders proposing to
distribute their Registrable Securities through an underwriting in which the
Corporation has proposed or is proposing to participate, shall (together with
the Corporation and any other Holders distributing their securities through
such underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for underwriting by the Corporation.
Notwithstanding any other subsection of this section, at the request of
the managing underwriter, the Holder shall delay the sale of Registrable
Securities which such Holder has requested be registered hereunder for up to
ninety (90) days following the effective date of the registration statement. If
any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Corporation and the
underwriter. Any Registrable Securities excluded or withdrawn from
such underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(g) Delay of Registration. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this section.
(h) Indemnification. In the event that any Registrable
Securities are included in a registration statement pursuant hereto:
(1) To the extent permitted by law, the Corporation
will indemnify and hold harmless each Holder, the officers, directors and
partners of each Holder, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"Violation"): (a) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; (b) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading; or (c) any violation or alleged violation by
the Corporation of the Act, the Exchange Act, any applicable state securities
law or any rule or regulation promulgated under the Act, the Exchange Act or
any applicable state securities law; and the Corporation will reimburse the
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<PAGE> 17
Holder for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Corporation (which consent shall not be unreasonably withheld),
nor shall the Corporation be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by the Holder; and further provided, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any untrue
statement, alleged untrue statement, omission or alleged omission made in any
preliminary prospectus but eliminated or remedied in the prospectus, such
indemnity agreement shall not inure to the benefit of any underwriter or broker,
if a copy of the prospectus was not sent or given to such person with or prior
to the confirmation of the sale of such securities to such person.
(2) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Corporation, its directors, its
officers, any person who controls the Corporation within the meaning of the Act
or the Exchange Act, any underwriter (within the meaning of the Act) for the
Corporation and any person who controls such underwriter against any losses,
claims, damages or liabilities (joint or several) to which the Corporation or
any such director, officer, controlling person or underwriter or controlling
person may become subject, under the Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by the Holder
expressly for use in connection with such registration; provided, however, that
the indemnity agreement contained in this subsection shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(3) Promptly after receipt by an indemnified party of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party hereunder, notify the indemnifying party in writing of
the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such
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<PAGE> 18
counsel in such proceeding. The failure to notify an indemnifying party
within a reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party hereunder, but the
omission so to notify the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
subsection.
(i) Reports Under Exchange Act. Following registration of
the Corporation's securities under the Exchange Act and with a view of making
available to the Holders the benefits of Rule 144 under the Act and any other
rule or regulation promulgated by the SEC that may at any time permit a Holder
to sell securities of the Corporation to the public without registration, the
Corporation agrees to:
(1) Use its best efforts to make and keep public
information available, as those terms are understood and defined in Rule 144,
at all times;and
(2) Use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Corporation under
the Act and the Exchange Act.
(j) Termination of the Corporation's Obligations.
(1) The Corporation shall have no obligations
pursuant to Subsection 7(b) or 7(c) with respect to any request made by the
Holder after April 29,1999.
(2) Notwithstanding any provision hereof to the
contrary, the Corporation shall not be required to effect any registration under
the Act or under any state securities laws on behalf of any Holder or Holders
if, in the opinion of counsel for the Corporation, the offering or transfer by
such Holder or Holders in the manner proposed (including without limitation,
the number of shares proposed to be offered or transferred and the method of
offering or transfer) is exempt from the registration requirements of the
Act and the securities or "Blue Sky" laws of applicable states.
(k) Holder's Acceptance of Obligations. Acceptance of
this Warrant by its Holder(s) shall be deemed to constitute the unqualified
acceptance by the Holder of all of the terms and conditions set forth herein.
3. The Corporation has not yet issued shares of Class C Preferred Stock.
4. The foregoing amendment was duly adopted by the Board of Directors,
without the requirement of shareholder action, by meeting held on April 17,
1996, pursuant to the provisions of the Florida Business Corporation Act.
5. Shareholder action is not required to effectuate the action taken hereby.
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<PAGE> 19
IN WITNESS WHEREOF, Medcross, Inc. has caused this Certificate of Amendment to
theArticles of Incorporation to be executed by its President and attested to by
its Secretary this 26th day of April, 1996.
MEDCROSS, INC.
By: /s/ Henry Y.L. Toh
Henry Y.L. Toh, President
ATTEST: /s/ Stephanie E. Giallourakis
Stephanie E. Giallourakis, Secretary
8
<PAGE> 20
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.
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(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:
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.
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<PAGE> 22
(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
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
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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.
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:
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<PAGE> 24
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
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
5
<PAGE> 25
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.
(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.
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<PAGE> 26
(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.
(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
any shares of capital stock of any class or of any other rights; or
(3) of any capital reorganization or
reclassification of the capital stock of the Company or of any consolidation or
merger of the Company with another corporation, or of the sale of all or
substantially all of its assets to another corporation which is to be effected
in such a way that holders of the Common Stock shall be entitled to receive
stock, securities, or other assets with respect to or in exchange for Common
Stock; or
(4) of the voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
7
<PAGE> 27
then the Company shall promptly send to the holder of each share of Class A
Preferred Stock, at least 30 days prior to the applicable record date
hereinafter specified, a notice stating (1) the date on which a record is to
be taken for the purpose of such dividend or distribution of rights, or, if a
record date is not to be taken, the date as of which the holders of shares of
Common Stock of record would be entitled to such dividend or distribution of
rights, or (2) the date on which such capital reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up is expected to become effective, and the date as of which it is
expected that the holders of shares of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other assets
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding up.
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 Class A 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 Class B Preferred Stock or 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 Class A
Preferred Stock, the remaining assets of the Company available for distribution
to stockholders, if any, shall be distributed exclusively to the holders of
Class B Preferred Stock or Common Stock. 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 Class A
Preferred Stock the full amounts to which they respectively shall be entitled,
the holders of the Class A 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.
(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
8
<PAGE> 28
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.
(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
9
<PAGE> 29
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
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.
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<PAGE> 30
(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
setting forth a brief statement of the facts requiring such adjustment.
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<PAGE> 31
(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
any shares of capital stock of any class or of any other rights; or
(3) of any capital reorganization or
reclassification of the capital stock of the Company or of any consolidation or
merger of the Company with another corporation, or of the sale of all or
substantially all of its assets to another corporation which is to be effected
in such a way that holders of the Common Stock shall be entitled to receive
stock, securities, or other assets with respect to or in exchange for Common
Stock; or
(4) of the voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
then the Company shall promptly send to the holder of each share of Class B
Preferred Stock, at least 30 days prior to the applicable record date
hereinafter specified, a notice stating (1) the date on which a record is to be
taken for the purpose of such dividend or distribution of rights, or, if a
record date is not to be taken, the date as of which the holders of shares of
Common Stock of record would be entitled to such dividend or distribution of
rights, or (2) the date on which such capital reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up is expected
to become effective, and the date as of which it is expected that the holders of
shares of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other assets deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up.
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 Class B 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 Class B 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
Class B Preferred Stock the full amounts to which they respectively shall be
entitled, the holders of the Class B Preferred Stock shall share ratably in any
distribution of assets according to the respective amounts which would be
12
<PAGE> 32
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.
(f) Of the 500,000 shares of Preferred Stock authorized hereunder,
240,000 shares of Preferred Stock shall be designated as Class C 12% Cumulative
Convertible 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 in an amount equal to 12% per annum of the
liquidation preference per share of $40.00. 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 and/or shares of Common Stock (or any
combination thereof), at the option of the Corporation. To the extent that
Dividends are paid in shares of Common Stock, the shares will be valued at last
reported sale price, or, in case no such reported sale takes place on such day,
the average of the last reported sales prices for the last three trading days,
in either case as officially reported by the principal securities exchange on
which the Common Stock is listed or admitted to trading or as reported in the
Nasdaq National Market System, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted on the Nasdaq
National Market System, the last reported sale price as furnished by the
National Association of Securities Dealers, Inc. through Nasdaq or similar
organization if Nasdaq is no longer reporting such information, or if the
Common Stock is not quoted on Nasdaq, as determined in good faith by resolution
of the Board of Directors of the Company, based on the best information
available to it for the two days immediately preceding such issuance or sale and
the day of such issuance or sale.
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
$40.00 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 not redeem any shares of
Class C Preferred Stock; provided, however, that nothing herein shall prohibit
the Corporation in its sole discretion from repurchasing the Class C Preferred
Stock in negotiation transaction(s) with the Holders.
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<PAGE> 33
5. Conversion Into Common Stock.
(a) Subject to the terms and conditions of this sub-
section, issued and outstanding shares of Class C Preferred Stock are
convertible at the option of the holder thereof into shares of common stock, par
value $.007 per share (the "Common Stock") of the Corporation ninety days after
issuance, provided, however, on May 31, 1997, (the "Conversion Date"), all of
the outstanding Class C Preferred Stock shall automatically be converted,
provided further that such Common Stock is the subject of an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
without further action of the Corporation or the Holders of the Class C
Preferred Stock, into shares of Common Stock as set forth herein. The shares of
Class C Preferred Stock held by each holder thereof shall be converted into
even (7) shares of Common Stock. However, on any liquidation of the
Corporation, 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 C Preferred Stock, provided that thirty days prior
written notice of the same by the Company is sent to the Holders at their
address of record.
(b) 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.
6. Rank. With respect to the payment of dividends and upon
liquidation, the shares of the Class C Preferred Stock shall be subordinate to
the issued and outstanding shares of Class A Preferred Stock and Class B
Preferred Stock of the Corporation and shall rank senior to the shares of
Preferred Stock and to the shares of Common Stock of the Corporation."
7. Registration Rights. The Corporation hereby covenants and
agrees as follows:
(a) Definitions. As used herein, the following terms
shall have the meanings set forth below:
(1) The terms "register," "registered" and
"registration" shall refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of the effectiveness of such registration statement or
document.
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<PAGE> 34
(2) The term "Registrable Securities" shall mean: (a)
the Common Stock issuable upon conversion of the Class C Preferred Stock and
(b) any Common Stock issued in payment of dividends on the Class C Preferred
Stock.
(b) Registration Rights. The Corporation shall file a
registration statement on one occasion covering the Registrable Securities as
soon as practicable and use its best-efforts to have such registration
statement declared effective on or before the Conversion Date. The registration
statement filed pursuant to this section may, subject to the provisions of this
section, include other securities of the Corporation and may include securities
of the Corporation being sold for the account of the Corporation.
If the Holders intend to distribute the Registrable
Securities covered by the registration statement by means of an underwriting,
they shall so advise the Corporation in writing, and the Corporation shall
include such information in the written notice referred to in this subsection.
The right of any party hereto to registration pursuant to this section shall be
conditioned upon such party's participation in such underwriting and the
inclusion of such party's Registrable Securities in the underwriting to the
extent requested (unless otherwise mutually agreed by a majority in interest of
the Holders and such party) to the extent provided herein.
If the underwriter (or managing underwriter on behalf of
all the underwriters) has not limited the number of Registrable Securities to be
underwritten, the Corporation may include securities for its own account or for
the account of other shareholders in such registration if the underwriters in
their absolute discretion so agree and if the number of Registrable Securities
which would otherwise have been included in such registration and underwriting
will not thereby be limited.
(c) Obligations of the Corporation. Whenever required
hereunder to effect the registration of any Registrable Securities, the
Corporation shall, as expeditiously as reasonably possible:
(1) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for at least nine (9) months.
(2) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(3) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other Corporate Materials as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
15
<PAGE> 35
(4) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdiction as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the Corporation shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction.
(5) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement with
terms generally satisfactory to the managing underwriter of such offering.
(6) Notify the Holders, promptly after the
Corporation shall have received notice thereof, of the time when the
registration statement becomes effective or any supplement to any prospectus
forming a part of the registration statement has been filed.
(7) Notify the Holders of any stop order suspending
the effectiveness of the registration statement and use its reasonable best
efforts to remove such stop order.
(d) Furnish Information. It shall be a condition precedent
to the obligations of the Corporation to take any action pursuant hereto that
the Holder, having chosen to have its Registrable Securities included for
registration, shall furnish to the Corporation such information regarding the
Holder, its Registrable Securities and the intended method of disposition of
such securities as shall be required to effect the registration thereof. The
Holder shall be required to represent to the Corporation that all such
information which is given is complete and accurate in all material respects.
The Holder shall deliver to the Corporation a statement in writing from the
beneficial owners of such securities that such beneficial owners bona fide
intend to sell, transfer or otherwise dispose of such securities.
(e) Expenses.
(1) Registration Expenses. All expenses incurred by
the Corporation in complying with this section, including with out limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Corporation, "Blue Sky" fees and expenses, and the expense of
any special audits incident to or required by any such registration shall be
borne by the Corporation.
(2) Selling Expenses. All underwriting discounts,
underwriters' expense allowance, and selling commissions applicable to the sale
of Registrable Securities by the Holders and all fees and disbursements of any
special counsel (other than the Corporation's counsel) shall be borne by the
Holders of the Registrable Securities so registered pro rata on the basis of
the number of Registrable Securities so registered.
16
<PAGE> 36
(f) Underwriting Requirements. All Holders proposing to
distribute their Registrable Securities through an underwriting in which the
Corporation has proposed or is proposing to participate, shall (together with
the Corporation and any other Holders distributing their securities through
such underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for underwriting by the Corporation.
Notwithstanding any other subsection of this section, at the request of the
managing underwriter, the Holder shall delay the sale of Registrable Securities
which such Holder has requested be registered hereunder for up to ninety (90)
days following the effective date of the registration statement. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Corporation and the underwriter.
Any Registrable Securities excluded or withdrawn from such underwriting shall
not be withdrawn from such registration except at the election of the Holder.
(g) Delay of Registration. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this section.
(h) Indemnification. In the event that any Registrable
Securities are included in a registration statement pursuant hereto:
(1) To the extent permitted by law, the Corporation
will indemnify and hold harmless each Holder, the officers, directors and
partners of each Holder, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"Violation"): (a) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; (b) the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to make the
statements therein not misleading; or (c) any violation or alleged violation by
the Corporation of the Act, the Exchange Act, any applicable state securities
law or any rule or regulation promulgated under the Act, the Exchange Act or any
applicable state securities law; and the Corporation will reimburse the Holder
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Corporation (which consent shall not be unreasonably withheld), nor shall the
Corporation be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Holder; and further provided, however, that the foregoing indemnity
17
<PAGE> 37
agreement is subject to the condition that, insofar as it relates to any untrue
statement, alleged untrue statement, omission or alleged omission made in any
preliminary prospectus but eliminated or remedied in the prospectus, such
indemnity agreement shall not inure to the benefit of any underwriter or
broker, if a copy of the prospectus was not sent or given to such person with
or prior to the confirmation of the sale of such securities to such person.
(2) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Corporation, its directors, its
officers, any person who controls the Corporation within the meaning of the Act
or the Exchange Act, any underwriter (within the meaning of the Act) for the
Corporation and any person who controls such underwriter against any losses,
claims, damages or liabilities (joint or several) to which the Corporation or
any such director, officer, controlling person or underwriter or controlling
person may become subject, under the Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Holder expressly for use in connection with such registration; provided,
however, that the indemnity agreement contained in this subsection shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld.
(3) Promptly after receipt by an indemnified party of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party hereunder, notify the indemnifying party in writing of
the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in such
proceeding. The failure to notify an indemnifying party within a reasonable
time of the commencement of any such action, to the extent prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party hereunder, but the omission so to notify the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this subsection.
(i) Reports Under Exchange Act. Following registration of
the Corporation's securities under the Exchange Act and with a view of making
available to the Holders the benefits of Rule 144 under the Act and any other
rule or regulation promulgated by the SEC that may at any time permit a Holder
to sell securities of the Corporation to the public without registration, the
Corporation agrees to:
18
<PAGE> 38
(1) Use its best efforts to make and keep public
information available, as those terms are understood and defined in Rule 144,
at all times; and
(2) Use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Corporation under
the Act and the Exchange Act.
(j) Termination of the Corporation's Obligations.
(1) The Corporation shall have no obligations
pursuant to Subsection 7(b) or 7(c) with respect to any request made by the
Holder after April 29, 1999.
(2) Notwithstanding any provision hereof to the
contrary, the Corporation shall not be required to effect any registration
under the Act or under any state securities laws on behalf of any Holder or
Holders if, in the opinion of counsel for the Corporation, the offering or
transfer by such Holder or Holders in the manner proposed (including without
limitation, the number of shares proposed to be offered or transferred
and the method of offering or transfer) is exempt from the registration
requirements of the Act and the securities or "Blue Sky" laws of applicable
states.
(k) Holder's Acceptance of Obligations. Acceptance of this
Warrant by its Holder(s) shall be deemed to constitute the unqualified
acceptance by the Holder of all of the terms and conditions set forth herein.
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
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
19
<PAGE> 39
"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.
20
<PAGE> 40
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.
21
<PAGE> 41
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement"), dated as of November 28,
1995 between Medcross, Inc., a Florida corporation (the "Company"), and Windy
City, Inc. ("Consultant").
W I T N E S S E T H:
WHEREAS, in light of the expertise and experience of Consultant, the
Company desires to engage Consultant to provide the Company with consulting
services and Consultant is willing and able to provide such services; and
WHEREAS, the Company and Consultant desire to set forth in a formal
written agreement the terms and conditions upon which Consultant shall provide
services to the Company;
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement, the Company and Consultant hereby agree as follows:
1. Appointment; Consulting Services.
(a) The Company hereby retains Consultant to render those
consulting services contemplated by this Agreement commencing on January 1,
1996 until December 31, 1998 (the "Term"). Notwithstanding any other provision
of this Section 1(a), the term of this Agreement may be extended beyond the
Term by the written agreement of the parties.
(b) During the Term hereof, Consultant agrees to render to the
Company such consulting advice as shall be requested from time to time by the
President of the Company in connection with the business conducted or to be
conducted by the Company. In performing services hereunder, Consultant shall
report to the Company's President. During the Term hereof, Consultant shall be
an independent contractor of the Company and not an employee. During the Term
ereof, Consultant shall have no power or authority to represent or bind the
Company unless specifically authorized in writing by the President of the
Company.
2. Payments to Consultant During the Term.
The Company agrees to pay to Consultant during the Term and any extension
thereof the following:
(a) In consideration of Consultant's performance of the consulting
services described herein during the Term hereof, the Company agrees to pay to
Consultant a consulting fee of Six Thousand Two Hundred and Fifty Dollars
($6,250) per calendar quarter, which fee, in the aggregate amount of $75,000,
shall be deemed to have been earned upon effectiveness hereof. Such consulting
fee shall be payable in arrears on the last day of each calendar quarter during
which this Agreement is in effect.
1
<PAGE> 42
(b) The Company shall reimburse Consultant for all reasonable out
-of-pocket expenses directly incurred by Consultant in connection with
Consultant's rendering of the consulting services set forth in this Agreement;
provided, however, that the incurrence of such expenses in an amount greater
than $100.00 must be approved in writing in advance by the President of the
Company. Any such reimbursement hereunder shall be made by the Company within
30 days after submission by Consultant of supporting documentation as reasonably
required by the Company.
3. Consolidation; Merger; Sale of Assets; Change of Control.
Nothing in this Agreement shall preclude the Company from combining,
consolidating or merging with or into, transferring all or substantially all of
its assets to, or entering into a partnership or joint venture with, another
corporation or other entity, or effecting any other kind of corporate
combination provided that the corporation resulting from or surviving such
combination, consolidation or merger, or to which such assets are transferred,
or such partnership or joint venture assumes this Agreement and all obligations
and undertakings of the Company hereunder. Upon such a consolidation, merger,
transfer of assets or formation of such partnership or joint venture, this
Agreement shall inure to the benefit of, be assumed by, and be binding upon
such resulting or surviving transferee corporation or such partnership or joint
venture, and the term "Company," as used in this Agreement, shall mean such
corporation, partnership or joint venture, or other entity and this Agreement
shall continue in full force and effect and shall entitle Consultant to exactly
the same compensation, benefits, perquisites, payments and other rights as would
have been their entitlement had such combination, consolidation, merger,
transfer of assets or formation of such partnership or joint venture not
occurred.
4. Survival of Obligations.
The obligations of the parties under Sections 2, 3 and 5 of this
Agreement shall survive the termination for any reason of this Agreement
(whether such termination is by the Company, by Consultant, upon the expiration
of this Agreement or otherwise).
5. Reformation; Severability.
In case any one or more of the provisions or part of a provision contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity, illegality
or unenforceability shall be deemed not to affect any other jurisdiction or any
other provision or part of a provision of this Agreement nor shall such
invalidity, illegality or unenforceability affect the validity, legality or
enforceability of this Agreement or any provision or provisions hereof in any
other jurisdiction, and this Agreement shall be reformed and construed in such
jurisdiction as if such provision or part of a provision held to be invalid or
illegal or unenforceable had never been contained herein and such provision or
part reformed so that it would be valid, legal and enforceable in such
jurisdiction to the maximum extent possible. In furtherance and not in
2
<PAGE> 43
limitation of the foregoing, the Company and Consultant each intend that the
representations, warranties and covenants contained in Sections 3 and 4 shall
be deemed to be a series of separate representations, warranties and covenants,
one for each county, state, territory or jurisdiction of the United States and
any foreign country referenced therein. If, in any judicial proceeding, a
court shall refuse to enforce any of such separate representations, warranties
and covenants, then such unenforceable representations, warranties and covenants
shall be deemed eliminated from the provisions hereof for the purpose of such
proceedings to the extent necessary to permit the remaining separate
representations, warranties and covenants to be enforced in such proceedings.
If, in any judicial proceeding, a court shall refuse to enforce any one or more
of such separate representations, warranties and covenants because the total
time thereof is deemed to be excessive or unreasonable, then it is the intent
of the parties hereto that such representations, warranties and covenants,
which would otherwise be unenforceable due to such excessive or unreasonable
period of time, be enforced for such lesser period of time as shall be deemed
reasonable and not excessive by such court.
6. Entire Agreement; Amendment.
This Agreement contains the entire agreement between the Company and
Consultant with respect to the subject matter thereof. This Agreement may not
be amended, waived, changed, modified or discharged except by an instrument in
writing executed by or on behalf of the party against whom any amendment,
waiver, change, modification or discharge is sought. No course of conduct or
dealing shall be construed to modify, amend or otherwise affect any of the
provisions hereof.
7. Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given (i) upon delivery, if
personally delivered, (ii) the next business day, if delivered with all charges
prepaid to a recognized overnight delivery service for next day delivery, or
(iii) five days after mailing, if mailed, postage prepaid, via first class
mail, in each such case as follows:
(a) To the Company: (b) To Consultant:
Medcross, Inc. Windy City, Inc.
3227 Bennet Street North 8000 Towers Crescent Drive
St. Petersburg, Florida 33713 Suite 1070
Attn: Henry Y.L. Toh, President Vienna, Virginia 22180
Attention: Joel S. Kanter,
President
3
<PAGE> 44
with a copy to: with a copy to:
De Martino Finkelstein Rosen & VirgaBarack, Ferrazzano, Kirschbaum &
1818 N Street, N.W., Suite 400 Perlman
Washington, D.C. 20036 333 West Wacker Drive, Suite 2700
Attn: Ralph V. De Martino, Chicago, Illinois 60606
Esquire Attention: Joshua Kanter,
Esquire
and/or to such other persons and addresses as any party shall have specified in
writing to the other.
8. Assignability.
This Agreement shall not be assignable by Consultant and shall be binding
upon, and shall inure to the benefit of, the successors of the Company.
Notwithstanding any other provision of this Agreement, this Agreement shall be
assignable by the Company, as contemplated by Section 8 hereof or otherwise,
provided that the assignee is a subsidiary of the Company.
9. Representation by Counsel.
Each of the parties hereto represents, warrants and covenants that he or
it has had ample opportunity to consider entering into this Agreement and has
had an opportunity to consult with counsel regarding this Agreement prior to
executing the same.
10. Governing Law.
This Agreement shall be governed by and construed under the laws of the
State of Florida without regard to the conflicts of law principles thereof.
11. Waiver and Further Agreement.
Any waiver of any breach of any terms or conditions of this Agreement
shall not operate as a waiver of any other breach of such terms or conditions
or any other term or condition, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision hereof.
Each of the parties hereto agrees to execute all such further instruments and
documents and to take all such further action as the other party may reasonably
require in order to effectuate the terms and purposes of this Agreement.
12. Headings of No Effect.
The paragraph headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
4
<PAGE> 45
13. Counterparts.
This Agreement may be executed by the parties hereto in one or more
counterparts each of which shall be an original and all of which shall together
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ATTEST: MEDCROSS, INC.
/s/ Stephanie E. Giallourakis By: /s/ Henry Y. L. Toh
Henry Y. L. Toh, President
WITNESS: WINDY CITY, INC.
/s/ Unknown Signature By: /s/ Joel S. Kanter
Joel S. Kanter, President
5
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
For the Period Ended
March 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Earnings per common and common equivalent share
Net loss available to common and equivalent shares $(2,733,940) $( 314,923)
========= =========
Weighted average common shares outstanding 2,971,400 1,632,776
Adjustments
Assumed issuance of shares purchased under stock
option and stock purchase plans 1,018 -
Assumed exercise of warrants and other options 38,998 -
Assumed conversion of:
Class A Variable Rate Cumulative Convertible Preferred Stock 559,368 -
Class B Variable Rate Cumulative Convertible Preferred Stock - 339,043
--------- ---------
Total common and equivalent shares 3,570,784 1,749,043
========= =========
Loss per common and equivalent share $( .77) $( .18)
========= =========
Fully diluted earnings per common and common equivalent share
Net loss available to common and equivalent share $(2,733,940) $( 314,923)
========= =========
Weighted average common shares outstanding 2,971,400 1,632,776
Adjustments
Assumed issuance of shares purchased under stock
option and stock purchase plans 2,632 -
Assumed exercise of warrants and other options 51,120 -
Assumed conversion of:
Class A Variable Rate Cumulative Convertible Preferred Stock 559,368 -
Class B Variable Rate Cumulative Convertible Preferred Stock - 339,043
--------- ---------
Total common and equivalent shares 3,584,520 1,749,163
========= =========
Loss per common and equivalent share after preferred dividends $( .76) $( .18)
========= =========
</TABLE>
<PAGE> 47
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS DATED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 421,751
<SECURITIES> 0
<RECEIVABLES> 941,174
<ALLOWANCES> 682,565
<INVENTORY> 830,292
<CURRENT-ASSETS> 2,300,360
<PP&E> 3,644,566
<DEPRECIATION> 1,905,334
<TOTAL-ASSETS> 7,684,109
<CURRENT-LIABILITIES> 5,491,680
<BONDS> 0
0
1,675,000
<COMMON> 29,917
<OTHER-SE> (33,780)
<TOTAL-LIABILITY-AND-EQUITY> 7,684,109
<SALES> 609,206
<TOTAL-REVENUES> 609,206
<CGS> 0
<TOTAL-COSTS> 3,242,235
<OTHER-EXPENSES> (15,527)
<LOSS-PROVISION> 41,244
<INTEREST-EXPENSE> 47,639
<INCOME-PRETAX> (2,706,385)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,708,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,708,328)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.76)
</TABLE>
