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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[_] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-17973
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MEDCROSS, INC.
(Name of small business issuer in its charter)
Florida 52-2291344
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
13751 S. Wadsworth Park Drive, Suite 200, Draper, UT 84020 (801/576-5000)
(Address and telephone number of principal executive offices)
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Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, $.007 par value
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 twelve months (or for such
period that the Registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days. Yes No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
The Registrant's revenues for its most recent fiscal year totaled $2,383,076.
The aggregate market value of Common Stock held by non-affiliates based upon the
closing bid price on March 11, 1997, as reported by NASDAQ, was approximately
$18,000,625.
As of March 11, 1997, there were 11,607,597 shares of Medcross, Inc. Common
Stock, $.007 par value, outstanding.
Transitional Small Business Disclosure Format: Yes [_] No [X]
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Item 1. Description of Business.
Business of I-Link Worldwide, Inc.
Overview
I-Link Worldwide Inc. ("I-Link") is a wholly owned subsidiary of Medcross,
Inc.("Medcross" or the "Company") through which the primary business of Medcross
is carried out. I-Link is in the business of delivering communications
capabilities to business and residential customers via both a proprietary data
communication network established by I-Link that operates in the same manner as
the Internet (the "I-Link Intranet") and existing switched telecommunications
networks. I-Link seeks to provide communications solutions and enhanced
capabilities to existing users of traditional telecommunications services, at
substantial cost savings to its customers through utilization of the I-Link
Intranet and other existing data communications networks, as well as through
volume purchasing of capacity on traditional switched telecommunications
networks for "off-net" (off Intranet) traffic. I-Link has developed patent-
pending technology and has deployed a national network infrastructure of
communications equipment and dedicated lines that will enable it to route
traditional telecommunications services over the I-Link Intranet in a manner
that is transparent to the user, utilizing the user's existing
telecommunications equipment.
With its acquisition of Family Telecommunications Incorporated ("FTI"), a
regional long-distance telecommunications carrier with nation-wide delivery of
telecommunications services over traditional switched telecommunications
networks, the Company in January 1997 launched its marketing efforts and began
to obtain customers for its long-distance telecommunications services through
I-Link. Through its marketing activities and through strategic acquisitions of
existing customer bases, I-Link will aggressively seek to enlarge its overall
customer base. The I-Link services will initially be delivered across existing
switched telecommunications networks; then, as I-Link's Intranet technology
becomes fully deployable and reaches targeted customer-base size in given
geographic areas, customer traffic in those areas will be moved from the
traditional switched telecommunications networks to the network of dedicated
lines I-Link has established and over which its proprietary technology is
deployed (the "I-Link Intranet"). The move from the traditional switched
telecommunications network to the I-Link Intranet will be transparent to the
customer and will result in a significant reduction in the cost of delivering
the services, both increasing profitability and permitting I-Link to offer
increased savings to its customers, as well as differentiating I-Link and its
services in a highly commoditized market. I-Link believes this strategy of
building customer bases in geographic areas on traditional switched networks and
transitioning the traffic to the I-Link Intranet as the size of the customer
base increases will result in the most cost effective nation-wide deployment of
the I-Link Intranet.
I-Link's primary business communications products are marketed under the
names "Fax4Less(TM)" and "Fone4Less(TM)." Currently, these products are
delivered over the traditional switched telephone network at discounted pricing
levels based upon existing contracts with AT&T and MCI. As the I-Link Intranet
is deployed, these products will be delivered across the I-Link Intranet at
significantly reduced cost levels. The following is a description of how these
products are delivered utilizing the I-Link Intranet and technology.
Fone4Less(TM) and Fax4Less(TM) (the "Products") enable the user to utilize
its existing telephone and fax machine to call or send a fax long-distance to
its ultimate destination with a significant savings on long-distance telephone
charges. Transmission takes place primarily via flat rate-based data lines
which comprise the I-Link Intranet such as those found on the Internet. No
special telephone or fax equipment is required for the user. The person who
receives the call or fax does not need to be a subscriber to the Products and
does not need any equipment other than a conventional telephone or fax machine
to receive the call or fax. The call and fax arrive in the same amount of time,
and the fax in the same form, as with a conventional telephone/fax transmission.
I-Link will pursue a multi-tiered infrastructure strategy. In some cases,
I-Link will establish its own local site. In others, I-Link will partner with
nationally recognized telephone service resellers and Internet Service
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Providers ("ISPs"), incenting those organizations to provide the needed local
site consistent with I-Link's service requirements. I-Link will establish its
own local sites incrementally as business needs dictate. Installation of the
local site is a simple process involving pre-configured Communication Engines
(consisting of Computer and Networking hardware and proprietary software) and
communications lines.
I-Link will use I-Link Intranet Operations Centers ("NOCs") to monitor and
maintain the I-Link Intranet. Successful management of the I-Link Intranet is
critical to providing the highest level of support.
The Communication Engine(TM) represents I-Link's method-patent pending
technology. This technology enables a conventional telephone or fax machine to
communicate with another conventional telephone or fax machine via I-Link's
proprietary Intranet (a data communication network similar to the Internet),
that utilizes the TCP/IP communications protocol. TCP/IP is the communications
protocol that allows a computer to access and communicate over data
communication networks such as the I-Link Intranet as well as the Internet.
Communication Engines are located at I-Link local sites which cover strategic
local dialing areas and provide the service infrastructure. Thus, cost for the
transmission is the user's cost of a local call plus access to the I-Link
Intranet, similar to current computer access to the Internet.
By way of illustration, a subscriber in New York wishing to call or send a
fax from New York to Houston simply dials the desired number in Houston. The
call or fax is immediately and transparently routed to a local Communication
Engine located at I-Link's New York site. The New York Communication Engine
receives the call or fax, then routes it for delivery by area code and local
exchange prefix to the appropriate Communication Engine in Houston via the
I-Link Intranet. A local phone call to the recipient telephone or fax machine
is placed by the Houston Communication Engine, and the call or fax is delivered.
A report of the transaction, including notification of receipt and/or any error
handling, is sent to the New York subscriber.
The Methodology. I-Link's Products are founded on method-patent pending
technology that allows conventional telephones and fax machines to communicate
via TCP/IP driven networks. This means that devices such as telephones or fax
machines can be used as they currently are used, but users will no longer need
to access communications lines that charge distance-based rates. A subscriber
can call or transmit faxes via the I-Link Intranet outside local dialing areas
for the cost of a local call. This technology is housed in an I-Link
Communication Engine at an I-Link local site. In addition to connecting devices,
the engine provides self-diagnostic software designed to prevent service
failure. And, it stores data and statistics on account information and system
usage, allowing I-Link to immediately monitor capacity and enhance
functionality.
The I-Link Network receives traffic from the public switched telephone
network ("PSTN") as a TDM stream (time division multiplexing) and converts it to
IP (internet/intranet protocol) data packets. The data is converted from the
PCM (pulse code modulation) format standard to traditional telephony to an I-
Link proprietary coding. The I-Link proprietary coding can distinguish among and
handles voice, fax and modem communications differently. Voice is compressed
using a voice coder or codec, fax and modem traffic are demodulated/modulated.
The data can then be stored (such as recording a message), altered (as in
changing a fax call from 14400 BPS to 9600 BPS) or redistributed to multiple
recipients (as in the case of conferencing).
Technological Advantages. I-Link's fax transmission method provides
several technological advantages over traditional point-to-point transmission.
Some of these advantages are discussed below.
It maximizes fax machine capabilities. In point-to-point fax
methodology, fax transmission speed is limited by the sometimes weak
long-distance connection as well as the slower of the baud rates
between the two fax machines. The Communication Engine allows the
transmitting fax machine to operate at its maximum transmission
speed irrespective of the capabilities of the fax machine receiving
the transmission.
It allows for reporting and archiving. Not all fax machines have
reporting capabilities. Since the Communication Engine handles the
transmission, it creates and sends reports. Also, it can archive
electronic copies of faxes. If desired, faxes can be retrieved to
provide a history of a fax communication.
It provides a base for other services. Once stored, the electronic
data can be sent to a variety of types of (and number of)
recipients.
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Market Opportunities
Virtually every home and business in the United States today utilizes long-
distance telephone services. Even though competition between the various
providers of long-distance telephone services is intense, I-Link believes the
significant cost savings that can be achieved through the deployment and
implementation of the I-LINK Network and technology, together with additional
enhanced services that can be offered to the customer by virtue of the I-Link
Intranet and technology, will make I-Link highly competitive in this
marketplace. I-Link intends to target the residential customer and businesses
for its "I-Link" branded Products by means of a nationwide, multi-level
marketing and sales program. Marketing and sales of the "I-Link" branded
products to business users will be carried out by traditional sales agents. I-
Link will wholesale its products on a non-branded basis to various distributors,
aggregators, resellers and member organizations that then resell the products to
both residential and business end-users. I-Link will also lease excess capacity
on its network to long-distance carriers.
I-Link believes there are an estimated 3.5 million fax machines in use in
the United States today, the users of which incur long-distance charges of an
average of $500 or more per machine per month, 3.5 million fax machines that
average $200 per month in long-distance charges and 11 million fax machines that
average $100 or less per month. Those users represent I-Link's initial target
market. The long-distance fax market has been estimated to be a $30 billion
market in the United States alone.
Opportunity to Provide Substantial Savings to Users. Utilization of the
products will afford the opportunity to substantially reduce the long-distance
telephone and data transmission charges presently borne by the current user of
long-distance telephone and fax services. Charges for the use of land-line
networks traditionally utilized in long-distance telecommunications are
generally based on time and distance, often resulting in substantial long-
distance charges. In contrast, the charges associated with the new data
communications networks (such as I-Link's Intranet and the Internet) are
generally fixed.
Integration of Distinct Networks. There are currently a number of distinct
information transmission networks. Telephone, cable, wireless, and private and
public networks are primary examples. Technologies supporting these networks
will continue to integrate and evolve, allowing for previously unavailable
opportunities for information distribution and access. The current business
infrastructure presents impediments to the easy use of those networks. For
example, in the fax industry there is a proliferation of fax or fax-like
communication technologies, including fax machines, fax servers, fax software
and e-mail. But these technologies are not well integrated; a party wishing to
send information to others may have to format and send the data several
different ways depending on the messaging equipment and systems available to the
recipients.
Opportunity to Deliver Enhanced Capabilities. The TCP/IP networking
protocol and new transmission media such as are often associated with a data
communications network such as I-Link's Intranet or the Internet ("Data
Communications Network") offer the possibility of substantially reduced cost and
improved data communication. However, as highlighted above, telephones and fax
machines are not TCP/IP-enabled. In the past, in order to take full advantage of
the TCP/IP protocol and the data communications network, users first must own or
have access to a computer, and then obtain access to the Data Communications
Network. Therefore, telephones and fax machines have utilized traditional land-
line telecommunications networks to transmit their voice and data. Charges for
the use of those traditional networks are generally based on time and distance,
often resulting in high long-distance charges. In contrast, the charges
associated with the new Data Communications Networks are generally fixed.
Market Response. Many of the responses seen in the marketplace to the
opportunities discussed above are problematic in that they are often computer-
oriented. Solutions typically require that a user (i) own a personal computer;
(ii) have access to a Data Communications Network; and (iii) have software
compatible with software other users own. This significantly limits the market
for the solution. Moreover, the responses often follow a
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product approach rather than a service approach. The product approach, usually
modeled after the same approach followed by computer software vendors, imposes
further requirements on the user. The approach requires version management,
with users required to ensure that their software is current; it requires
training, and re-training as procedures change; and gives a customer an
interface-driven product that often has more capacity than a user needs.
I-Link's strategic response to the market is to provide, above all, a true
service-based approach, providing customers access to a Data Communications
Network via their existing telephones and fax machines and offering an array of
enhanced services.
The Residential Market
I-Link has targeted all residential users, initially throughout North
America, through the establishment and implementation of a multi-level marketing
and sales program, providing individuals the opportunity to earn commissions on
the sale of the Products to their neighbors and acquaintances. A large amount
of interest in I-Link and its Products has been generated throughout the multi-
level, network marketing industry, and I-Link believes a significant market
opportunity exists through the exploitation of this marketing and sales channel
to reach a large number of potential residential customers. Currently, I-Link
is organizing its multi-level sales operation and expects to commence actively
marketing in this channel in the spring of 1997.
The Business Market
Management of I-Link categorizes its domestic and international target user
markets as follows: (i) small and medium sized businesses (less than 500
employees); (ii) large businesses (500 or more employees); and (iii) vertical
markets. I-Link's primary target market consists of small and medium sized
businesses.
Small and Medium-Sized Businesses. Small and medium-sized businesses often
have a difficult time obtaining and using technology. Typically, they lack the
resources and/or expertise needed to obtain strategic advantage from state-of-
the-art technology. Although I-Link defines small and medium-sized businesses
as businesses with less than 500 employees, it is also important to note that
departments or offices within larger businesses may also be placed in this
category. Larger businesses can dedicate resources and/or funds to technology
customization or even technology development. Smaller businesses often must
accept off-the-shelf solutions designed for general use. Ultimately, per-fax
costs are typically higher for smaller businesses. I-Link believes that its
services are of significant strategic advantage to small businesses. Without
having to adopt new technology or procedures, small and medium-sized businesses
can immediately save money crucial to their bottom line.
Large Businesses and High-End National Accounts. Large businesses and
high-end national accounts (Fortune 2000) have significant fax traffic. These
businesses may utilize equipment and technologies that counter long-distance
costs. However, I-Link expects to profit from targeting such businesses. For
example, I-Link believes many of these businesses presently incur monthly land-
line long-distance telephone charges of $800 to $1,200 per fax machine.
Management believes those businesses could realize substantial savings from
I-Link's services.
Distribution Plan
I-Link will target the following distribution methods: (i) multi-level
marketing and sales program; (ii) direct sales utilizing independent sales
agents; (iii) selling through independent telephone company, or "Telco",
resellers; (iv) acquisition of smaller carriers with established customer bases;
(v) selling through Internet service providers ("ISPs"); (vi) selling
through cable/broadcasting companies; (vii) selling through direct sales
organizations; (viii) direct sales to top national accounts and vertical market
resellers ("VMRs"); (ix) COMDEX channels; (x) leveraging OEM
channels; and (xi) telemarketing/telesales.
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Multi-Level Marketing and Sales Program. I-Link has targeted all
residential and business users, initially throughout North America, through the
establishment and implementation of a multi-level marketing and sales program,
providing individuals the opportunity to earn commissions on the sale of the
products to their neighbors and acquaintances. A large amount of interest in
I-Link and its products has been generated throughout the multi-level, network
marketing industry, and I-Link believes a significant market opportunity exists
through the exploitation of this marketing and sales channel to reach a large
number of potential residential customers. Currently, I-Link is organizing its
multi-level sales operation and expects to commence actively marketing in this
channel in the spring of 1997.
Direct Sales. I-Link intends to utilize independent sales agents for
direct sales of I-Link's products on a commission basis.
Reselling. It is I-Link's intention to offer telephone service resellers,
cable and broadcast companies, ISPs and direct sales organizations significant
partnering opportunities. In January 1997 I-Link entered into a reseller
agreement with WealthNet Corporation ("WealthNet") (a co-op member organization)
under the terms of which I-Link sells its products and services to WealthNet and
WealthNet markets and resells these products and services to its members and
potential WealthNet members. Other reseller agreements are currently in
negotiation. By adding I-Link services to their current list of services, these
potential partners enhance their competitive position in highly competitive and
increasingly fragmented markets.
Acquisition of Smaller Carriers. In January 1997, the Company acquired
FTI, a regional long-distance carrier with an established customer base in
excess of 17,000, in a stock-only transaction. This acquisition brought to
I-Link an existing customer base, useful facilities and established industry
relationships, and afforded FTI the means to differentiate and enhance the
products and services it could offer to existing and potential customers in a
highly competitive marketplace. I-Link believes that there exist numerous other
local and regional carriers with established customer bases and facilities that
could be acquired in the same manner. I-Link intends to continue to seek out
these opportunities provided it is able to negotiate terms that are in the
Company's best interest.
COMDEX Channels. Suppliers of telecommunications equipment, such as office
equipment stores, computer dealers, and office supply superstores represent a
direct interface to many targeted I-Link customers. For example, over 20% of
fax machines are purchased from office equipment dealers or supply superstores.
This represents a significant, well-established channel for I-Link. I-Link can
also create a fax driver that allows a customer to both subscribe to I-Link's
service and interface with existing fax software. This gives I-Link a "fax
service in a box" capability and a shelf presence.
OEM Channel. Market building with OEMs (original equipment manufacturers)
also represents significant opportunity to I-Link. Sales incentives will
motivate OEMs to provide a highly targeted marketing channel for I-Link
campaigns.
Telemarketing. I-Link will utilize the telemarketing and telesales channel
employed by many service providers. As in the example of current business
communications providers, I-Link will directly contact customers in strategic
markets, stressing the significant cost benefits associated with I-Link services
while fielding sales inquiries derived from advertising.
Technology Issues
I-Link has established Communication Engines at strategic locations in the
United States to allow subscribers to access I-Link's network locally, and
intends to continue to establish Communication Engines in other strategic
locations both in North America and worldwide as the customer base warrants.
The I-Link
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Intranet is a high-speed interconnected network of Communication Engines.
I-Link has created this network by leasing high-speed data lines and/or
partnering with existing communications and Internet service entities that
currently provide access to such lines.
Capacity. Capacity, or lack thereof, is a frequently discussed topic with
regard to data transmission via Data Communications Networks such as the
Internet. "Slow service" resulting from inadequate capacity is one of the common
complaints among Internet users. Capacity is a function of "bandwidth" on the
network or the ability of the infrastructure to carry potentially large amounts
of data to and from large numbers of users.
The I-Link Intranet is leased from large IXC's with rigorous performance
standards and managed by I-Link. Management believes I-Link has the ability to
monitor and manage all of its network capacity. I-Link Communication Engines
monitor and store statistical capacity-related data. Transmission locations,
transmission size, and transmission times are easily stored and accessed by the
I-Link Intranet. An NOC monitors data and can immediately detect when
utilization levels are high. I-Link can then add capacity as needed. Because I-
Link data is associated with specific capabilities (e.g., faxes) and is
transmitted between (and encoded and decoded by) I-Link Communication Engines,
the type and purpose of the data is well understood and "overhead" bandwidth
needs are better addressed. Data segmentation gives the Communication Engines
additional ability to maximize capacity. As a result I-Link uses bandwidth up to
four times as efficiently as traditional telephony and fax systems do over the
same medium.
Security. Security is a major concern associated with data transmission
across Data Communications Networks. I-Link controls the routing of data from
one Communication Engine to another. Management believes that I-Link's system
provides a measure of security that actually makes phone and fax transmission
more secure than using traditional facsimile methods.
Competition
The market for business communications services is extremely competitive.
I-Link believes that its ability to compete in I-Link's business successfully
will depend upon a number of factors, including the pricing policies of
competitors and suppliers; the capacity, reliability, availability and security
of the I-Link Intranet infrastructure; market presence and channel development;
the timing of introductions of new products and services into the industry; ease
of access to and navigation of the Internet or other such Data Communication
Networks; I-Link's ability in the future to support existing and emerging
industry standards; I-Link's ability to balance network demand with the fixed
expenses associated with network capacity; and industry and general economic
trends.
While I-Link believes there is currently no competitor in the North
American market providing the same capabilities in the same manner as I-Link
will offer utilizing the I-Link Intranet, there are many companies that offer
business communications services, and therefore compete with I-Link at some
level. These range from large telecommunications companies and carriers such as
AT&T, MCI, Sprint and LDDS/WorldCom, to smaller, regional resellers of telephone
line access. These companies, as well as others, including manufacturers of
hardware and software utilized in the business communications industry, could in
the future develop products and services that compete with those of I-Link on a
more direct basis. These entities are far better capitalized than I-Link and
control significant market share in their respective industry segments. In
addition, there may be other businesses that are attempting to introduce
products similar to I-Link's for the transmission of business information over
the Internet. There is no assurance that I-Link will be able to successfully
compete with these market participants.
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Government Regulation
General. Traditionally, the Federal Communications Commission (the "FCC") has
sought to encourage the development of enhanced services as well as Internet-
based services by keeping such activities free of unnecessary regulation and
government influence. Specifically in the area of telecommunications policy and
the use of the Internet, the FCC has refused to regulate most online information
services under the rules that apply to telephone companies. This approach is
consistent with the passage of the Telecommunications Act of 1996 ("1996 Act")
which expresses a Congressional intent "to preserve the vibrant and competitive
free market that presently exists for the Internet and other interactive
computer services, unfettered by Federal or State regulation."
Federal. The FCC does not regulate value-added networks ("VANs"), software or
computer equipment that offer customers the ability to transport data or voice
messages over telecommunications facilities. By definition, VAN operators
purchase transmission facilities from "facilities-based" carriers and resell
them packaged with packet transmission and protocol conversion services. Under
current rules, such operators are excluded from regulation that applies to
"telecommunications carriers" under Title II of the Communications Act.
In the wake of the 1996 Act, however, the Commission is revisiting many of
its past decisions and could impose common carrier regulation on the transport
and telecommunications facilities used to provide telecommunications services as
a part of an enhanced or information service package. The FCC also may conclude
that I-LINK's protocol conversions, computer processing and interaction with
customer-supplied information are no longer insufficient to afford the Company
the benefits of the "enhanced service" classification, and thereby may seek to
regulate the Company as a common carrier/telecommunications service provider.
While there are no present indications that the FCC plans to make either of
these determinations, such decisions are within the agency's statutory
discretion and could affect the manner in which the Company conducts its
business.
To the extent I-LINK customers move their services off the facilities of
existing long distance carriers, and increase their reliance on the Internet for
transmission, I-LINK will continue to enjoy minimal federal regulation under
current rules. Historically, the FCC has not regulated companies that provide
the software and hardware for Internet telephony, or other Internet data
functions, as common carriers or telecommunications service providers.
Moreover, the FCC recently concluded that information and enhanced service
providers are not required to contribute to federal universal service funding
mechanisms.
Notwithstanding the current state of the rules, the FCC's theoretical
jurisdiction over the Internet is broad because the Internet relies on wire and
radio communications facilities and services over which the FCC has long-
standing authority. The FCC's existing framework for "enhanced services"
confirms that the FCC has authority to regulate these services, but provides
that carrier-type regulation would not serve the public interest. Only recently
has this general approach been questioned within the industry.
In March 1996, for instance, America's Carriers Telecommunications
Association ("ACTA"), a trade association primarily comprised of small and
medium-size interexchange carriers, filed a petition with the FCC asking that
the FCC regulate Internet telephony. ACTA argued that providers of software
that enable real-time voice communications over the Internet should be treated
as common carriers and subject to the regulatory requirements of Title II of the
Communications Act. The Commission sought comment on the request and has not
yet issued its decision.
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Any FCC determination that Internet-based service providers, should be
subject to some level of Title II regulation could affect the manner in which I-
LINK operates, to the extent it utilizes the Internet to provide facsimile or
voice capabilities, as well as the costs of complying with federal common
carrier requirements. With the passage of the 1996 Act, the precise dividing
line or overlap between "telecommunications" and "information" services as
applied to Internet-based service providers is uncertain. Consequently, I-LINK's
activities may be subject to evolving rules as the Commission addresses novel
questions presented by the increased use of the Internet to offer services that
appear functionally similar to traditionally-regulated telecommunications
services. At this time, it is impossible to determine what effect, if any, such
regulations may have on the future operation of the Company.
State. While states generally have declined to regulate enhanced services,
their ability to regulate the provision of intrastate enhanced services remains
uncertain. The FCC originally intended to preempt state regulation of enhanced
service providers, but intervening case law has cast doubt on the earlier
decision. Moreover, some states have continued to regulate particular aspects of
enhanced services in limited circumstances, e.g., to the extent they are
provided by incumbent local exchange carriers.
Whether the states within which I-LINK makes its Fax4Less and Fone4Less
capabilities available will seek to regulate I-LINK's activities as a tele-
unications carrier will depend largely on whether the states determine that
there is a need for or other public benefits of such regulation. The staff of
the Nebraska Public Service Commission, for example, recently informally
concluded that an Internet telephony gateway service operated by a Nebraska
Internet Service Provider was required to obtain state authority to operate as a
telecommunications carrier. The FCC has authority to preempt state regulation
that impedes competition; it has not, however, had occasion to consider this or
similar decisions. Under certain circumstances, the FCC may have occasion to
preempt state regulation. This issue has not yet been squarely placed before the
Commission for resolution.
BUSINESS OF FAMILY TELECOMMUNICATIONS INCORPORATED
Family Telecommunications Incorporated ("FTI") is a long-distance
telecommunications carrier that provides long-distance service to most states of
the United States. In January 1997 FTI was acquired by the Company in a share
exchange transaction. Through this acquisition FTI provided the Company with an
existing customer base in excess of 17,000 and, through FTI's contractual
agreements with MCI Telecommunications Corporation ("MCI") and telephone
facilities and equipment owned and operated by FTI, access to the switched
telephone network at favorable rates. Access to the switched telephone network
is a necessary component of the I-Link Intranet in order for phone and fax
transmissions to be routed to destinations in lesser populated geographic areas
that are not serviced by one of I-Link's Communication Engines, which the
Company estimates encompasses approximately 15% to 20% of users nationwide. In
addition, the access to the switched telephone network at favorable pricing that
FTI affords to I-Link permits I-Link to rapidly develop and expand its customer
bases in given geographic areas across the switched telephone network until such
time as management determines the size of the customer base and the capacity and
timing of the deployment of the I-Link Intranet in the area can support the
transfer of the customers from the switched telephone network to the I-Link
Intranet.
FTI was incorporated under the laws of the state of Utah in 1996, and
maintains its principal place of business in Phoenix, Arizona. FTI also
maintains facilities in Salt Lake City, Utah. Through its Carrier Agreement
with MCI, FTI provides 1-plus long-distance service, 800/888, worldwide calling
card service, worldwide prepaid phone card service, long-distance cellular phone
service, data line service and T-span service. By accessing the MCI network,
services are available to telephone users in the 48 continental states. FTI is
now in the process of obtaining state approval to offer its services in Alaska
and Hawaii. Customers using Bell South, Bell Atlantic, Ameritech, GTE Corp.,
NYNEX Corp., Pacific Telesis Group, US West, Southwestern Bell, Sprint United
LTD, SNET, ALLTEL Corp., Rochester Telephone Corp., Cincinnati Bell Telephone,
and Citizens as their local telephone company are being offered the FTI long-
distance programs. This represents approximately
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97% of all telephone lines in the United States; however, there can be no
assurance FTI will be successful in attracting new customers or increasing its
market share.
FTI is a switchless reseller (having no equipment) in all states but Utah
and Arizona. In Utah and Arizona, FTI provides service through a pair of HARRIS
20-20 switches. This allows FTI to offer additional services in its home state
and surrounding states, and to offer specialized services, including a variety
of customized 800/888 services, voice mail, voice inter-active services, debit
cards, travel cards and other customized services to its entire customer base.
Telephony Industry Description & History
The telecommunications industry today is an interconnected network
consisting of four corporations (AT&T, MCI, Sprint and LDDS/WorldCom) that
together control a significant majority of the interexchange market, and
hundreds of smaller companies. In recent years, the industry has changed
dramatically due to divestiture, deregulation, and technological innovation.
For most of this century, the industry was divided between the Bell System,
companies owned by or affiliated with AT&T, and the 1,600 or so local telephone
independents, companies not affiliated with AT&T, but often components of large
non-Bell holding companies. Although the independents served more geographic
areas, the Bell System accounted for more than 80% of the telephones and
provided most of the intermediate long-distance toll lines. In the 1970's, the
picture began to change when several smaller companies began to offer long-
distance services to customers in direct competition with AT&T, usually at lower
prices. Due to this competition, the projected growth of the markets, and rapid
technological changes, among other factors, the Department of Justice in 1974
filed an antitrust suit against AT&T alleging monopolistic practices. The
settlement of the suit that occurred in January 1982 mandated that AT&T spin-off
the local telephone companies into seven regional independent operating
companies (the "Baby Bells") that would remain monopolies in their respective
territories, but would be prohibited from selling long-distance services that
crossed geographic bounderies, and permitted AT&T to keep its manufacturing,
research and development, and interexchange assets. Beginning in 1984, the Baby
Bells were required under the settlement to provide access to all long-distance
carriers "equal in type, quality and price" to that provided to AT&T.
The AT&T spin-off and the equal access regulation has enabled the long-
distance telephone industry to experience significant growth. The telephone
system that has been developed is referred to as a "switched network." In a
switched network the phone call first goes from the terminal (the telephone,
computer or printer) over local lines to a local switch (the local exchange).
The telephone number dialed tells the switch whether the destination is inside
or outside the exchange. If the call is directed to a phone within the exchange,
the switch will send an electronic signal to the number being called. Once the
phone is picked up, the connection is made. If the called number is outside the
exchange, the switch will send the call signal over a trunk line to the switch
in the correct exchange and that switch will signal the phone at the destination
in order to make the connection. The central office is owned by the local phone
company and contains switching equipment that is hardwired to every telephone in
its area. In addition, it has trunk cables that connect the central office to
other central offices. In a seven-digit telephone exchange number, the first
three digits of every phone number designates the local area served by the
central office. Several central offices, and, therefore, several exchange
numbers, are grouped together to form calling areas serviced by the local phone
company.
Often the telephone call is a destination number that crosses a boundary
between groups of central offices, known as the Local Access and Transport Area
(LATA). There are well over a hundred LATAs in the U.S. The area code dialed
signals the local switch that an interexchange or inter-LATA or toll or long-
distance call is to be terminated. The local switch then sends the call to a
toll switch, which directs the call over toll, long-distance, or interexchange
network lines to the toll switch at the destination city. That switch, in turn,
directs the call to the proper local exchange switch which signals the phone at
the number dialed. At present, most transmission on
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the local level is by means of copper wires, coaxial cable or fiber optics, but
long-distance communication also takes place by means of wire cable, terrestrial
or satellite radio, or by a combination of transmission media. The trend is to
replace these other media with fiber optics for more flexible services.
The most common method of making long-distance calls is to first dial a "1"
plus the number to be called. The number includes an area code destination
comprised of three digits, followed by the three digit telephone exchange and
then the four digit location. The call goes first to the local phone company
central office and then it is handed off to the long-distance carrier chosen by
the customer. At the terminating end of the call, it is passed back to the local
phone company in the terminating area code for completion. Both local telephone
companies collect access charges from the long-distance carrier for these
services. Whenever an interstate call is preceded by a "1" and an area code, the
local phone company hands the call off to a long-distance carrier, who will
complete the call. The local telephone company knows that a long-distance call
must be handed off when the number dialed has ten digits.
Although the telecommunications industry was originally developed to send
electronic analog signals representing the speech pattern of the person talking,
the industry is evolving from the analog pattern to a digital network. Digital
lines provide higher quality service and, because of the computer technology,
make it possible for switches and lines to handle many times more calls at one
time than they could previously. The only significant part of the telephone
system that is still analog today is from the end user's phone to the central
telephone office.
While a monumental step, the AT&T breakup and the creation of the
independent Regional Bell Operating Companies ("RBOCs") originally did nothing
more than reshape the existing ownership. Initially, the breakup left AT&T with
a near monopoly on long-distance service. It was the requirement of "equal
access" that led to the birth of a competitive long-distance market in the U.S.
As part of the settlement, the Department of Justice required that the Bell
Operating Companies (BOCs) offer their customers access to all long-distance or
interexchange carriers ("IXCs"), not just AT&T. Under "equal access," the phone
subscribers were given the opportunity to preselect the "long line" carrier of
their choice and, thereafter, to obtain from their BOC automatic access to that
preselected IXC.
With deregulation and its concomitant "equal access" requirement, the
number of independent long-distance carriers in the United States has grown from
the handful existing ten years ago to over 600 IXCs today, which control close
to one-half the market share in terms of long-distance or interexchange minutes.
The bulk of the market capture was accomplished by MCI, Sprint and LDDS/WorldCom
through extensive and mass advertising campaigns and the ability to offer
service throughout the entire U.S. These three carriers have priced their
product at approximately the same price or just below that of AT&T. The smaller
carriers have captured only a small portion of this new market. Management
believes this is largely due to two factors. The first is the inability to
offer service throughout the U.S. Instead, most small carriers can only offer
service to a small geographic location and thus have a limited number of
customers from which to draw. The second reason is the
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lack of resources to commit to large advertising campaigns. The smaller
carriers have captured market share basically by offering prices that are
substantially below those of the largest four carriers.
The FCC has extensive authority to regulate long-distance carriers and has
the power to review requests for interstate rate changes and other aspects of a
carrier's operations. It has generally not exercised this power to review
changes in the domestic charges of the smaller carriers that compete with the
big four. The FCC has generally allowed competition to be the determinant of
the prices these small competitors charge. Moreover, except in certain
circumstances, the FCC increasingly has sought to reduce the level of regulation
on all interstate service providers, including AT&T.
In recent years, the European Commission has opened Europe's nationalized
telecommunications industry to free market competition. Much like the AT&T
breakup, the operation of basic local telephone services has been left to each
country's current national carrier, with "deregulation" focused on the more
lucrative long-distance and value-added (e.g. data transmission) markets.
Competition in the Switched Network Market
FTI's competition in the switched network market is all other long-
distance providers. Due to the number of regional and local carriers, the
number of competitors varies by geographic region. However, the principal
competition is the big four carriers, AT&T, MCI, Sprint and local regional Bell
Companies and LDDS/WorldCom. With these carriers controlling approximately the
vast majority of the market share throughout the U.S., the majority of the
potential customers to which FTI's products and services are marketed to
are customers of one of these carriers. The competitive advantages these four
largest carriers have are primarily pervasive nationwide networks, name
recognition, operating histories, and substantial advertising resources.
Federal Regulation
FTI competes in an industry that, to a large degree, continues to
be regulated by federal and state governmental agencies. At approximately the
same time as the required divestiture of the BOCs from AT&T in 1984, the FCC
announced rules that were created to foster a self-regulating interstate
telecommunications industry, relying upon competitive forces to keep rates and
services in check.
The FCC has regulatory jurisdiction over interstate and international
telecommunications common carriers, including FTI. Since 1981, the FCC has
sought to deregulate substantially the interstate activities of non-dominant
interexchange carriers such as FTI. For instance, in addition to subjecting non-
dominant carriers to streamlined regulation, on numerous occasions the FCC has
attempted to exempt non-dominant carriers from federal tariffing requirements
altogether. Most recently, the FCC sought to forebear from imposing tariffing
requirements on the domestic telecommunications offerings of non-dominant
carriers pursuant to Section 10 of the Communications Act, as amended by the
Telecommunications Act of 1996 (the "1996 Act"). The FCC's order taking this
action, however, was stayed by the United States Court of Appeals for the
District of Columbia Circuit on February 13, 1997. FCC rules, therefore,
continue to require interstate service providers to tariff their service
offerings at the FCC.
In addition to various annual filing requirements, interstate common
carriers also are required by federal law to ensure that their rates are
reasonable and do not discriminate unreasonably among and between similarly-
situated customers. Moreover, facilities-based interstate carriers are subjected
to additional reporting requirements not imposed on interstate service
resellers.
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Interstate Access Transport Proceeding
In an effort to encourage competition in the provision of interstate access
services, the FCC granted increased pricing flexibility to its LECs for "access
transport" services. Access transport refers to the connection provided by LECs
between long distance carriers' long distance facilities and the customer's
telephone. These rate structures previously were designed such that local
telephone companies assessed an equal charge per unit of access to all long
distance carriers, regardless of the volume of local access that these long
distance carriers independently generated. Under the new FCC pricing plan,
adopted in the fall of 1993, local telephone companies were allowed to offer
more cost effective access to those long distance carriers with very high access
volumes in a particular local market. Accordingly, long distance carriers with
lesser access requirements, such as FTI, could experience increases in their
overall average access cost relative to larger competitors.
The FCC pricing plan implemented in the fall of 1993 was set to expire in
November 1995. In principle, the plan has been extended pending implementation
of the 1996 Act. Consideration of these issues has been delayed as the FCC has
sought to meet tight statutory deadlines imposed by the 1996 Act on other
matters. The FCC, however, is in the process of reconsidering the federal
access charge regime in a pending rulemaking proceeding. The Company is unable
to predict the course and effect of the FCC's actions on this issue at this
time.
Recent Legislation
In February 1996, the Telecommunications Act of 1996 ("1996 Act") was
signed into law. The purpose of the 1996 Act is to promote competition in all
aspects of telecommunications. The 1996 Act requires telecommunications carriers
to interconnect with other carriers and to provide for resale, number
portability, dialing parity, access to rights-of-way and compensation for
reciprocal traffic. Additionally, incumbent local exchange companies ("ILECs")
are required to provide nondiscriminatory unbundled access, resale at wholesale
rates and notice of changes that would affect interoperability of facilities and
networks.
In August 1996, the FCC adopted a national regulatory framework for
implementing the local competition provisions of the 1996 Act, including
adoption of rules delineating interconnection obligations of ILECs, unbundling
requirements for ILEC network elements, requirements for access to local rights
of way, dialing parity and telephone numbering and requirements for resale of
and non-discriminatory access to ILEC services. In many instances, the FCC left
the task of implementing the FCC's regulatory standards to the individual
states. Numerous states and ILECs have appealed the FCC's decisions and a
judicial determination of the legality of the FCC's interconnections rules is
pending at the United States Court of Appeals of the Eighth Circuit and there is
currently a stay in place on many of the FCC' interconnection rules promulgated
under the 1996 Act. A reversal of the legality of the FCC's decisions could
affect the development of local competition in the markets in which FTI
operates, as well as the pricing of services of interest to FTI. It also could
affect FTI's future plans to
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expand into new markets to the extent efficient interconnection to local
facilities is required for competitive market entry.
Pursuant to Section 254 of the 1996 Act, the FCC also recently initiated a
rulemaking to establish a new federal universal service mechanism, and state
authorities are revisiting the method by which universal service is funded. The
proceeding will determine the extent to which interstate carriers will be
required to contribute to federal universal service funds, as well as their
ability to draw universal service support. Resolution of the issues raised in
this proceeding will affect the cost of providing interstate service and the way
FTI conducts its business.
The 1996 Act also provides that RBOCs may provide long distance service
upon enactment that is out-of-region or incidental to: (1) audio/video
programming; (2) Internet for schools; (3) mobile services; (4) information or
alarm services; and (5) telecommunications signaling. In order for a BOC to
provide in-region long distance service, the Telecommunications Act requires the
BOC to comply with a comprehensive competitive checklist and expands the role of
the U.S. Department of Justice in the FCC's determination of whether the entry
of a BOC into the competitive long distance market is in the public interest.
Additionally, there must be a real facilities-based competitor for residential
and business local telephone service (or the failure of the potential providers
to request access) prior to a BOC providing in-region long distance service.
BOCs must provide long distance services through a separate subsidiary of at
least three years. Until the BOCs are allowed into long distance or three years
have passed, long distance carriers with more than five (5) percent of the
nation's access lines may not jointly market BOC resold local telephone service,
and states may not require the BOCs to provide intraLATA dialing parity.
Telecommunications companies also may provide video programming and cable
operators may provide telephone service in the same service area. The
Telecommunications Act prohibits telecommunications carriers and cable operators
from acquiring more than ten (10) percent of each other, except in rural and
other specified areas.
The impact of the 1996 Act on FTI is unknown because a number of important
implementation issues (such as the nature and extent of continued subsidiaries
for local rates) still need to be decided by state or federal regulators.
However, the 1996 Act offers opportunities as well as risks. The new competitive
environment should lead to a reduction in local access fees, the largest single
cost in providing long distance service today. For instance, as discussed above,
the FCC has initiated a rulemaking to reform its system of interstate access
charges to make the pricing of interstate access more compatible with the
pricing principles of the 1996 Act and with federal and state actions to open
local networks to competition. The FCC proceeding will affect the current
pricing relationships between interstate carriers, such as FTI, and ILECs.
Specifically, it will determine what is paid to the ILECs for access to their
facilities and how it will be paid. While it is generally expected that access
charges will decrease under the new rules, it is impossible to predict how the
proposals may affect existing pricing relationships.
Moreover, the removal of the long distance restrictions on the BOCs is not
anticipated to have an immediate significant impact on FTI because of the
substantial preconditions that must be met before the BOCs can provide most in-
region long distance services. Nevertheless, the entry of these local telephone
companies into long distance telecommunications services could result in new
competition and there is a possibility that the local telephone companies will
be able to use local access to gain a competitive advantage over other long
distance providers such as FTI.
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State Regulation
In those states prohibiting intrastate resale, FTI may not engage in
intrastate operations and in those states where intrastate resale is permitted
(at least on an interLATA basis), FTI may be required to obtain state regulatory
certification prior to commencing operations. As of December 31, 1996, FTI had
received authorization to provide telecommunications services to its customers
in approximately 34 states and is applying for authorization to provide
telecommunications services to customers in other states. In addition, FTI is
required to maintain on file at the state regulatory commissions in those states
a tariff or schedule of its intrastate rates and charges. As FTI expands the
geographic scope of its direct dial long distance business, it may be required
to obtain additional state regulatory approvals to provide intrastate long
distance services.
Various state legislatures and public utility commissions are considering a
variety of regulatory policy questions which could adversely affect FTI. At this
time, however, it is impossible to determine what effect, if any, such
regulations, including the cost of compliance with such regulations, may have on
the operations of the Company.
BUSINESS OF MEDCROSS, INC.
Radiological Diagnostic Services
The majority of the Company's revenue in 1996 and 1995 was derived from
owning and operating outpatient diagnostic imaging facilities in Florida. This
revenue was primarily generated from two subsidiaries operating magnetic
resonance imaging ("MRI") facilities. The Company is considering the sale of
such business in light of the Company's focus on the business of I-Link;
however, no final decision has been made with respect to any such sale and there
can be no assurance that such business will be sold.
On November 30, 1990, the Company closed on its limited partnership
offering of Medcross Imaging, Ltd. ("Partnership"). The Partnership was formed
for the purpose of purchasing a Philips T-5 MRI mounted in a mobile van to
provide services to health care facilities on the southwest coast of Florida.
The Partnership commenced operations in February 1991. During May and June
1992, in a series of individual transactions, the Company acquired an additional
26.75% ownership interest in Medcross Imaging, Ltd. Prior to the acquisitions,
the Company had a 41.5% ownership interest. The Company increased its ownership
of Medcross Imaging, Ltd. to 80.75% on October 1, 1993 and 81.75% on October 1,
1994. The Partnership significantly upgraded the MRI to state-of-the-art
performance in August 1993 at a cost of over $250,000. The upgraded machine can
now produce better images in less time, thereby increasing the profit potential
of the mobile unit.
In June 1993, the Company purchased Waters Edge Scanning Associates, Ltd.,
renamed "Tampa MRI" after the acquisition. Serving the Tampa, Florida market,
the acquisition of this facility was consistent with Medcross's "cluster
approach" of operating multiple MRIs in a single market or adjacent markets.
After the acquisition was complete, this MRI was upgraded for higher efficiency
and better images and the facility was remodeled.
In October 1994, the Company closed on the acquisition of a 75% ownership
interest in Urological Ultrasound Services of Tampa Bay ("UUSTB") from Urology
Ultrasound, Inc. Prior to the acquisition, the Company owned the other 25%
ownership interest in UUSTB. The total consideration given for the 75%
partnership interest was $168,162. The purchase price was determined by arms
length negotiation and was paid in cash at the closing. The acquisition was
accounted for under the purchase method of accounting. UUSTB was organized on
September 9, 1987 and is in the business of providing mobile ultrasound services
to urologic patients in west central Florida. When the Company acquired the 75%
partnership interest in UUSTB from Urology Ultrasound, Inc., the partnership
cased to exist. The Company immediately transferred all assets and liabilities
of the partnership, except cash of $115,603, to Urological Ultrasound Services
of Tampa Bay, Inc., a wholly owned subsidiary of the Company, formed for the
purpose of this acquisition. Prior to the acquisition,
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the Company recorded its share of income and loss on its 25% ownership interest
in UUSTB using the equity method. On May 1, 1995, the Company transferred all of
the assets and certain liabilities of Urological Ultrasound Services of Tampa
Bay, Inc. to Tampa MRI.
Regulatory and Legislative Developments
The Company's medical diagnostic businesses are subject to federal law and
various federal and state regulations. While the Company believes that its
operations comply with applicable regulations, the Company has not sought or
received interpretive rulings to that effect. Additionally, there can be no
assurance that subsequent laws, subsequent changes in present laws or
interpretation of laws will not adversely affect the Company's operations.
During the past several years, there has been increasing pressure from
federal and state regulatory and legislative bodies to prevent physicians from
referring patients to diagnostic imaging facilities in which they have an
ownership interest. Many prominent physicians, legislators, medical ethicists,
and others feel that ownership of imaging facilities can impair a physician's
judgment about the need for a diagnostic test. Studies have shown that
physicians who have an ownership interest in imaging facilities tend to refer
more patients for diagnostic testing than physicians who have no ownership
interest.
On the federal level, a physician self-referral bill, introduced by
Representative Fortney "Pete" Stark, passed Congress and was signed by President
Clinton in 1993. The bill bans physicians from referring Medicare patients to
imaging and almost any other type of diagnostic or therapeutic outpatient
medical facility in which they have an ownership or financial interest,
effective January 1, 1995. Many states, including Florida, Illinois, Minnesota,
New York, and New Jersey, have passed laws regarding physician self-referral.
Some simply require disclosure of ownership, while others restrict physicians
from referring to facilities in which they have an ownership interest.
The Florida legislature enacted the Patient Self-Referral Act of 1992,
effective April 8, 1992. This Act prohibits physician self-referral to health
care entities in which such physicians have a financial interest, effective
October 1, 1994. Management believes these legislative and regulatory actions
should have no material adverse effect upon the Company's existing operations.
However, the Self-Referral Act also imposed a fee cap, effective July 1, 1992,
limiting the technical and professional fees of all providers of "clinical
laboratory services, physical therapy services, comprehensive rehabilitative
services, diagnostic imaging services, and radiation therapy services" to no
more than 115% of the Medicare limiting charge for non-participating physicians.
The statute specifically excludes hospitals and physician group practices from
the fee cap provision and does not apply to patients eligible for Medicaid or
Medicare reimbursement.
Several lawsuits have been filed by various providers against the State of
Florida in both federal and state court alleging, among other things, that the
fee cap provision violates the Equal Protection Clause of the U.S. Constitution
and seeking to enjoin the state from enforcing the fee cap provision. In July
1992, the United States District Court for the Northern District of Florida
granted a permanent injunction in a case entitled Panama City Medical Center,
Ltd., et al. vs. Robert B. Williams, et al. (File No. 92-40198-WS). State of
Florida appealed the decision granting the federal court injunction and, on
February 15, 1994, the U.S. Court of Appeals for the Eleventh Circuit reversed
the decision of the lower court, finding that the fee cap provision did not
violate the Equal Protection Clause and ruling that the entry of the injunction
was in error. A motion for rehearing filed in the action has been denied and a
petition has been filed seeking appeal to the U.S. Supreme Court. On June 30,
1992, the Florida Circuit Court, Second Judicial Circuit, enjoined the State of
Florida from enforcing the fee cap provision. The Company intervened as a party
plaintiff in the state court action. An injunction has been obtained preventing
the State of Florida from enforcing the fee cap. The State of Florida appealed
the
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issuance of that injunction. However, the Florida Supreme Court has dismissed
the appeal and the Circuit Court action has been dismissed.
The ultrasound services provided by the Company are related specifically to
urology. Approximately 80% of the Company's patients are covered by Medicare.
Therefore, changes in Medicare reimbursement rules and regulations may have a
significant impact on the profitability of the Company's ultrasound operations.
Reimbursement rates for procedures are set annually. The 1996 reimbursement
rates for the procedures primarily performed by the Company were increased from
between 1.7% to 2.1% over 1995's reimbursement rates.
On March 20, 1995, the Florida Medicare Part B carrier issued a Final Local
Medical Review Policy regarding procedures that can be billed by independent
physiological laboratories ("IPL"), the classification of the Company's
ultrasound operations. These changes do not allow the IPL's to receive
reimbursement from Medicare for the procedures performed by the Company after
April 30, 1995. On May 1, 1995, the Company transferred its ultrasound
operations to Tampa MRI.
Health Care Industry Competition
It is common for hospitals, physicians, physician groups, and others in the
health care field to form ventures to own and operate medical equipment. The
Company is in competition with such groups. There are many companies offering
general business consulting services. The companies that may compete with the
Company in the future and that currently offer consulting services may be larger
and have far greater financial resources than the Company. Also, if the cost of
a particular medical device is reduced and the utilization by physicians
increases, more hospitals will be able to afford to acquire their own equipment
rather than receive service on a shared basis.
Magnetic Resonance Imaging
MRI is a multi-billion dollar industry that has rapidly gained acceptance
by physicians throughout the nation. MRI is the imaging modality of choice for
soft tissue in the head, neck and spine. Over 3,000 MRI units have been
installed in hospitals, outpatient diagnostic imaging centers, physicians'
offices, and in mobile vehicles. At an estimated average of $900 per procedure,
the MRI market in the United States generates over $6 billion annually. New
uses for MRI are continually being developed. MRI is being used to a greater
degree than ever before to scan shoulders, knees, ankles, elbows, breasts, and
even the cardiac system.
The revenue from MRI services accounted for 70% of total revenue of the
Company in 1996 and 1995. Contracts with two hospitals that accounted for 41%
and 40% of the revenue from MRI services in 1996 and 1995, respectively, were
due to expire on February 28, 1996. On December 5, 1995, the Company renewed
the contracts with the two hospitals effective October 1, 1995. The agreements
are substantially similar to the prior arrangements except with respect to a
change in the minimum arrangement and a reduction in per patient charges. These
contracts expired on February 28, 1997 and the Company intends to pursue the
retail MRI segment of the market although there can be no assurance the Company
will be able to do so.
Many of the MRI systems placed into operation in the market area of the
Company's existing MRI centers were purchased and operated by physicians. For
some physicians, it was the only way to gain access to this expensive
technology. For others, it was an opportunity to invest in a technology that
they use to help diagnose their patients' medical problems. The Company
competes for patient referrals from physicians with the other MRI centers
located in its immediate market area. Because physicians can no longer refer to
entities in which they have an ownership interest, the physicians have no
financial predisposition to refer to a given center. The Company's ability to
obtain referrals will be based upon the quality of its service and its ability
to obtain contracts to treat managed care patients. Three new MRI centers have
recently begun operations in the market area
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of Medcross Imaging, Ltd., which will have a significant effect on the Company's
ability to pursue the retail MRI segment of the market. Tampa MRI has obtained
over 40 managed care contracts during 1996. While this has reduced the average
per-patient charges, it has increased the number of patients treated.
Ultrasound
On May 1, 1995, the Company transferred all of its ultrasound operations to
Tampa MRI. The ultrasound services are provided at each physician's office under
the physician's direction. The Company is not looking to expand its operations
outside of the current market area. There are two main competitors in the
Company's market area. Management believes that it will maintain its referrals
with the physicians offices and may even gain additional physician referrals
through its marketing efforts.
Therapeutic Services
In the late 1980s, the Company was one of the industry leaders, providing
mobile kidney lithotripsy service throughout the southeastern United States.
The Company put the world's first mobile kidney lithotripter into operation in
1986. During the next two years, the Company developed four additional mobile
kidney lithotripsy networks. In 1986, the Company coordinated the development
of one of the leading outpatient lithotripsy centers in the nation which the
Company managed under a management agreement. In 1992, 65% of the ownership in
the facility was sold to CORAM, a publicly held corporation. In 1994, the
Company's responsibilities under the management agreement were reduced to
providing financial services. The annual revenue from this management contract
was also reduced from an average of approximately $180,000 to $47,100 per year.
In 1995, the remaining 35% of the ownership in the facility was sold to CORAM.
In August 1995, the management agreement was terminated. The Company has
management agreements with three other owners of mobile kidney lithotripters
that operate in seven different states. The Company provides turn-key
operations, management, and financial services under its agreements with the
owning entities. The Company also provides the trained technicians who operate
the lithotripters and, when requested, the drivers who transport the equipment
between the using facilities. The Company does not expect any expansion or new
development efforts in the lithotripsy area.
The Company had a 7 1/2% ownership interest in International Prostate
Partners, formed in 1992. International Prostate Center - Cayman, Ltd., a
wholly owned Cayman Island subsidiary of International Prostate Partners,
provided transurethral microwave therapy ("TUMT") services in Georgetown, Grand
Cayman, for patients with benign prostate hyperplasia ("BPH"). The Company
contracted to provide a full range of management services, beginning in 1993, to
International Prostate Partners and International Prostate Center - Cayman, Ltd.
Operations began in January 1994. The patient case load was insufficient to
support operating expenditures. Therefore, the operations were closed down and
the equipment put in storage pending FDA approval. In August 1, 1995, the
Company sold its interest in the partnership and its Management Agreement was
terminated. In May 1996, the manufacturer received FDA approval. The Company
has proposed this technology to its existing lithotripsy clients; however, any
decisions to be made are pending Medicare reimbursement approval. No assurance
can be given by the Company as to when, or if Medicare reimbursement approval
will be received.
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Foreign Sales and Service of Diagnostic Imaging Equipment
In January 1993, the Company formed Medcross Asia, Ltd., a wholly owned
subsidiary headquartered in Hong Kong. This subsidiary was formed to identify
opportunities for the Company to enter the medical field in the Far East.
On January 7, 1994, the Company entered into a joint venture agreement with
China National Medical Equipment and Supplies Import & Export Shenyang
Corporation ("CNMC"). The joint venture company, Shenyang Medcross Huamei
Medical Equipment Company, Ltd. ("SMHME") is located in the People's Republic of
China. SMHME is 51% owned by the Company and 49% owned by CNMC. SMHME imports
used and refurbished CT scanners for resale to hospitals in the province of
Shenyang. SMHME also provides warranty service, including parts and labor, for
the machines it sells and intends to provide warranty service for other machines
already existing in the province. The Company's responsibilities include
locating, purchasing, refurbishing, and shipping used medical equipment to
SMHME. CNMC was required to contribute $380,000 in cash to SMHME of which
$260,417 has been contributed. Medcross contributed CT scanner equipment and
parts with an agreed upon value of $390,000 and a cost basis of $251,972 to
SMHME. The Company opened an office in Beijing to sell and service used CT
scanning equipment in the People's Republic of China outside the province of
Shenyang. In May 1995, the Company closed its Beijing office and is actively
pursuing the sale of such operations.
Item 2. Description of Property.
The Company currently occupies approximately 3,400 square feet for its
offices located at in St. Petersburg, Florida on a month-to-month basis. The
Company leases approximately 2,400 square feet for its outpatient MRI center
located in Tampa, Florida. The lease for the medical facility expires May 31,
1998. The Company has the option to extend the medical facility lease an
additional two years.
I-Link had a ten-month lease for 5,000 square feet of space in Austin,
Texas, which lease expired February 1, 1997. I-Link paid rent of $5,000 per
month. I-Link also leases several other spaces to house its Communication
Engines throughout the United States. Such spaces vary in size and are rented
on a month-to-month basis.
In September 1996, I-Link entered into a lease for 14,000 square feet of
space pursuant to a commercial lease dated September 11, 1996. The term of the
lease is seven years commencing November 5, 1996, subject to the right to extend
for an additional five years. The initial base rent is approximately $11,650
per month. I-Link has delivered $215,000 in certificates of deposit to the
landlord as a security deposit under the lease.
FTI currently leases and occupies approximately 3,600 square feet of office
space in Phoenix, Arizona, pursuant to a commercial lease dated March 18, 1996.
The lease term is four years and two months commencing March 18, 1996 beginning
with a base rent of $3,598 per month and escalating to $4,498 per month at the
end of the lease. FTI also currently leases and occupies approximately 5,100
square feet of office space in Salt Lake City, Utah, pursuant to a commercial
lease dated July 1, 1996. The lease term is five years commencing July 1, 1996
beginning with a base rent of $5,313 per month and escalating to $5,843 per
month at the end of the lease.
19
<PAGE>
Item 3. Legal Proceedings.
A Complaint was filed on April 12, 1996, by JW Charles Financial Services,
Inc. ("JW Charles") against the Company in Palm Beach County Florida Circuit
Court, JW Charles Financial Services, Inc. v. Medcross, Inc., Case No: CL96-
3218. JW Charles was issued a Common Stock Purchase Warrant ("JW Charles
Warrant") on or about November 3, 1994 by the Company. The alleged terms of the
JW Charles Warrant granted JW Charles the right to purchase from the Company
250,000 shares (331,126 as adjusted) of the Company's Common Stock (the "JW
Charles Shares") subject to adjustment. On or about February 12, 1996, JW
Charles made written demand to the Company to invoke its rights to have the JW
Charles Shares registered pursuant to the terms of the JW Charles Warrant. The
Complaint alleges that the Company breached the terms of the JW Charles Warrant
by failing to prepare and file with the Commission, a registration statement
covering such shares. JW Charles alleges a breach of contract and requests
specific performance, i.e., registering the shares with the Commission, against
the Company. JW Charles also demands damages in the amount of $2,728,478 plus
interest, reasonable attorneys fees, and forum costs. The Company believes that
it has meritorious defenses to the Complaint. On May 6, 1996, the Company filed
an Answer, Affirmative Defenses and Counterclaim to the Complaint filed by JW
Charles. The Company's Counterclaim seeks damages, cancellation of the JW
Charles Warrant, interest and costs.
On April 11, 1997, the Company reached an agreement in principle relating
to the settlement of the lawsuit. The lawsuit will be dismissed upon payment of
$600,000 to JW Charles in consideration for the purchase of the JW Charles
Warrant. The JW Charles Warrant will be purchased by an investor group led by
the Company's general counsel and its treasurer and chief financial officer. It
is not expected that the Company's funds will be utilized. In connection with
the purchase of the JW Charles Warrant, it is contemplated that the Company will
grant certain additional consideration to the investor group, including new
warrants to purchase 175,000 shares of common stock at an exercise price equal
to or in excess of the conversion price of the Class C Preferred Stock. Such
warrants will have registration rights and anti-dilution provisions.
20
<PAGE>
Item 4. Submission of Matters to a Vote of Securityholders.
Not Applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the Nasdaq SmallCap Market(SM)
("Nasdaq") tier of the Nasdaq Stock Market(SM) under the symbol "ILNK." Prior to
March 8, 1996, the Common Stock was traded on Nasdaq under the symbol "MDCR."
Although the Common Stock is currently listed for quotation on Nasdaq, there can
be no assurance given that the Company will be able to continue to satisfy the
requirements for maintaining quotation of such securities on Nasdaq or that such
quotation will otherwise continue.
The range of high and low bid information for the Common Stock for each
full quarterly period during 1996 and within the two prior fiscal years is as
follows:
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
------------------- ------------ -------
<S> <C> <C>
March 31, 1995 $2.13 $1.13
June 30, 1995 1.13 0.63
September 30, 1995 1.13 0.88
December 31, 1995 1.25 1.00
March 31, 1996 $7.63 $1.00
June 30, 1996 9.75 6.13
September 30, 1996 7.50 4.06
December 31, 1996 6.00 4.00
</TABLE>
These quotations reflect interdealer prices, without retail markup,
markdown, or commission and may not represent actual transactions.
As of April 11, 1997, there were approximately 224 stockholders of
record and approximately 1350 beneficial owners. In addition, as of the same
date, there were approximately 83 individual participants in security position
listings furnished by Cede & Co., New York, New York, registered clearing agency
and depository.
On March 31, 1997, the closing bid price for a share of Common Stock
was $5.0625.
Item 6. Management's Discussion and Analysis.
Certain statements contained herein are not based on historical facts,
but are forward-looking statements that are based upon assumptions about future
conditions that may not occur. Among many factors that could cause actual
results to differ materially are the following: the Company's ability to manage
expected rapid growth; competition in the long distance telecommunications and
ancillary industries; the Company's ongoing relationship with its long distance
carriers and vendors; dependence upon key personnel; subscriber attrition;
federal and state governmental regulation of the long distance
telecommunications and internet industries; the Company's ability to maintain,
operate and upgrade its information systems and network; and the Company's
success in the offering of other enhanced service products.
Actual events, transactions and results may materially differ from the
anticipated events, transactions or results described in such statements. The
Company's ability to consummate such transactions and achieve such results is
subject to certain risks and uncertainties. Such risks and uncertainties
include, but are not limited to, the existence of demand for and acceptance of
the Company's products and services, regulatory approvals and developments,
economic conditions, the impact of competition and pricing results of financing
efforts and other factors affecting the Company's business that are beyond the
Company's control. The Company undertakes no obligation and does not intend to
update, revise or otherwise publicly release the result of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.
Results of Operation
The following Table represents the net operating revenue and operating profit of
the Company for each category of service offered. The net operating revenue and
operating profits shown are net of inter-company transactions that were
eliminated in consolidation.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
1996 1995
------------- -------------
<S> <C> <C>
NET OPERATING REVENUE
- ---------------------
Diagnostic Imaging $ 1,967,384 $ 2,486,708
Sales and Services of Medical Equipment - 337,889
Network Services 170,532 -
Management and Other 245,160 298,356
------------- -------------
$ 2,383,076 $ 3,122,953
============= =============
OPERATING PROFIT (LOSS)
- -----------------------
Diagnostic Imaging $ 41,615 $ 322,314
Sales and Services of Medical Equipment (284,615) (171,083)
Communications Network (19,501,391) -
Management and Other (448,123) ( 644,986)
------------- -------------
$ (20,192,514) $ ( 493,755)
============= =============
</TABLE>
Consolidated Operating Results.
Operating results for 1996 are not comparable to 1995 due to the inclusion
of operating results of I-Link acquired on February 13, 1996. Accordingly,
operating results of 1996 include I-Link while operating results of 1995 did not
include I-Link.
Net operating revenue of the Company decreased 23.7% in 1996 as compared
to 1995. This was a result of decreased revenue of diagnostic imaging services,
foreign operations, and management and other services, offset by the inclusion
of network services of I-Link. Salaries and benefits increased $701,798 in
1996 as compared to 1995. Salaries and benefits of $945,030 are attributable to
the inclusion of I-Link in 1996, offset by decreases in expenses from diagnostic
imaging, foreign operations and management and other services of $26,590,
$59,132 and $157,510, respectively. Selling, general and administrative expenses
increased $1,664,444 in 1996 compared to 1995. This increase was due to the
inclusion of I-Link, offset by a decrease for diagnostic imaging, foreign
operations and management and other services of $58,218, $146,012 and $104,075,
respectively. Cost of goods sold in 1995 was entirely related to the sale and
service of CT equipment in China. The increase in communications network expense
of $1,120,779 in 1996, related to the business of I-Link. These expenses include
communication lines, links, facility costs and hardware maintenance associated
with the operation of the I-Link network. Depreciation and amortization expense
increased $628,924, in 1996. The increase was primarily due to depreciation of
I-Link assets. Provision for inventory valuation of $260,033 relates to an
inventory valuation allowance for the Company's inventory located in China and
represents the Company's best estimate of the reserve necessary to reflect the
inventory at its net realizable value. The decrease in repairs and maintenance
expenses was mainly related to diagnostic imaging services. The provision for
doubtful accounts decreased $167,528. The decrease was primarily attributable to
$66,000 related top diagnostic imaging services and $127,000 for doubtful
accounts from foreign operation in 1995, which did not recur in 1996. Acquired
in-process research and development expenses of $14,577,942 in 1996 relate to
the acquisition of in-process research and development acquired when the Company
purchased I-Link. The acquired in-process research and development was expensed
as technological feasibility had not been established and the technology had no
alternative future use. Research and development expenses of $347,504 in 1996
related to the company's continued research and development associated with the
acquired technology.
The increase in interest expense of $2,031,206 was primarily attributable
to interest expense (non-cash) on convertible promissory notes and Warrants
issued with other notes and is calculated as the difference between the
aggregate conversion price per common share per the promissory notes or warrants
as compared to the market price of the common stock on the date the promissory
notes or warrants were issued.
The increase in interest income of $136,605 was related to increased cash
balances related to proceeds from the sale of preferred stock by the company
during 1996.
Litigation settlement expense of $821,000 recognized in 1996 was
associated with the Company's settlement of the J.W. Charles litigation. The
expense (non-cash) directly relates to the issuance of 175,000 warrants to
purchase common stock at an exercise price less than fair market value of the
common stock at the date of issuance. These will be issued in association with
the settlement of the J.W. Charles litigation.
Diagnostic Imaging. Net operating revenue from diagnostic imaging services
decreased $519,324 (20.9%) in 1996 compared to 1995. MRI revenue of Tampa MRI
(a subsidiary of the Company) accounted for $184,616 of the decrease. This
decrease is mainly related to a 20.8% decrease in the average revenue per
procedure offset by a minimal increase in the number of procedures performed in
1996 compared to 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 revenue per procedure; however, these
decreases have been partially offset by increases in the number of procedures
performed. In addition to the increased participation in managed health care
contracts, during the fourth quarter of 1996, Tampa MRI has contracted with
several companies that lease time from Tampa MRI, which has also decreased the
revenue per procedure. Currently, approximately 50% of the time of Tampa MRI is
leased by such companies. While the combination of these two factors (the
increase in managed care contracts and the increase in the amount of time that
is leased to third party companies) has decreased the revenue per procedure, the
referral base has significantly broadened. MRI revenue of Medcross Imaging,
Ltd. decreased $322,973 in 1996 compared to 1995. This decrease was caused by a
decrease in the average revenue per procedure of 28.1%. The decrease in the
average revenue per procedure of Medcross Imaging, Ltd. is due to the decrease
of the per procedure charges to the hospital clients pursuant to service
contracts placed into effect on October 1, 1995. These contracts extended the
service period to the hospitals from February 29, 1996 to February 28, 1997.
While the charge per procedure was reduced, each hospital had specific monthly
minimum quotas. There was no material change in the number of procedures
performed in 1996 as compared to 1995. The contracts extended to February 28,
1997 were not renewed and the Company intends to pursue the retail MRI segment
of the market. There is no assurance that the Company will be able to do so.
The revenue of the ultrasound operations decreased 3.8% in 1996 as
compared to 1995. This decrease was caused by a decrease in the number of
procedures performed, offset by an increase in the average revenue per patient.
During the fourth quarter of 1996, the Company; has been providing ultrasound
services to a local hospital during certain surgical procedures. The amount of
time needed to perform surgery is substantially longer than the amount of time
taken to perform the other ultrasound procedures, however, the rates at which
the Company is reimbursed is greater than the other ultrasound procedures. This
has caused the decrease in the number of procedures performed and an increase in
the average revenue per procedure. Management believes that participation in
surgical procedures will increase, therefore increasing the average revenue per
procedure.
The operating profit from diagnostic imaging services decreased $280,699
in 1995 as compared to 1996. This decrease included a decline in operating
profit from MRI services of $296,008, slightly offset by the operating profit
from ultrasound services of $15,309. The decrease in operating profit was caused
by the decrease in net operating revenue described above, offset by the decrease
in total operating expenses for diagnostic imaging services of $238,625 in 1996
as compared to 1995. Operating expenses from Medcross Imaging, Ltd., Tampa MRI
and ultrasound services decreased $72,180, $139,401, and $27,044, respectively,
in 1996 compared to 1995.
Foreign Sales and Service of Medical Equipment. The Company sells and services
used and refurbished computerized tomography (CT) scanners in the People's
Republic of China through its own office in Beijing and a joint venture company,
Shenyang Medcross Huamei Medical Equipment Company, Ltd. (SMHME), of which it
owns 51%. In the first quarter of 1995, the Company's Beijing office completed
the installation of two-CT scanners. On May 31, 1995, the Beijing office was
closed and the responsibilities for the parts depot and the remaining inventory
have been transferred to SMHME. The purchasers in China regarding maintenance of
scanners, parts depot, etc. have raised various issues. The Company received
$125,000 in payments through December 31, 1995. However, the Company has elected
to fully reserve for all remaining amounts due to the Beijing office. This
resulted in an expense of $126,910 in 1995 and an overall allowance for doubtful
accounts of $315,753 as of December 31, 1996. In 1996, the Company has written
down the CT scanner inventory of the Beijing operations to what management
believes is its fair market value. This resulted in a valuation expense of
$260,033 in 1996. The Company has held discussions regarding the sale of the
Beijing operations. No decision has been made.
Management and Other. Net operating revenue from management and other
activities decreased by $53,196 in 1996 as compared to 1995. A portion of the
decrease was related to the management contract with Bay Area Renal Stone Center
(BARSC). This contract accounted for $27,475 in management fees in 1995 and no
management fees in 1996. In August 1995, the Company's management contract with
BARSC was terminated. The annual management fee revenue based upon contracts
currently in effect is $305,160. The net operating loss for management and
other activities decreased 30.5% in 1996 compared to 1995. This decreased loss
is related to the decrease in total operating expenses of 26.5% to $693,286 in
1996 from $943,342 in 1995. This decrease was offset by the reduced revenue
described above. Salaries and benefits decreased $157,510 in 1996 compared to
1995 and other operating expenses decreased $104,075 in 1996 as compared to
1995.
Communication Network and Related Services - I-Link. The operating revenue of
network and related services from I-Link was $170,532 for 1996. The net
operating loss from network and related services was $19,501,391 for 1996,
primarily due to research and development costs of $14,925,446. Of this amount
$14,577,942 was related to acquired in-process research and development. Other
I-Link expenses are primarily related to the development and deployment of its
communication products. These expenses include software research and
development, network maintenance and expenses relating to sales and marketing,
finance and accounting, information systems, and administrative personnel.
Liquidity and Capital Resources
Cash and cash equivalents as of December 31, 1996 were $4,500,227 as
compared to $79,316 as of December 31, 1995. This increase was primarily due to
a private placement of preferred stock in 1996. Cash flow used by operations
during 1996 was $4,840,285 compared to cash flow provided by operations in 1995
of $319,362. The working capital position of the Company was $2,400,501 at
December 31, 1996. The increased cash flow used by operations was primarily due
to expenses associated with the establishment of the I-Link communications
network.
Net cash used by investing activities in 1996 was $2,573,486 as compared
to net cash provided of $4,283 in 1995. The increase in cash used by investing
activities was primarily attributable to the purchase of property and equipment
associated with the establishment of the I-Link communications network and
purchase of restricted certificates of deposit required as deposit for leases
entered into by I-Link relating to its facilities and communication network.
Other investing activity expenditures during 1996 related to the purchase of
additional equipment for I-Link.
Financing activities provided net cash of $11,834,681 in 1996 as compared
to cash used by financing activities in 1995 of $603,252. The increase in cash
provided was due to the net proceeds of $12,290,000 from the issuance of
preferred stock and $356,000 from the exercise of warrants and options. In
1996 the Company had proceeds of $2,502,333 from the issuance of notes payable
as compared to $218,000 in 1995. The Company repaid $2,991,356 of notes payable
and long-term debt in 1996 as compared to $521,871 in 1995.
Current Position/Future Requirements
During 1997, the Company plans to utilize available cash to fund the
development and marketing of I-Link products and services. The Company
anticipates that cash requirements in these areas will be at increasingly higher
levels than those experienced in 1996 in preparation for initial market
penetration and deployment of I-Link products. To a large extent, the Company's
ability to develop and market I-Link products and the timing thereof is
dependent on the working capital and financing alternatives available to the
Company. In order to successfully market the I-Link products and to generate
revenue sources sufficient to meet its on-going cash requirements the Company
acquired (a stock for stock acquisition) Family Telecommunications Incorporated
(FTI) effective January 1, 1997. FTI is a long distance telecommunications
carrier that provides long distance service to most states of the United States.
FTI had an established customer base. While FTI operations do not initially
provide sufficient cash flow to meet the operating needs of the Company, it is
anticipated that FTI operations coupled with the products of I-Link will
generate sufficient cash to meet the needs of day to day operation in the latter
part of 1997. The Company may obtain working capital from sources other than
operating activities including business partners, public or private financings.
The Company believes that its anticipated need for working capital in 1997 will
be met by utilization of existing cash balances and revenue from its
telecommunication operations from the FTI acquisition. However, the Company
anticipates that additional funds will be necessary from public or private
financing markets to successfully integrate and finance the planned expansion of
the business communications services and to discharge the financial obligations
of the Company. 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, that the Company will receive any proceeds from the
exercise of outstanding warrants or that the Company will not be required to
arrange for additional debt, equity or other type of financing.
Other Items
The Company's activities have not been, and in the near term are not expected to
be, materially affected by inflation or changing prices in general. However,
the Company's revenues will continue to be affected by competitive forces in the
market place.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. This statement
establishes standards for computing and presenting earnings per share ("EPS")
and applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing EPS and makes them
comparable to international EPS standards. This statement is effective for
financial statements for both interim and annual periods ending after December
15, 1997. The Company is currently evaluating the impact of the recently issued
statement and will adopt the requirements for the year ending December 31, 1997.
The Company has reviewed all other recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on the results
of operations or financial position of the Company. Based on that review, the
Company believes that none of these pronouncements will have a significant
effect on current or future earnings or operations.
As the Company is developing its own accounting systems for reporting and
operations and is addressing year 2000 issues as part of that development, no
significant incremental costs are anticipated in order to be year 2000
compliant.
21
<PAGE>
Item 7. Financial Statements.
See Index to Consolidated Financial Statements on page F-1.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
<TABLE>
<CAPTION>
Name Age Title
- ------------------------- --- ----------------------------------------------
<S> <C> <C>
John W. Edwards.......... 41 President, Chief Executive Officer and
Director of the Company and Chief Executive
Officer of I-Link
Clay Wilkes.............. 36 Chairman of the Board of the Company
Karl S. Ryser, Jr........ 41 Treasurer and Chief Financial Officer of the
Company and Chief Financial Officer of I-Link
William H. Flury......... 42 Vice President, Sales and Marketing of I-Link
Dorothy L. Michon........ 41 Vice President, Operations of the Company
David E. Hardy........... 44 Secretary of the Company
Henry Y.L. Toh........... 39 Director of the Company
R. Huston Babcock, M.D... 67 Director of the Company
Joseph A. Cohen.......... 49 Director of the Company
</TABLE>
The Company's Articles of Incorporation provide that the number of
directors of the Company shall not be less than five or more than nine.
Currently, the Board of Directors has five members. The Company's Articles of
Incorporation provide that the Board of Directors is divided into three
classes. Messrs. Joel S. Kanter (who resigned in July 1996 for personal
reasons) and Henry Y.L. Toh, Class II Directors, stood for re-election at the
annual meeting of shareholders in 1995. The terms of office of Mr. Toh and
Joseph A. Cohen, who was appointed a Class II Director in September 1996 as
the designee of Commonwealth Associates ("Commonwealth"), will expire at the
third succeeding annual meeting of shareholders. The terms of office of Dr. R.
Huston Babcock and John W. Edwards, Class III Directors, expire at the next
annual meeting of shareholders. The term of office of Clay Wilkes, a Class I
Director, expires at the next succeeding annual meeting of shareholders.
Commonwealth has also designated Michael Falk, President of Commonwealth, to
be a non-voting advisor to the Board. In addition,
22
<PAGE>
Commonwealth has the right to approve the Company's selection of a second
outside director in accordance with the terms of the Sales Agency Agreement
between the Company and Commonwealth entered into in July 1996 in connection
with the Company's private placement of Class C Preferred Stock. A second
outside director has not been selected as of the date hereof.
Biographical information with respect to the present executive
officers, directors, and key employees of the Company are set forth below.
There are no family relationships between any present executive officers and
directors except that John W. Edwards and Robert W. Edwards, Jr. are brothers.
John W. Edwards, President, Chief Executive Officer and Director of
the Company. Mr. Edwards was selected to fill a vacancy on the Board of
Directors as a Class III director in June 1996. Pursuant to the terms of his
employment agreement with I-Link, Mr. Edwards serves as the Chief Executive
Officer of I-Link and, as of September 30, 1996, serves as the President and
Chief Executive Officer of the Company. Mr. Edwards served as President and a
director of Coresoft, Inc., a software company developing object-oriented
computer solutions for small business from September 1995 to April 1996.
During the period August 1988 through July 1995, Mr. Edwards served in a
number of executive positions with Novell, Inc., a software company providing
networking software, including Executive Vice President of Strategic
Marketing, Executive Vice President of the Appware and Desktop Systems Groups
and Vice President of Marketing of the NetWare Systems Group. Mr. Edwards was
involved in the development of the NetWare 386 product line. Until May 1996,
he was a visiting faculty member at the Marriott School of Management at
Brigham Young University. Mr. Edwards received a B.S. degree in Computer
Science from Brigham Young University and has taken graduate courses in
Computer Science at Brigham Young University.
Clay Wilkes, Chairman of the Board of the Company. Mr. Wilkes was
elected by the Board of Directors of the Company as a Class I Director in
April 1996. Mr. Wilkes served as President and Chief Executive Officer of I-
Link from inception to April 1996, Chief Technology Officer of I-Link until
January 1997 and is a Director of I-Link. Mr. Wilkes has served as President
of GNET Enterprises, Inc., the general partner of I-Link, Ltd. since its
inception. From February 1993 through June 1994, Mr. Wilkes served as a
consultant to IBM in Austin, Texas on the PowerPC project. From August 1990
through September 1992, he was responsible for UNIX product development at
Novell, Inc. in Provo, Utah, where he managed the networking server and client
development groups. Mr. Wilkes has spent many years in the management and
development of computer communications software. Mr. Wilkes attended the
University of Oregon and Brigham Young University and completed course work in
Computer Science at Utah State University.
Karl S. Ryser, Jr., Treasurer and Chief Financial Officer of the
Company and of I-Link. Pursuant to the terms of his employment agreement, Mr.
Ryser serves as Chief Financial Officer of I-Link. Mr. Ryser was self-
employed as a corporate financial consultant from May 1995 until September
1996, when he joined I-Link. From July 1993 through April 1995, Mr. Ryser
served as Vice President of Finance and Treasurer of Megahertz Corporation, a
publicly-held manufacturer of data communication products, in which position
he served until Megahertz was acquired by U.S. Robotics Corporation. After
earning his MBA, Mr. Ryser's work experience was concentrated in the
investment banking field, working with the Capital Markets Division of First
Security Corporation and later with Dain Bosworth, Inc. Mr. Ryser holds a
B.S. degree in Finance from the University of Utah in 1979, and an MBA from
the University of San Diego in 1982.
23
<PAGE>
William H. Flury, Vice President, Sales and Marketing of I-Link.
Mr. Flury has over 17 years of sales and marketing management experience.
From November 1994 to March 1996, Mr. Flury held the Vice President of
Worldwide Sales position at Zebra Technologies, VTI. From June 1988 to
September 1989, Mr. Flury was employed by Novell, Inc., where he was the
Senior Director of National Accounts and Industry Markets. From November 1989
to July 1992, he worked for Adobe Systems as Director of Market Development.
From August 1992 to October 1994, he was employed by NetLabs as Vice
President of Worldwide Sales and Customer Support. From October 1994 to
March 1996, he was employed by Vertical Technologies. Mr. Flury has
established domestic and international programs in direct sales, multi-tiered
channel sales, and OEM sales. Mr. Flury holds Business and Sociology degrees
from the University of Utah, and is a graduate of the Stanford Executive
Program.
Dorothy L. Michon, Vice President, Operations of the Company. Ms.
Michon joined the Company in August 1983 as C.T. Technologist, was promoted to
Technical Director in 1983, and then Associate Director of Operations in 1985.
She was elected as the Company's Vice President - Operations in March 1990.
She holds an Associate Degree in Radiology Technology and a B.S. degree in
Professional Management from Nova University.
David E. Hardy, Secretary of the Company. Mr. Hardy was appointed
Secretary of the Company in December 1996. He is a founding partner of the law
firm of Hardy & Allen, in Salt Lake City. From February 1993 to April 1995,
Mr. Hardy served as Senior Vice President and General Counsel of Megahertz
Corporation, a publicly-held manufacturer of data communication products.
Prior to his association with Megahertz Corporation, Mr. Hardy was a senior
partner of the law firm of Allen, Hardy, Rasmussen & Christensen which was
founded in 1982. Mr. Hardy holds a Bachelor of Arts degree from the University
of Utah and a Juris Doctor degree from the University of Utah School of Law.
Henry Y.L. Toh, Director of the Company. Mr. Toh was elected by the
Board of Directors as a Class II Director and as Vice Chairman of the Board of
Directors in March 1992. Mr. Toh was elected President of the Company in May
1993, Acting Chief Financial Officer in September 1995 and Chairman of the
Board in May 1996, and served as such through September 1996. Mr. Toh is a
Director of Four M. International, Ltd. Mr. Toh served as a senior tax manager
in international taxation and mergers and acquisitions with KPMG Peat Marwick
from March 1980 to February 17, 1992. He is a graduate of Rice University.
R. Huston Babcock, M.D., Neurosurgeon and Director of the Company.
Dr. Babcock served as Chairman of the Board of Directors of the Company from
its inception in April 1983 until March 1992. He was President of the Company
from inception until November 1987. He was Medical Director of the Company
from November 1987 to February 1993. Dr. Babcock is a neurosurgeon and has
been engaged in the full-time private practice of medicine on the West Coast
of Florida since 1960.
Joseph A. Cohen, President of investment firm and Director of the
Company. Mr. Cohen was appointed a Class II Director of the Company in
September 1996 as the designee of Commonwealth. He has been the Chairman,
Chief Executive Officer and director of New Frontier Entertainment, Inc. ("New
Frontier") since its formation in May 1995 and held the same positions since
January 1993 in New Frontier's predecessor company, The Frondelle Company,
Inc. He is also President of Leslie Group, Inc., a diversified company with
holdings primarily in the music, film, home video and other entertainment-
oriented businesses. The Leslie Group is a limited partner of Commonwealth
Associates Management Corp., a limited partnership which is the parent of
Commonwealth. He is also a Founder and President of Leslie/Linton
Entertainment Inc., a merchant banking company that provides investment
24
<PAGE>
funds and assists in raising capital and debt for companies. Mr. Cohen also
serves as President of Pickwick Communications, Inc., an independent music
publishing company. From 1977 to 1986, Mr. Cohen served as Executive Vice
President of the National Association of Recording Merchandisers, Inc., and
Founder and Executive Vice President of Video Software Dealers Association,
Inc., trade associations representing all segments of the recorded music and
home video industries, respectively.
Robert W. Edwards, Jr., Vice President of Operations of I-Link. Mr.
Edwards was appointed Vice President of Operations of I-Link in January 1997.
From its inception in March 1996 to January 1997, Mr. Edwards served as
President and a Director of FTI. From 1984 through 1993, Mr. Edwards was a
partner in ONE-2-ONE Communications, a telecommunications reseller for the
southwest region of the United States. He received his B.S. Degree in
Computer Science from the University of Utah in 1976.
Each officer of the Company is chosen by the Board of Directors and
holds his or her office until his or her successor shall have been duly chosen
and qualified or until his or her death or until he or she shall resign or be
removed as provided by the By-Laws.
There are no material proceedings to which any director, officer or
affiliate of the Company, any owner of record or beneficially of more than
five percent of any class of voting securities of the Company, or any
associate of any such director, officer, affiliate of the Company or security
holder is a party adverse to the Company or any of its subsidiaries or has a
material interest adverse to the Company or any of its subsidiaries.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") requires the Company's officers and directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership of
equity securities of the Company with the Securities and Exchange Commission
("SEC"). Officers, directors, and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file.
Based solely upon a review of Forms 3 and Forms 4 furnished to the
Company pursuant to Rule 16a-3 under the Exchange Act during its most recent
fiscal year and Forms 5 with respect to its most recent fiscal year, the
Company believes that all such forms required to be filed pursuant to Section
16(a) of the Exchange Act were timely filed, as necessary, by the officers,
directors, and security holders required to file the same during the fiscal
year ended December 31, 1996, except that reports were filed late by the
following persons: John W. Edwards, 3 transactions; Clay Wilkes, 3
transactions; Karl S. Ryser, Jr., 1 transaction; Alex Radulovic, 3
transactions; William H. Flury, 3 transactions; Joseph A. Cohen, 2
transactions; I-Link, Ltd., 1 transaction. In addition, the Company has
received no copies of Forms 3, 4 or 5 for the following persons relating to
the following number of transactions: Benchmark, 6 transactions; or
Commonwealth, 5 transactions.
Committees of the Board of Directors
Audit Committee. The Company's audit committee (the "Audit
Committee") is responsible for making recommendations to the Board of
Directors concerning the selection and engagement of the
25
<PAGE>
Company's independent certified public accountants and for reviewing the scope
of the annual audit, audit fees, and results of the audit. The Audit Committee
also reviews and discusses with management and the Board of Directors such
matters as accounting policies and internal accounting controls, and
procedures for preparation of financial statements. Henry Y.L. Toh, Chairman
of the Audit Committee, Clay Wilkes and Joseph A. Cohen are members of the
Audit Committee. The Audit Committee held one meeting during the last fiscal
year.
Compensation Committee. The Company's compensation committee (the
"Compensation Committee") approves the compensation for executive employees of
the Company. Dr. R. Huston Babcock, Chairman of the Compensation Committee,
John W. Edwards, and Joseph A. Cohen are members of the Compensation
Committee. The Compensation Committee held one meeting during the last fiscal
year.
Finance Committee. The Company's finance committee (the "Finance
Committee") is responsible for reviewing and evaluating financing, strategic
business development and acquisition opportunities. Joseph A. Cohen, Chairman
of the Finance Committee, Clay Wilkes and John W. Edwards are members of the
Finance Committee. The Finance Committee held one meeting during the last
fiscal year.
The Company has no nominating committee or any committee serving a
similar function.
Item 10. Executive Compensation.
The following table sets forth the aggregate cash compensation paid
for services rendered to the Company during the last three years by each
person serving as the Company's Chief Executive Officer during the last year
and the Company's three most highly compensated executive officers serving at
the end of the year ended December 31, 1996 whose compensation was in excess
of $100,000.
26
<PAGE>
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------- --------------------------- ------------
Securities
Other Restricted Underlying All Other
Name and Annual Stock Options/ LTIP Compensa
Principal Position Year Salary($) Bonus($) Compensation($) Awards($) SARs(#) Payouts($) tion($)
- ------------------- ------ ---------- ----------- ---------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry Y.L. Toh/1/ 1996 55,802 0 837/2/ 0/3/ 173,501 0 N/A
President and CEO 1995 58,051 0 225/2/ 0 11,167 0 N/A
1994 54,362 0 815/2/ 0 1,167 0 N/A
John W. Edwards/4/ 1996 101,663/4/ 0 0 0 1,250,000/5/ 0 N/A
President and CEO 1995 -- -- -- -- -- -- --
1994 -- -- -- -- -- -- --
Karl S. Ryser, Jr./6/ 1996 41,665/6/ 0 0 0 250,000 0 N/A
Treasurer and 1995 -- -- -- -- -- -- --
CFO 1994 -- -- -- -- -- -- --
William H. Flury/7/ 1996 91,667/7/ 0 0 0 250,000/8/ 0 N/A
Vice President, 1995 -- -- -- -- -- -- --
Sales and 1994 -- -- -- -- -- -- --
Marketing of I-
Link
</TABLE>
- ---------------
1 Mr. Toh began his employment with the Company in April 1992 and was
appointed President and CEO in May 1993 and served as such through
September 30, 1996.
2 Represents Company contributions to 401(k) plan on behalf of Mr. Toh.
3 None of Mr. Toh, Mr. Edwards, Mr. Ryser or Mr. Flury had restricted stock
holdings at the end of the last year.
4 Mr. Edwards began his employment with I-Link in April 1996 and was
appointed President and CEO as of September 30, 1996; his annual salary was
$175,000 from April to August 21, 1996 and was $96,000 for the balance of
the fiscal year. See "--Employment Agreements."
5 Excludes warrants to purchase 25,000 shares of Common Stock at an exercise
price of $4.875 per share issued in connection with a bridge loan. See
"Item 12. Certain Relationships and Related Transactions."
6 Mr. Ryser began his employment with I-Link in September 1996; his annual
salary during the 1996 fiscal year was $125,000. See "--Employment
Agreements."
7 Mr. Flury began his employment with I-Link in May 1996; his annual salary
during the 1996 year was $137,500 per year. See "--Employment Agreements."
8 Excludes warrants to purchase 5,000 shares of Common Stock at an exercise
price of $2.50 per share issued in connection with a bridge loan. See "Item
12. Certain Relationships and Related Transactions."
27
<PAGE>
Option/SAR Grants in Last Fiscal Year (1996)
The following table sets forth certain information with respect to the
options granted during the year ended December 31, 1996, for the persons named
in the Summary Compensation Table (the "Named Executive Officers"):
<TABLE>
<CAPTION>
Number of Securities Percent of Total
Underlying Options/SARs Granted Exercise
Options/SARs Granted to or Base
Name (#) Employees in Fiscal Year Price ($/Sh) Expiration Date
- ------------------ ---------------------- -------------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Henry Y.L. Toh 150,000 3.5% $1.125 2/3/2006
10,000 *% 1.000 1/1/2006
John W. Edwards/1/ 1,000,000 23.1% 7.000 4/8/2006
250,000 5.8% 4.875 8/21/2006
Karl S. Ryser, Jr. 250,000 5.8% 4.410 10/15/2006
William H. Flury/2/ 250,000 5.8% 4.410 10/15/2006
</TABLE>
- --------------------------
* Less than 1%.
/1/ Does not include warrants to purchase 25,000 shares of Common Stock at
an exercise price of $4.875 issued in connection with a bridge loan.
See "Management--Certain Relationships and Related Transactions."
/2/ Does not include warrants to purchase 5,000 shares of Common Stock at
an exercise price of $2.50 in connection with a bridge loan. See
"Management--Certain Relationships and Related Transactions."
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table sets forth certain information with respect to
options exercised during 1996 by the Named Executive Officers and with respect
to unexercised options held by such persons at the end of 1996.
<TABLE>
<CAPTION>
Shares
Acquired Number of Securities Value of Unexercised in the
On Exercise Value Underlying Unexercised Money Options/SARs at
Name (#) Realized ($) Options/SARs at FY-End (#) FY-End ($)/1/
- ----------------- ------------- ------------- ------------------------------- ----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Henry Y.L. Toh 0 0 173,501 0 581,919 0
John W. Edwards 0 0 416,666 833,334 N/A N/A
Karl S. Ryser, Jr. 0 0 25,000 225,000 N/A N/A
William H. Flury 0 0 0 250,000 N/A N/A
</TABLE>
- --------------------------
/1/ The calculations of the value of unexercised options are based on the
difference between the closing bid price on NASDAQ of the Common Stock
on December 31, 1996, and the exercise price of each option, multiplied
by the number of shares covered by the option.
Director Compensation
During 1996, Directors of the Company then serving received options to
purchase 10,000 shares of Common Stock on the first business day of January at
an exercise price equal to the fair market value of the Common Stock on the date
of grant. Mr. Cohen received options to purchase 64,000 shares of Common Stock
upon his appointment to the Board. Effective February 6, 1997, and the first
business day of January of each year thereafter, each Director then serving will
receive options to purchase 10,000
28
<PAGE>
shares of Common Stock and, for each committee on which the Director serves,
options to purchase 5,000 shares of Common Stock. The exercise price of such
options shall be equal to the fair market value of the Common Stock on the date
of grant. The Directors are also eligible to receive options under the Company's
stock option plans at the discretion of the Board of Directors.
Employment Agreements
In February 1996, the Company entered into two-year employment agreements
with Henry Y.L. Toh, then President and Chief Executive Officer; Dorothy Michon,
Vice President, Operations; and Stephanie Giallourakis, Controller and then
Secretary. The employment agreements are each for an initial period ending on
December 31, 1997 and are automatically renewable for successive one-year
periods unless written notice to the contrary is given by the Company not less
than 120 days prior to expiration of the term. Pursuant to the terms of the
employment agreements, each such officer is required to devote such of his or
her time to the business and affairs of the Company as is required to fulfill
the duties and responsibilities of his or her office. Mr. Toh is entitled under
his employment agreement to receive compensation at the rate of $54,000 per
year. Ms. Michon is entitled to compensation at the rate of $63,000, and Ms.
Giallourakis is entitled to compensation at the rate of $53,000 per year. Each
such officer is entitled to an annual bonus at the discretion of the Board of
Directors and may participate in fringe benefits, deferred compensation, stock
benefits and option plans of the Company. In the event of termination of his
employment by the Company other than for "cause" (as defined in the agreement)
or by Mr. Toh upon "good reason" (as defined in the agreement), the Company is
required to pay Mr. Toh, as liquidated damages or severance pay, monthly
termination payments equal to the base salary in effect for a period of six
months after such termination and, with respect to Ms. Michon and Ms.
Giallourakis, each such officer is entitled to monthly termination payments
equal to the base salary for periods of three months after any such termination.
Each of the employment agreements contains confidentiality and non-solicitation
provisions.
I-Link entered into three-year employment agreements on February 21, 1996
with each of Clay Wilkes, Chairman of the Board, and Alex Radulovic, senior
engineer of I-Link. Under his employment agreement, Mr. Wilkes is employed at a
salary of $95,000 per annum, subject to adjustment upon satisfaction of
performance criteria. Under his employment agreement, Mr. Radulovic is employed
at a salary of $90,000 per annum, subject to adjustment upon satisfaction of
performance criteria. In the event of termination by the Company not involving
"Just Cause" (as defined in the agreement), or upon a material breach by the
Company which is unremedied for 30 days after written notice, each of Mr. Wilkes
and Mr. Radulovic is entitled to receive, as liquidated damages or severance
pay, an amount equal to the Monthly Compensation (as defined in the agreement)
for the remaining term of the Agreement and, in addition, all options shall vest
and all Common Stock of Medcross held in escrow shall be released. Each of the
agreements contain non-competition and confidentiality provisions. On July 1,
1996, the Company approved the grant of options to purchase 1,500,000 and
500,000 shares of Common Stock at $7.00 per share for five years, to Messrs.
Wilkes and Radulovic, respectively. To the extent vested, the options may be
exercised commencing June 30, 1997. The options vest on June 30, 2001; provided
however, that vesting will accelerate in 25% increments at such time as the
average closing bid price of a share of Common Stock equals or exceeds $10, $15,
$20 and $25, respectively.
On April 8, 1996, subject to the approval of the I-Link Board of
Directors, I-Link entered into a three-year employment agreement with John W.
Edwards, President, Chief Executive Officer and Director of the Company.
Pursuant to the terms of the employment agreement, Mr. Edwards was
29
<PAGE>
employed as the Chief Executive Officer and a Director of I-Link, and is
required to devote substantially all of his working time to the business and
affairs of I-Link. Mr. Edwards is entitled under his employment agreement to
receive compensation at the rate of $175,000 per year and is entitled to a
profitability bonus in the discretion of the I-Link Board of Directors and to
participate in fringe benefits of the Company as are generally provided to
executive officers. In addition, Mr. Edwards is entitled to receive an option to
purchase one million shares of Common Stock of Medcross, Inc. at an exercise
price of $7.00. Of such options, 83,333 vested immediately and 83,333 vest and
become exercisable on the first calendar day of each quarter after April 8,
1996. In the event of termination by I-Link or in the event of a violation of a
material provision of the agreement by I-Link which is unremedied for thirty
(30) days and after written notice or in the event of a "Change in Control" (as
defined in the agreement), Mr. Edwards is entitled to receive, as liquidated
damages or severance pay, an amount equal to the Monthly Compensation (as
defined in the agreement) for the remaining term of the agreement. The agreement
contains non-competition and confidentiality provisions. Mr. Edwards agreed to
amend his contract, effective August 21, 1996, to reduce his annual salary from
$175,000 to $96,000; and in consideration of the salary reduction, the Company
has agreed to grant him options to purchase 250,000 shares of Common Stock at an
exercise price of $4.875 per share.
In October 1996, I-Link entered into three-year employment agreements with
Karl S. Ryser, Jr., Treasurer and Chief Financial Officer of the Company, and
with William H. Flury, I-Link's Vice President, Sales and Marketing. Pursuant to
the terms of the employment agreements, each such officer is required to devote
all of his time to the business and affairs of the Company except for vacations,
illness or incapacity. Mr. Ryser is entitled under his employment agreement to
receive compensation at the rate of $125,000 per year and a bonus in the sole
discretion of the Chief Executive Officer and Mr. Flury is entitled to
compensation at the rate of $137,500 per year and a bonus commensurate with his
performance and that of I-Link. Each such employee may participate in fringe
benefits, deferred compensation, stock benefits and option plans of the Company.
In addition, each of Mr. Ryser and Mr. Flury is entitled to options to purchase
250,000 shares of Common Stock exercisable at an exercise price equal to the
closing bid price on the date of the employment agreement. Options issuable to
Mr. Ryser to purchase 25,000 shares vest immediately and the remaining options
will vest in quarterly increments of 20,455 commencing January 1, 1997. Options
issuable to Mr. Flury to purchase 41,666 shares vest six months from the date of
the employment agreement and the remaining options will vest in quarterly
increments of 20,833. In the event of a change of control or upon termination of
the employment agreement by the Company without cause all options shall
thereupon be fully vested and immediately exercisable. In the event of
termination by the Company other than for "cause" (as defined in the agreement),
the Company is required to pay Mr. Ryser or Mr. Flury, as the case may be, a
lump sum severance payment equal to one year's then current salary. Each of the
employment agreements contains confidentiality and non-competition provisions.
Consulting Agreements
The Company is a party to a consulting agreement for the period beginning
January 1, 1996 and ending December 31, 1998 with Windy City, Inc. Joel Kanter,
a director of the Company until July 30, 1996, is the President and a director
of Windy City, Inc. Pursuant to such agreement, Windy City, Inc. was engaged to
provide such consulting services as the Company may request in exchange for
compensation at the rate of $6,250 per calendar quarter.
30
<PAGE>
The Company entered into a Consulting Agreement for the three-month period
ended October 23, 1995 with Bijan Taghavi, formerly an officer and director of
the Company. Pursuant to such agreement, Mr. Taghavi was engaged to provide such
consulting services as requested by the Company in exchange for compensation at
the rate of $5,208 per month. Mr. Taghavi's consulting agreement contains
certain mutual release, non-competition and confidentiality provisions.
The Company entered into a consulting agreement with Timothy R. Barnes,
formerly an officer of the Company (the "Barnes Agreement"), which agreement
expired February 6, 1996. The Barnes Agreement provided for the issuance to Mr.
Barnes of warrants to purchase 36,858 shares of Common Stock exercisable at a
purchase price equal to the fair market value of the Common Stock at the date of
grant. The shares of Common Stock were included in a registration statement on
Form S-8. The Barnes Agreement also contained standard non-competition and
confidentiality provisions.
The Company entered into a Consulting Agreement with David E. Hardy
effective February 6, 1997 and for a term of 36 months thereafter. Pursuant to
the Agreement, Mr. Hardy shall provide legal services to the Company in exchange
for compensation at the rate of $10,417 per month for the term of the Agreement.
In addition, in the event the Company increases the salary of its senior-level
vice presidents, the consulting fee shall be equally increased and in the event
the Company shall pay any company performance-based bonuses to its senior level
vice presidents, the Company shall pay an equal amount to Mr. Hardy. In
addition, Mr. Hardy was granted options to purchase 250,000 shares of the
Company's Common Stock at an exercise price equal to the closing price of the
Company's publicly traded shares as of the effective date of the Agreement
($5.375 per share). The options vest as to 47,500 shares upon the execution of
the Agreement and options relating to 20,250 shares shall vest at the
commencement of each calendar quarter for ten quarters, with the first quarterly
vesting to occur on April 1, 1997 and the final quarterly vesting to occur July
1, 1999. In the event of the termination of the Agreement prior to the
expiration of the full term for any reason other than as a result of a material,
unremedied breach by Mr. Hardy which remains uncured following 30 days written
notice, Mr. Hardy is entitled to a lump sum payment equal to the lesser of the
monthly consulting fee payable through the end of the term of the Agreement or
the monthly consulting fee payable over 12 months and all unvested options shall
accelerate and immediately become fully vested and exercisable.
Director Stock Option Plan
The Company's Director Stock Option Plan (the "DSOP") authorizes the grant
of stock options to directors of the Company. Options granted under the DSOP are
non-qualified stock options exercisable at a price equal to the fair market
value per share of Common Stock on the date of any such grant.
31
<PAGE>
Options granted under the DSOP are exercisable not less than six (6) months nor
more than ten (10) years after the date of grant.
As of December 31, 1996, options for the purchase of 8,169 shares of
Common Stock at prices ranging from $.875 to $3.875 per share were outstanding.
As of December 31, 1996, options to purchase 15,228 shares of Common Stock have
been exercised. In connection with adoption of the 1995 Director Plan (as
hereinafter defined) the Board of Directors authorized the termination of future
grants of options under the DSOP; however, outstanding options granted under the
DSOP will continue to be governed by the terms thereof until exercise or
expiration of such options.
Stock Purchase Plan
In accordance with the Employee Qualified Stock Purchase Plan (the
"Purchase Plan"), employees may contribute up to ten percent of their base wages
toward the purchase of Common Stock. The exercise price of options granted under
the Purchase Plan is the lesser of 85% of the market value on the first business
day of the payment period (September 1) or the last business day of the payment
period (August 31). As of December 31, 1996, the Company had 35,146 shares of
Common Stock reserved for issuance on exercise of the purchase rights granted
under the Purchase Plan.
1995 Director Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Director Stock Option and Appreciation Rights Plan, which plan
provides for the issuance of incentive options, non-qualified options and stock
appreciation rights (the "1995 Director Plan").
The 1995 Director Plan provides for automatic and discretionary grants of
stock options which qualify as incentive stock options (the "Incentive Options")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as options which do not so qualify (the "Non-Qualified Options") to be
issued to directors. In addition, stock appreciation rights (the "SARs") may be
granted in conjunction with the grant of Incentive Options and Non-Qualified
Options. No SARs have been granted to date.
The 1995 Director Plan provides for the grant of Incentive Options, Non-
Qualified Options and SARs to purchase up to 250,000 shares of Common Stock
(subject to adjustment in the event of stock dividends, stock splits and other
similar events). To the extent that an Incentive Option or Non-Qualified Option
is not exercised within the period of exercisability specified therein, it will
expire as to the then-unexercised portion. If any Incentive Option, Non-
Qualified Option or SAR terminates prior to exercise thereof and during the
duration of the 1995 Director Plan, the shares of Common Stock as to which such
option or right was not exercised will become available under the 1995 Director
Plan for the grant of additional options or rights to any eligible employees.
The shares of Common Stock subject to the 1995 Director Plan may be made
available from either authorized but unissued shares, treasury shares, or both.
The 1995 Director Plan also provides for the grant of Non-Qualified
Options on a non-discretionary basis pursuant to the following formula: each
member of the Board of Directors then serving shall receive a Non-Qualified
Option to purchase 10,000 shares of Common Stock at an exercise price equal to
the fair market value per share of the Common Stock on that date. Pursuant to
such formula, directors received options to purchase 10,000 shares of Common
Stock as of October 17, 1995,
32
<PAGE>
options to purchase 10,000 shares of Common Stock on January 2, 1996, and will
receive options to purchase 10,000 shares of Common Stock on the first business
day of each January. Each option is immediately exercisable for a period of ten
years from the date of grant. The Company has 250,000 shares of Common Stock
reserved for issuance under the 1995 Director Plan. As of December 31, 1996,
options exercisable to purchase 190,000 shares of Common Stock at prices ranging
from $1.00 to $1.25 per share are outstanding under the 1995 Director Plan. As
of December 31, 1996, options to purchase 40,000 shares have been exercised
under the 1995 Director Plan.
1995 Employee Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Employee Stock Option and Appreciation Rights Plan (the "1995
Employee Plan"), which plan provides for the issuance of Incentive Options, Non-
Qualified Options and SARs.
Directors of the Company are not eligible to participate in the 1995
Employee Plan. The 1995 Employee Plan provides for the grant of stock options
which qualify as Incentive Stock Options under Section 422 of the Code, to be
issued to officers who are employees and other employees, as well as Non-
Qualified Options to be issued to officers, employees and consultants. In
addition, SARs may be granted in conjunction with the grant of Incentive Options
and Non-Qualified Options. No SARs have been granted to date.
The 1995 Employee Plan provides for the grant of Incentive Options, Non-
Qualified Options and SARs of up to 400,000 shares of Common Stock (subject to
adjustment in the event of stock dividends, stock splits and other similar
events). To the event that an Incentive Option or Non-Qualified Option is not
exercised within the period of exercisability specified therein, it will expire
as to the then-unexercised portion. If any Incentive Option, Non-Qualified
Option or SAR terminates prior to exercise thereof and during the duration of
the 1995 Employee Plan, the shares of Common Stock as to which such option or
right was not exercised will become available under the 1995 Employee Plan for
the grant of additional options or rights to any eligible employee. The shares
of Common Stock subject to the 1995 Employee Plan may be made available from
either authorized but unissued shares, treasury shares, or both. The Company has
400,000 shares of Common Stock reserved for issuance under the 1995 Employee
Plan. As of December 31, 1996, options to purchase 400,000 shares of Common
Stock with exercise prices of $1.125 to $6.75 per share have been granted under
the 1995 Employee Plan. As of December 31, 1996, no options have been exercised
under the 1995 Employee Plan.
1997 Recruitment Stock Option Plan
In February 1997, the Board of Directors of the Company approved adoption
of the Company's 1997 Recruitment Stock Option and Appreciation Rights Plan,
subject to stockholder approval, which plan provides for the issuance of
incentive options, non-qualified options and stock appreciation rights (the
"1997 Plan").
The 1997 Plan provides for automatic and discretionary grants of stock
options which qualify as incentive stock options (the "Incentive Options") under
Section 422 of the Code, as well as options which do not so qualify (the "Non-
Qualified Options") to be issued to directors. In addition, stock appreciation
rights (the "SARs") may be granted in
33
<PAGE>
conjunction with the grant of Incentive Options and Non-Qualified Options. No
SARs have been granted to date.
The 1997 Plan provides for the grant of Incentive Options, Non-Qualified
Options and SARs to purchase up to 4,400,000 shares of Common Stock (subject to
adjustment in the event of stock dividends, stock splits and other similar
events). To the extent that an Incentive Option or Non-Qualified Option is not
exercised within the period of exercisability specified therein, it will expire
as to the then-unexercised portion. If any Incentive Option, Non-Qualified
Option or SAR terminates prior to exercise thereof and during the duration of
the 1997 Plan, the shares of Common Stock as to which such option or right was
not exercised will become available under the 1997 Plan for the grant of
additional options or rights to any eligible employees. The shares of Common
Stock subject to the 1997 Plan may be made available from either authorized but
unissued shares, treasury shares, or both. As of December 31, 1996, there were
no options outstanding under the 1997 Plan.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The Common Stock constitutes the only voting securities of the Company.
Each share of Class B Preferred Stock is convertible, at the option of the
holder thereof, into approximately 24.47 shares of Common Stock, subject to
adjustment upon the occurrence of certain events. Each share of Class C
Preferred Stock is convertible, at the option of the holder thereof, into such
number of shares of the Company's Common Stock as shall equal $60 divided by the
lower of (i) $2.50 or (ii) the closing bid price for any five consecutive
trading days during the period commencing on September 6, 1996 and ending on
March 5, 1998. The table below sets forth information, to the best of the
Company's knowledge, with respect to the total number of shares of the Company's
Common Stock, Class B Preferred Stock and Class C Preferred Stock beneficially
owned by each director, the Named Executive Officers, each beneficial owner of
more than five percent of the Common Stock, and all directors and executive
officers as a group, as reported by each such person, as of March 11, 1997. On
that date, there were 11,607,597 shares of the Company's Common Stock issued and
outstanding, no shares of the Company's Class A Preferred Stock issued and
outstanding, 7,500 shares of the Company's Class B Preferred Stock issued and
outstanding, and 240,000 shares of the Company's Class C Preferred Stock issued
and outstanding.
<TABLE>
<CAPTION>
% of Outstanding
Name and Address Number of Shares Shares of Common Stock
of Beneficial Owner /(1)/ Title of Class Beneficially Owned Beneficially Owned/(2)/
- --------------------------------- ---------------- ------------------ ------------------------
<S> <C> <C> <C>
Four M International, Ltd./(3)/ Common Stock 3,772,832/(4)/ 32.5%
1980 Post Oak Boulevard
Houston, TX 77056
I-Link, Ltd./(5)/ Common Stock 1,925,141 16.6%
c/o Clay Wilkes
2100 E. Bengal Blvd. #M104
Salt Lake City, UT 84121
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
% of Outstanding
Name and Address Number of Shares Shares of Common Stock
of Beneficial Owner /(1)/ Title of Class Beneficially Owned Beneficially Owned/(2)/
- --------------------------------- ---------------- ------------------ ------------------------
<S> <C> <C> <C>
Clay Wilkes/(6)/ Common Stock 3,713,344/(7)/ 31.9%
2100 E. Bengal Blvd. #M104
Salt Lake City, UT 84121
Benchmark Equity Group Inc. Common Stock 2,099,174/(10)/ 17.9%
700 Gemini Class C Preferred 752
Houston, TX 77058 Stock
R. Huston Babcock, M.D. Common Stock 682,173/(11)/ 5.6%
741 12th Street North Class B Preferred 7,500
St. Petersburg, FL 33705 Stock
Henry Y.L. Toh/(3)/ Common Stock 188,501/(12)/ 1.6%
3227 Bennet Street North
St. Petersburg, FL 33713
John W. Edwards Common Stock 711,665/(13)/ 5.8%
13751 S. Wadsworth Park Drive
Draper, UT 84020
T6-G Limited Partnership/(8)/ Common Stock 720,083/(9)/ 6.1%
185 South State Street Class C Preferred 7,133
Salt Lake City, UT Stock
William A. Baquet Common Stock 785,284/(14)/ 6.8%
33 Libby Avenue
Hicksville, NY 11801
Commonwealth Associates Common Stock 1,911,392/(15)/ 15.4%
733 Third Avenue Class C Preferred 3,750
Suite 700 Stock
New York, NY 10017
Alex Radulovic/(16)/ Common Stock 769,824/(17)/ 6.6%
13751 S. Wadsworth Park Drive
Draper, UT 84020
Joseph A. Cohen Common Stock 121,000/(18)/ 1.0%
1370 Avenue of the Americas Class C Preferred 3,000
New York, NY 10019 Stock
Karl S. Ryser, Jr. Common Stock 65,910/(12)/ *
13751 S. Wadsworth Park Drive
Draper, UT 84020
William H. Flury Common Stock 105,650/(19)/ *
13751 S. Wadsworth Park Drive Class C Preferred 2,666
Draper, UT 84020 Stock
David E. Hardy Common Stock 71,750/(12)/ *
60 East South Temple
Salt Lake City, UT 84111
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
% of Outstanding
Name and Address Number of Shares Shares of Common Stock
of Beneficial Owner /(1)/ Title of Class Beneficially Owned Beneficially Owned/(2)/
- --------------------------------- ---------------- ------------------ ------------------------
<S> <C> <C> <C>
All Executive Officers and Common Stock 5,712,851/(20)/ 43.4%
Directors as a Group (9 Persons) Class C Preferred 5,666
Stock
</TABLE>
________________________________
* Represents less than 1%.
(1) Unless noted, all of such shares are owned of record by each person or
entity named as beneficial owner and such person or entity has sole
voting and dispositive power with respect to the shares of Common Stock
owned by each of them.
(2) As to each person or entity named as beneficial owners, such person or
entity's percentage of ownership is determined by assuming that any
options or convertible securities held by such person or entity which
are exercisable or convertible within 60 days from the date hereof have
been exercised or converted, as the case may be. Does not give effect
to the agreement of certain holders of outstanding options not to
exercise such options pending shareholder approval of an increase in
the authorized capital stock of the Company.
(3) Mr. Toh, a director of the Company and one of two directors of Four M,
has disclaimed beneficial ownership of the shares of the Common Stock
owned by Four M. See Footnote 4.
(4) Represents the number of shares of Common Stock owned by the noted
shareholder. As set forth hereinbelow, Four M has granted certain
options exercisable commencing July 1, 1996 (subject to the
satisfaction of certain conditions) to purchase 3,722,832 shares of
Common Stock. Commonwealth and affiliates or associates thereof have
the right to purchase 224,187 shares of Common Stock prior to September
6, 1997 and 270,696 shares of Common Stock prior to December 31, 1997.
Benchmark Equity Group, Inc. ("Benchmark") has the right to purchase
514,559 shares of Common Stock prior to September 6, 1997 and 537,500
shares prior to December 31, 1997. Certain members of management of I-
Link and/or the Company have the right to purchase 825,000 shares of
Common Stock prior to September 6, 1997 and 825,000 shares prior to
December 31, 1997.
(5) GNET Enterprises, Inc. ("GNET") is the General Partner of I-Link, Ltd.
and Clay Wilkes, a director of the Company, is the sole shareholder of
GNET.
(6) I-Link, Ltd., a limited partnership, owns an aggregate 1,925,141 shares
of Common Stock. The Company has been informed that Mr. Wilkes may be
deemed to indirectly beneficially own the 1,925,141 shares owned by I-
Link, Ltd.
(7) Includes the 1,925,141 shares of Common Stock held of record by I-Link,
Ltd. See previous footnote. Also includes 780,000 shares of Common
Stock purchasable upon exercise of an option exercisable commencing on
July 1, 1996 granted by Four M and options to purchase 20,000 shares of
Common Stock issuable by the Company. Excludes an option granted by the
Company on July 1, 1996 to purchase 1,500,000 shares of Common Stock at
an exercise price of $7.00 per share, vesting in 25% increments in the
event that the average closing bid price of a share of the Company's
Common Stock for five consecutive trading days exceeds $10, $15, $20
and $25, respectively. Such option becomes exercisable (to the extent
vested) on June 30, 1997, vests in its entirety on June 30, 2001 and
lapses on June 30, 2002. Of the shares owned, 30,000 have been pledged
to secure the repayment of loans in the principal amount of $90,000
made in March 1997. The loans bear interest at the rate of 8% per annum
and are due and payable on or before September 30, 1997 at the
discretion of the payee in cash or the shares of Common Stock.
(8) I-Link, Ltd., a limited partnership, owns an aggregate 1,925,141 shares
of Common Stock. The Company has been informed that T6-G Limited
Partnership may be deemed to indirectly beneficially own 548,891 of the
shares owned by I-Link, Ltd.
(9) Includes 548,891 shares of Common Stock held of record by I-Link, Ltd.
See previous footnote. Also includes 171,192 shares of Common Stock
which are issuable upon conversion of 7,133 shares of Class C Preferred
Stock.
(10) Includes 761,570 shares of Common Stock and 91,771 shares of Common
Stock issuable upon conversion 3,750 shares of Class B Preferred Stock
subject of an option exercisable commencing July 1, 1996 granted by R.
Huston Babcock to the noted shareholder and 30,726 shares issued, and
an additional 1,052,059 shares of Common Stock which may be purchased,
upon exercise of an option exercisable commencing July 1, 1996 granted
by Four M to the noted shareholder. Also includes (a) 18,048 shares of
Common Stock issuable upon conversion of 752 shares of Class C
Preferred Stock, and (b) 145,000 shares of Common Stock, all of which
163,048 shares are beneficially owned by Trident I, LLC, of which the
noted shareholder is the manager with the power to exercise investment,
dispositive and voting control.
(11) Includes: (a) 183,542 shares of Common Stock into which the 7,500
shares of Class B Preferred Stock owned by the noted stockholder are
convertible; and (b) 38,501 shares of Common Stock issuable pursuant to
options exercisable
36
<PAGE>
within 60 days of the date hereof. 91,771 of the shares of Common Stock
issuable upon conversion of such shares of the Class B Preferred Stock
are subject to an option granted by the noted stockholder to Benchmark.
(12) Represents 4,000 shares of Common Stock and 67,750 shares issuable
pursuant to options exercisable within 60 days of the date hereof.
(13) Includes 416,665 shares of Common Stock subject to the vested portion
of Mr. Edwards' option to purchase 1,000,000 shares of Common Stock.
Also includes 295,000 shares of Common Stock subject to options held by
Mr. Edwards, and 25,000 shares of Common Stock subject to a warrant
held by Mr. Edwards. See "Executive Compensation--Employment
Agreements" and "Certain Relationships and Related Transactions."
(14) Includes 15,503 shares of Common Stock issued and 525,890 shares
issuable pursuant to options exercisable commencing July 1, 1996
granted by Four M and 243,891 Kanter Shares.
(15) Includes 46,509 shares issued and an additional 494,883 shares of
Common Stock issuable pursuant to options exercisable commencing July
1, 1996 granted by Four M to Commonwealth and 530,000 shares of Common
Stock owned by certain affiliates and control persons of the named
shareholder. Also includes 750,000 shares of Common Stock subject to
warrants held by the named stockholder and 90,000 shares of Common
Stock issuable upon conversion of 3,750 shares of Class C Preferred
Stock which are held by certain affiliates of the named stockholder.
Does not include shares of Common Stock which may be held by
Commonwealth from time to time in its trading account in connection
with ordinary market-making activities.
(16) I-Link, Ltd., a limited partnership, owns 1,925,141 shares of Common
Stock. The Company has been informed that Mr. Radulovic may be deemed
to indirectly beneficially own 269,824 of the shares owned by I-Link,
Ltd.
(17) Includes 269,824 shares of Common Stock held of record by I-Link, Ltd.
See previous footnote. Also includes 500,000 shares of Common Stock
issuable pursuant to options exercisable commencing July 1, 1996
granted by Four M but excludes an option granted by the Company on July
1, 1996, to purchase 500,000 shares of Common Stock at an exercise
price of $7.00 per share, vesting in 25% increments in the event that
the average closing bid price of a share of the Company's Common Stock
for five consecutive trading days exceeds $10, $15, $20 and $25,
respectively. Such option becomes exercisable (to the extent vested) on
June 30, 1997, vests in its entirety on June 30, 2001 and lapses June
30, 2002.
(18) The Company has agreed to issue options to purchase 64,000 shares of
Common Stock to Mr. Cohen, to be exercisable at the fair market value
thereof on September 30, 1996. Of such options, 24,000 shall vest and
become exercisable immediately upon grant, 20,000 shall vest and become
exercisable on the first anniversary of the grant, and 20,000 shall
vest and become exercisable on the second anniversary of the grant.
Represents shares to become immediately issuable upon exercise of such
options. Includes an additional 25,000 shares issuable upon exercise of
options issuable to Mr. Cohen and 72,000 Conversion Shares, subject to
adjustment, issuable to the Leslie Group upon conversion of Class C
Preferred Stock. Mr. Cohen is President of the Leslie Group, Inc.,
which is a limited partner of the parent of Commonwealth, and which
holds 3,000 shares of Class C Preferred Stock.
(19) Includes 41,666 shares of Common Stock issuable pursuant to options
exercisable within 60 days of the date hereof and 54,000 shares of
Common Stock issuable upon conversion of 2,666 shares of Class C
Preferred Stock including 500 shares of Class C Preferred Stock held in
the name of Mr. Flury's wife.
(20) Includes 1,140,243 shares of Common Stock which may be obtained
pursuant to options exercisable within 60 days of the date hereof,
183,542 shares of Common Stock into which the 7,500 shares of Class B
Preferred Stock are convertible and 111,984 shares of Common Stock,
into which 4,666 shares of Class C Preferred Stock are convertible.
Also includes 780,000 shares of Common Stock subject of an option
exercisable commencing on July 1, 1996 granted by Four M and 1,925,141
shares owned of record by I-Link, Ltd. (see footnote 5), and excludes
certain unvested options granted by the Company.
Item 12. Certain Relationships and Related Transactions.
During the first quarter of fiscal 1995, the Company received advances
totaling $218,000 from Mortgage Network International ("MNI"). Henry Y.L. Toh, a
Director of the Company, has management control over MNI. Such advances were
previously payable upon demand. Subsequent to the extension of such advances,
the Board of Directors approved delivery of a promissory note representing the
aggregate amount of such advances, which promissory note matured by its terms on
October 1, 1995 and bore interest at one percent over the prime rate of interest
established by Southwest Bank of Texas, N.A. The balance due as of December 31,
1996, was $175,682 which will be discharged as follows: (i) a principal payment
of $88,000 originally due December 31, 1996 will be paid in 21 equal monthly
payments of approximately $4,600 beginning March 10, 1997; and (ii) the
remaining principal amount of $87,682 plus interest at 10.5% per annum will be
paid at the rate of $4,200 per month.
37
<PAGE>
I-Link was a party to a 12-month consulting agreement with Benchmark dated
August 10, 1995 pursuant to which I-Link was obligated to pay $6,000 per month
to Benchmark for consulting services rendered. Those payments accrued and were
deferred pending the Company's attaining stockholder's equity of at least $2.5
million. The sums due were paid and the agreement has not been renewed.
I-Link entered into a consulting agreement with T6-G Limited Partnership
("T6-G") for two years commencing upon the successful completion of at least $4
million in funding. The agreement required the payment of a total of $70,000
payable monthly over 24 months. I-Link discharged the entirety of the sums due
in September 1996 and T6-G designated such sums to be allocated to its purchase
of Class C Preferred Stock.
The Company also entered into two consulting agreements with Jason H.
Pollak, the initial term of one of which expired on January 31, 1996 and the
second of such agreements commenced thereafter. The term of the second agreement
was for a period of three years, subject to earlier termination by the Company.
Pursuant to the terms of the first of such agreements (collectively, the "Pollak
Agreements"), Mr. Pollak received 50,000 shares of Common Stock. The second of
the Pollak Agreements provided Mr. Pollak with an option to purchase up to
50,000 shares of Common Stock each year at prices of $1.50, $2.50 and $3.50,
respectively. The second of the Pollak Agreements was terminated by the Company
on March 5, 1996 (upon thirty days' advance notice which renders such
termination effective April 4, 1996). The shares of Common Stock subject to the
Pollak Agreement have been included in registration
statements on Form S-8.
I-Link was indebted to T6-G in the amount of $300,000, which sums were
repaid in full from the proceeds of the Class C Offering. T6-G owns a 9.5%
interest in I-Link, Ltd.
In January 1996, certain associates and affiliates of Commonwealth
purchased an aggregate of 878,891 shares of Common Stock (the "Kanter Option
Shares") upon conversion of Class A Preferred Stock held by Walnut Capital Corp.
("WCC"), Windy City, Inc. ("WCI") and Canadian Imperial Bank of Commerce Trust
Company (Bahamas) Limited at a cost per share of approximately $0.49. Joel
Kanter, a director of the Company at the time of the transaction, is affiliated
with WCC and WCI.
On February 21, 1996, Four M International, Ltd. ("Four M"), a principal
shareholder of the Company, granted certain options to purchase shares of the
Company owned by Four M exercisable commencing July 1, 1996 (subject to the
satisfaction of certain conditions) to purchase 3,915,570 shares of Common
Stock. Henry Y.L. Toh, a director of the Company, is one of the two directors of
Four M. The exercise price of $1.79 per share represents the lesser of 200% of
the average of the closing bid and ask price per share of Common Stock for the
ten (10) business days preceding July 1, 1996 or $1.79 per share. Commonwealth
and affiliates or associates thereof received the right to purchase 545,285
shares of Common Stock prior to December 31, 1996 and 537,500 shares of Common
Stock prior to December 31, 1997. Benchmark received the right to purchase
545,285 shares of Common Stock prior to December 31, 1996 and 537,500 shares
prior to December 1997. Certain members of management of I-Link, namely, Clay
Wilkes, Floyd Wilkes and Alex Radulovic, have the right to purchase an aggregate
of 825,000 shares of Common Stock prior to December 31, 1996 and 825,000 shares
prior to December 31, 1997. Scott Cook received the right to purchase 100,000
shares prior to December 31, 1996. On February 21, 1996, I-Link agreed to pay an
aggregate of $1,275 to Four M by Mr. Cook on or before July 1, 1996. On April
24, 1996, the Four M Options issued to Mr. Cook were cancelled and options were
issued as of that date by Four M to Mr. Cook (50,000 shares), S.C. Culbreth
(25,000 shares) and John Beardmore (25,000 shares).
In August 1996, the Four M Options were amended to provide that in the
event that $200,000 in principal amount (i.e., exercise proceeds) of the Four M
Options have been exercised prior to December 31, 1996, the exercise period of
the remaining Four M Options exercisable during 1996 (the "1996 Four M Options")
will be extended to September 6, 1997 and the exercise price would be increased
by four percent (4%) of the then current exercise price for each 30 day period
or portion thereof commencing January 1, 1997 in which the remainder of the 1996
Four M Options are not exercised. In December 1996 Four M Options to purchase
the following shares were exercised by the following persons: 25,000 shares by
Scott Cook, 12,500 shares by John Beardmore, 12,500 shares by S.C. Culbreth,
30,726 shares by Benchmark, 46,509 shares by Commonwealth, and 15,503 shares by
William Baquet. Inasmuch as
38
<PAGE>
the aggregate amount exercised exceeded $200,000 in principal amount, the
exercise period of the remaining Four M Options was extended.
The shares of Common Stock owned by Four M are subject of a lockup
agreement with Commonwealth from and after the termination of the option
agreements and until 12 months from September 6, 1996; provided, however, that
to the extent Commonwealth releases more than 300,000 shares in the aggregate on
behalf of any affiliate or associated person of Commonwealth, any officer or
director of the Company or its subsidiaries or Benchmark, Commonwealth shall
release a number of Four M Shares equal to the same percentage as the number of
shares owned by such person. In addition, the Company has been informed that the
holders of the Four M Options have executed lock-up agreements with Commonwealth
for 12 months after September 6, 1996.
On February 21, 1996, R. Huston Babcock, M.D., a director of the Company,
granted certain options (the "Babcock Options") to Benchmark exercisable
commencing July 1, 1996 (subject to the satisfaction of certain conditions) to
purchase 183,542 shares of Common Stock issuable upon conversion of outstanding
Class B Convertible Preferred Stock. The exercise price is equal to the lesser
of 200% at the average of the closing bid and ask price per share of Common
Stock for the ten (10) business days preceding July 1, 1996 or $1.79 per share.
Benchmark received the right to purchase 91,771 shares of Common Stock prior to
December 31, 1996, which options have expired, and the right to purchase 91,771
shares prior to December 1997.
Certain shares of Common Stock owned by Dr. Babcock are subject to a lock-
up agreement with Commonwealth for a period of twelve (12) months from September
6, 1996.
In August 1996, William H. Flury, Vice President, Sales & Marketing of I-
Link, loaned I-Link the sum of $100,000, with $105,000 (including a loan
origination fee of $5,000) due and payable the earlier of September 6, 1996 or
upon the closing of a debt or equity offering by the Company. In connection with
such loan, the Company agreed to issue Mr. Flury a warrant to purchase 5,000
shares of Common Stock for two years at $2.50 per share. The Company recorded
additional interest expense of $11,875 in connection with the transaction. The
funds from the loan were used for general working capital purposes of I-Link.
The loan was repaid in September 1996 and the sums directed by Mr. Flury to
purchase 1,666 shares of Class C Preferred Stock.
In August 1996, John W. Edwards, President and Chief Executive Officer of
I-Link, loaned I-Link the sum of $131,250 (including a $6,250 original issue
discount) due and payable the earlier of September 6, 1996, or upon the receipt
of proceeds from a debt or equity financing of the Company. In connection with
such loan, the Company agreed to issue Mr. Edwards a warrant to purchase 25,000
shares of Common Stock for two years at $4.87 per share. Funds from the loan
were used to pay a $100,000 payment due to AT&T and for general working capital
purposes. The loan was repaid in September 1996 from the proceeds of the Class C
Offering.
In September 1996, the Company advanced the sum of $685,000 to FTI to be
utilized by FTI to acquire from Harris Corporation certain items of
telecommunications switches known as "Harris switches." FTI is an authorized
Harris reseller and was able to obtain favorable pricing for these switches.
These Harris switches are included in the equipment covered by the IBM operating
lease, and IBM will pay FTI for the switches as a vendor, and lease them to I-
Link. As of December 31, 1996, the remaining portion of the advance was
$120,000. The majority owner of FTI is Robert W. Edwards, Jr.,
39
<PAGE>
a brother of John W. Edwards, the Company's President, Chief Executive Officer
and Director. Effective January 1, 1997, the Company acquired all of the
outstanding stock of FTI. See "Item 1. Description of Business."
Clay Wilkes, the sole shareholder of GNET Enterprises, Inc. ("GNET"), the
general partner of I-Link, Ltd., pledged all of the issued and outstanding
shares of GNET to secure the Company's guarantee of $100,000 of the principal
amount of a loan on October 19, 1995 from Scott Cook to I-Link. The loan was
repaid in September 1996 from the proceeds of the Class C Offering.
Certain officers and directors of the Company and/or I-Link have agreed to
vote shares over which they exercise voting power in an aggregate amount of
6,956,000 shares of Common Stock in favor of a proposal to increase the
authorized shares of Common Stock and Preferred Stock of the Company. In
addition, pending the solicitation of the necessary stockholder approval and as
a condition to the first closing of the Class C Offering, securityholders,
including certain officers and directors of the Company and/or I-Link, have
agreed not to exercise any options owned by them unless and until the
shareholders of the Company approve an increase in authorized capital stock.
On September 6, 1996, the Company closed a private placement of 240,000
shares of Class C Preferred Stock and $717,000 of principal amount of
Convertible Promissory Notes (the "Class C Offering"). As a result of the
closing of the Class C Offering, 1.6 million shares of the Company's restricted
Common Stock held in escrow for the benefit of the former shareholders of I-Link
have been released from escrow, in accordance with the terms of the Stock
Purchase Agreement between I-Link and the Company. Upon such release, the
Company recorded additional acquired in-process research and development expense
of $9.8 million, and an increase to paid-in capital of $9.8 million.
Commonwealth Associates (previously defined and hereinafter referred to as
"Commonwealth"), acted as the placement agent for the Class C Offering.
Commonwealth received a commission equal to seven percent of the aggregate
purchase price of the shares of Class C Preferred Stock and Convertible Notes
sold, a non-accountable expense allowance equal to three percent of the gross
proceeds from the sale of the Class C Preferred Stock and Convertible Notes and
certain other specified offering-related costs. Pursuant to the terms of the
Class C Preferred Stock, the shares of Common Stock issuable upon conversion
thereof and any shares of Common Stock issuable as a dividend on such Class C
Preferred Stock may not be publicly sold prior to September 5, 1997 without the
prior written consent of Commonwealth.
In addition, the Company granted Commonwealth a right of first refusal to
underwrite or place any future public or private sale of debt or equity
securities or any such sale by certain principal shareholders of the Company,
its subsidiaries and successors, for a period of five years after the closing of
the Class C Offering.
The Company issued to Commonwealth Warrants to purchase up to 250,000
shares of the Company's Common Stock and Consultant's Warrants to purchase up to
500,000 shares of Common Stock (together previously defined as the "Commonwealth
Warrants"). The Commonwealth Warrants will be exercisable for five (5) years
commencing March 1997 at an exercise price of $2.50 per share, subject to
adjustment.
40
<PAGE>
The Company also entered into a Consulting Agreement with Commonwealth,
pursuant to which: (i) the Company shall employ Commonwealth as its investment
banker and financial consultant for a period of twelve (12) months; (ii) the
Company paid Commonwealth a fee of $200,000, plus two percent of the gross
proceeds of the Class C Offering in excess of $10,000,000, for such twelve-month
period; and (iii) the Company agreed to pay Commonwealth a fee of five percent
of the first $5,000,000 and two and one-half percent of the amount over
$5,000,000 of the consideration paid or received by the Company (or by any
affiliated entity of the Company) in any transaction (including mergers,
acquisitions, joint ventures and other business transactions) consummated by the
Company or any subsidiary or affiliate of the Company introduced to the Company
by Commonwealth.
Certain officers, directors and affiliated persons, including holders of
the Four M Options, the Kanter Option Shares and the Babcock Option have agreed
with Commonwealth not to sell any shares of Common Stock or options to purchase
Common Stock for a period of 12 months from September 6, 1996 without the prior
written consent of Commonwealth. In addition, holders of the 10% Notes issued by
the Company in February 1996 ("10% Notes") who converted a portion of such Notes
to Common Stock and who acquired Class C Preferred Stock in the Class C Offering
have agreed with Commonwealth not to sell any shares of Common Stock or the
Conversion Shares for a period of twelve (12) months from September 6, 1996,
without the prior written consent of Commonwealth; provided, however,
Commonwealth has agreed that such persons will be permitted to sell a sufficient
amount of the shares of Common Stock or Conversion Shares as will equal the
principal amount of the 10% Note previously held by such shareholder. In
addition, certain officers, directors and affiliated persons of the Company have
agreed not to exercise any options owned by them (and to waive reservation of
the shares of Common Stock underlying such options) until shareholders authorize
such number of additional shares of Common Stock necessary to accommodate the
lowest Conversion Price of the Class C Preferred Stock and, finally, all such
persons have agreed to vote their shares of Common Stock for such increase in
authorized capital.
Commonwealth designated Joseph A. Cohen for election to the Board of
Directors of the Company, and designated Michael Falk as a non-voting advisor to
the Board of Directors. In addition, Commonwealth was granted the right to
approve the Company's selection of a second outside director to be nominated for
election at the next annual or special meeting of stockholders.
Commonwealth also arranged bridge financings for the Company in the amount
of $375,000 and was paid $37,500 in commissions from the proceeds of the Class C
Offering.
See "Item 3. Legal Proceedings" for a description of the terms of the
agreement in principle relating to the settlement of certain litigation and of
the additional consideration to an investor group led by the Company's Secretary
and its Treasurer and Chief Financial Officer in connection therewith.
See "Executive Compensation--Employment Agreements" and "Executive
Compensation--Consulting Agreements" for descriptions of the terms of employment
and consulting agreements between the Company or I-Link and certain officers,
directors and other related parties.
Item 13. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this Report.
2(a)/6/ Management Agreement Assignment, effective June 1, 1993 between
Florida Medical Enterprises, Inc. and Waters Edge Scanning
Associates, Inc.
2(b)/6/ Lease Assignment and Asset Purchase Agreement dated as of June 1,
1993 between Waters Edge Scanning Associates, Ltd. and Medcross,
Inc.
41
<PAGE>
2(c)/10/ Joint Venture Interest Purchase Agreement, effective October 1,
1994 between Medcross, Inc. and Urology Ultrasound, Inc.
2(d)/15/ Stock Purchase Agreement, dated February 13, 1996, by and among
Medcross, Inc, I-Link, Ltd., and GNET Enterprises, Inc.
2(e)/15/ Escrow Agreement, dated February 21, 1996, by and among
Medcross, Inc., I-Link, Ltd., and De Martino Finkelstein Rosen &
Virga.
2(f)/19/ Form of 8% Convertible Promissory Note.
2(g)/18/ Stock Purchase Agreement dated February 13, 1996, by and among
Medcross, Inc., I-Link, Ltd. and GNET Enterprises, Inc.
2(h)/17/ Escrow Agreement dated February 21, 1996, by and among Medcross,
Inc., I-Link, Ltd. and De Martino Finkelstein Rosen & Virga.
2(i)/17/ Form of Promissory Note.
2(j)/21/ Share Exchange Agreement for the Acquisition of Family
Telecommunications Incorporated by Medcross, Inc.
3(a)/20/ Amendment to the Amended and Restated Articles of Incorporation
dated August 16, 1996.
3(b)/20/ Composite copy of the Amended and Restated Articles of
Incorporation incorporating all amendments through the date
hereof.
3(c)/8/ Bylaws of the Company, as amended.
3(d)/16/ Articles of Incorporation of I-Link Worldwide Inc.
3(e)/16/ Bylaws of I-Link Worldwide Inc.
3(f) Articles of Incorporation of Family Telecommunications, Inc.
and Articles of Amendment to the Articles of Incorporation.
3(g) Bylaws of Family Telecommunications, Inc.
4(a)/1/ Specimen Common Stock Certificate.
4(b)/7/ Promissory Note payable to Waters Edge Scanning Associates,
Ltd., in the amount of $600,000, dated June 1, 1993.
4(c)/7/ Promissory Note contingently payable to Waters Edge Scanning
Associates, Ltd., in the amount of $365,000, dated June 1, 1993.
42
<PAGE>
4(d)/7/ Promissory Note contingently payable to Waters Edge Scanning
Associates, Ltd., in the amount of $365,000, dated June 1, 1993.
4(e)/8/ Form of Promissory Note payable to limited partners of Medcross
Imaging, Ltd., in the aggregate amount of $75,000, dated October
1, 1993.
4(f)/11/ Series CS Warrant to Purchase Common Shares of Medcross, Inc.
4(g)/13/ Common Stock Purchase Option to Purchase Common Shares of
Medcross, Inc.
4(h)/15/ Form of 10% Convertible Promissory Note dated February 21, 1996.
4(i)/16/ Non-Negotiable 10% Promissory Note payable to Scott Cook in the
amount of $100,000, dated October 19, 1995.
4(j)/16/ Guaranty by and between Medcross, Inc. and Scott Cook, dated
October 19, 1995.
4(k)/16/ Security Agreement by and between I-Link, Ltd., Scott Cook, and
Medcross, Inc. dated October 19, 1995.
4(l)/16/ Common Stock Purchase Option to Purchase Common Shares of
Medcross, Inc. issued to Scott Cook.
4(m)/22/ Form of Convertible Promissory Note issued September 6, 1996.
4(n) Placement Agent's Common Stock Warrant Agreement and
Certificate.
4(o) Consultant's Common Stock Warrant Agreement and
Certificate.
4(p)/22/ Option to purchase 7,500 shares of Class B Convertible Preferred
Stock of Medcross, Inc., granted by R. Huston Babcock to
Benchmark Equity Group, Inc., dated February 14, 1996.
4(q)/22/ Option to purchase 160,000 shares of Class A Convertible
Preferred Stock of Medcross, Inc., granted by Four M
International, Ltd. to Commonwealth Associates, dated February
21, 1996.
4(r)/22/ Non-Negotiable 10% Convertible Promissory Note (Series II)
payable to Joseph Wong, in the principal amount of $50,000,
dated February 9, 1996.
4(s)/22/ Non-Negotiable 10% Convertible Promissory Note (Series III)
payable to Trident I, L.L.C., in the principal amount of
$50,000, dated February 21, 1996.
9(a)/4/ Shareholder's Agreement dated February 19, 1992 among Four M
International, Inc., Walnut Capital Corp., Windy City, Inc., and
Canadian Imperial Bank of Commerce Trust Company (Bahamas)
Limited.
43
<PAGE>
9(b)/10/ First Amendment to Shareholder's Agreement.
*10(a)/9/ Director Stock Option Plan.
*10(b)/2/ Executive Stock Option Plan.
10(c)/2/ MR Service Agreement, dated August 14, 1990, between Medcross
Imaging, Ltd. and HealthTrust, Inc. with respect to Edward White
Hospital .
10(d)/2/ MR Service Agreement, dated August 14, 1990, between Medcross
Imaging, Ltd. and HealthTrust, Inc. with respect to South Bay
Hospital.
10(e)/3/ Stock Purchase Agreement, dated February 9, 1992, between
Medcross, Inc., Four M International Limited, Walnut Capital
Corp., Windy City, Inc., and Canadian Imperial Bank of Commerce
Trust Company.
10(f)/5/ First Amendment to Stock Purchase Agreement, dated May 1, 1992,
between Medcross, Inc., Four M International, Inc., Walnut
Capital Corp., Windy City, Inc., and Canadian Imperial Bank of
Commerce Trust Company (Bahamas) Limited, as trustee.
10(g)/10/ Financial Consulting Agreement and Common Stock Purchase Warrant
dated as of November 3, 1994 between Medcross, Inc. and JW
Charles Financial Services, Inc.
10(h)/11/ Consulting Agreement, dated as of August 6, 1995, between the
Company and Timothy R. Barnes.
10(i)/12/ Consulting Agreement, dated September 1, 1995, by and among
Medcross, Inc., Kalo Acquisitions, LLC, and Jason H. Pollak.
10(j)/13/ Amendment to and Restatement of the Amended and Restated
Consulting Agreement, dated March 4, 1996, by and among
Medcross, Inc., Kalo Acquisitions, LLC, and Jason H. Pollak.
10(k)/13/ Termination of Amended and Restated Consulting Agreement, dated
March 5, 1996, by and among Medcross, Inc., Kalo Acquisitions,
LLC, and Jason H. Pollak.
10(l)/14/ MR Service Agreement effective October 1, 1995, by and between
Medcross Imaging, Ltd. and South Bay Hospital.
10(m)/14/ MR Service Agreement effective October 1, 1995, by and between
Medcross Imaging, Ltd. and Edward White Hospital.
*10(n)/16/ Employment Agreement, dated February 4, 1996, between Medcross,
Inc. and Henry Y.L. Toh.
*10(o)/16/ Employment Agreement, dated January 1, 1996, between Medcross,
Inc. and Dorothy L. Michon.
44
<PAGE>
*10(p)/16/ Employment Agreement, dated January 1, 1996, between Medcross,
Inc. and Stephanie E. Giallourakis.
*10(q)/16/ Employment Agreement, dated February 14, 1996, between I-Link
Worldwide Inc. and Clay Wilkes.
*10(r)/16/ Employment Agreement, dated February 14, 1996, between I-Link
Worldwide Inc. and Alex Radulovic.
*10(s)/16/ 1995 Director Stock Option and Appreciation Rights Plan.
*10(t)/16/ 1995 Employee Stock Option and Appreciation Rights Plan.
*10(u)/16/ Employment Agreement, dated April 8, 1996, between I-Link
Worldwide Inc. and John W. Edwards.
10(v)/18/ Consulting Agreement, effective January 1, 1996, by and between
Windy City, Inc. and the Company.
10(w)/20/ Agreement for Terminal Facility Collocation Space, dated June
21, 1996, by and between I-Link Worldwide Inc. and MFS Telecom,
Inc.
10(x) Consulting Agreement dated August 20, 1996 between the Company
and Commonwealth Associates.
10(y) Sales Agency Agreement dated July 1, 1996 between the Company
and Commonwealth Associates and Amendment No. 1 thereto.
10(z) Commercial Lease dated May 21, 1996 between I-Link
Worldwide Inc. and Draper Land Partnership II and First
Amendment dated July 22, 1996.
10(cc)/22/ Second Amendment dated November 22, 1995 to Medcross, Inc.
Shareholders' Agreement.
10(dd)/22/ Third Amendment dated January 31, 1996 to Medcross, Inc.
Shareholders' Agreement
10(ee)/22/ Term Lease Master Agreement dated May 19, 1996 by and between
IBM Credit Corporation and I-Link Worldwide Inc.
*10(ff) 1997 Recruitment Stock Option Plan.
45
<PAGE>
10(gg) Lease Agreement dated July 1, 1996 between Broadway Associates
and FTI Communications
10(hh) Lease Between Phoenix City Square Partnership
and Robert W. Edwards and Denise A. Edwards
10(ii) Carrier Agreement between MCI Telecommunications
Corporation and FTI, Inc.
10(jj) Strategic Member Reseller Agreement between I-Link
Worldwide Inc. and WealthNet Incorporated
10(kk) Settlement Agreement between WealthNet
Incorporated and Family Telecommunications Incorporated
10(ll) Agreement Regarding Certificate of Deposit between
Draper Land Partnership II and I-Link Worldwide Inc.
21 Subsidiaries of the registrant.
23(b) Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
____________________
/1/ Incorporated by reference to the Company's Registration Statement on
Form S-18 file number 33-27978-A.
/2/ Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990, file number 0-17973.
/3/ Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991, file number 0-17973.
/4/ Incorporated by reference to the Company's Current Report on Form 8-K
dated March 30, 1992, file number 0-17973.
/5/ Incorporated by reference to the Company's Current Report on Form 8-K
dated May 22, 1992, file number 0-17973.
/6/ Incorporated by reference to the Company's Current Report on Form 8-K
dated June 30, 1993, file number 0-17973.
/7/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993, file number 0-17973.
/8/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993, file number 0-17973.
/9/ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, file number 0-17973.
/10/ Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994, file number 0-17973.
/11/ Incorporated by reference to the Company's Registration Statement filed
on Form S-8, file number 33-63751.
46
<PAGE>
/12/ Incorporated by reference to the Company's Registration Statement filed
on Form S-8, file number 33-63749.
/13/ Incorporated by reference to the Company's Registration Statement filed
on Form S-8, file number 333-01525.
/14/ Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 31, 1995, file number 0-17973.
/15/ Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 23, 1995, file number 0-17973.
/16/ Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the years ended December 31, 1995, filed on April 15, 1996, file
number 0-17973.
/17/ Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the quarter ended March 31, 1996, file number 0-17973.
/18/ Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 23, 1996, file number 0-17973.
/19/ Incorporated by reference to the Company's Current Report on Form 8-K,
dated September 6, 1996, file number 0-17973.
/20/ Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the quarter ended June 30, 1996, file number 0-17973.
/21/ Incorporated by reference to the Company's Current Report on Form 8-K,
dated January 13, 1997, file number 0-17973.
/22/ Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-17861).
* Indicates a management contract or compensatory plan or arrangement
required to be filed herewith.
(b) There were no reports on Form 8-K filed during the last quarter of the
fiscal year ended December 31, 1996.
47
<PAGE>
SIGNATURES
In accordance with Section 13 of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
MEDCROSS, INC.
(Registrant)
Dated: April 15, 1997 By: /s/ John W. Edwards
------------------ -------------------------------
John W. Edwards, President and
Chief Executive Officer
In accordance with Section 13 of the Exchange Act, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John W. Edwards President, Chief Executive April 15, 1997
------------------------ Officer and Director
John W. Edwards
/s/ Clay Wilkes Chairman of the Board April 15, 1997
------------------------
Clay Wilkes
/s/ Karl S. Ryser, Jr. Treasurer and Chief Financial April 15, 1997
------------------------ Officer
Karl S. Ryser, Jr.
/s/ David E. Hardy Secretary April 15, 1997
------------------------
David E. Hardy
Director
------------------------
Henry Y.L. Toh
/s/ R. Huston Babcock Director April 15, 1997
------------------------
R. Huston Babcock
/s/ Joseph A. Cohen Director April 15, 1997
------------------------
Joseph A. Cohen
</TABLE>
48
<PAGE>
FINANCIAL STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Title of Document Page
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheet as of December 31, 1996 F-2
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995 F-3
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Medcross, Inc.:
We have audited the accompanying consolidated balance sheet of Medcross, Inc.
and Subsidiaries ("the Company") as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Medcross, Inc. and
Subsidiaries as of December 31, 1996, and the consolidated results of their
operations, changes in stockholders' equity and cash flows for each of the two
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Coopers & Lybrand, L.L.P.
Salt Lake City, Utah
April 11, 1997
F-1
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of December 31, 1996
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash and cash equivalents $ 4,500,227
Accounts receivable less allowances of $652,019 780,907
Inventory less allowances of $260,033 557,036
Certificate of deposit - restricted 208,500
Prepaid expenses 47,472
Other current assets 11,411
--------------
Total current assets 6,105,553
--------------
Property and equipment
Office furniture, equipment and leasehold improvements 388,191
Network services furniture and equipment 2,110,996
Medical equipment and vehicles 2,975,701
--------------
5,474,888
Less accumulated depreciation (2,618,252)
--------------
Net property and equipment 2,856,636
--------------
Other assets:
Intangible assets less accumulated amortization of $254,506 486,028
Certificate of deposit - restricted 1,761,312
Other assets 224,301
--------------
Total other assets 2,471,641
--------------
Total assets $ 11,433,830
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,379,451
Accrued litigation settlement 821,000
Note payable - related party 88,000
Notes payable 1,007,000
Current portion of long-term debt - related party 43,554
Current obligations under capital lease 187,047
--------------
Total current liabilities 4,526,052
--------------
Long-term debt - related party 44,128
Capital lease obligation 236,705
Minority interest in consolidated subsidiaries 328,328
--------------
Total liabilities 5,135,213
--------------
Commitments and contingencies -
Stockholders' equity:
Preferred stock, $10 par value, 247,500 shares outstanding 2,475,000
Common stock, $.007 par value, authorized 20,000,000 shares, issued and
outstanding 10,607,597 shares 74,253
Additional paid-in capital 30,874,910
Accumulated deficit (27,125,546)
--------------
Total stockholders' equity 6,298,617
--------------
Total liabilities and stockholders' equity $ 11,433,830
==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues:
Health care service revenue, net $ 2,212,544 $ 2,785,064
Network service revenue 170,532 -
Equipment sales and service - 337,889
-------------- ----------
Net operating revenue 2,383,076 3,122,953
-------------- ----------
Operating costs and expenses:
Salaries and benefits 1,825,138 1,123,340
Selling, general and administrative 2,863,963 1,199,519
Cost of goods sold - equipment sales and service - 154,481
Communications network expenses 1,120,779 -
Depreciation and amortization 1,094,004 465,020
Provision for inventory valuation 260,033 -
Repairs and maintenance 288,662 309,255
Provision for doubtful accounts 197,565 365,093
Research and development 347,504 -
Acquired in-process research and development 14,577,942 -
-------------- ----------
Total operating costs and expenses 22,575,590 3,616,708
-------------- ----------
Operating loss (20,192,514) (493,755)
-------------- ----------
Other income (expense):
Interest expense (2,191,629) (160,423)
Interest income 147,322 10,717
Equity in net income (loss) of unconsolidated subsidiaries (3,211) 20,500
Litigation settlement expense (821,000) -
Other income (8,108) 58,612
-------------- ----------
Total other expense (2,876,626) (70,594)
-------------- ----------
Loss before minority interest in income of consolidated
subsidiaries (23,069,140) (564,349)
Minority interest in income of consolidated subsidiaries 4,900 12,440
-------------- ----------
Net loss $ (23,064,240) $ (551,909)
============== ==========
Net loss per common share after preferred dividends $ (6.53) $ (.39)
============== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
Cash flows from operating activities
<S> <C> <C>
Net loss $(23,064,240) $ (551,909)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities
Depreciation and amortization 1,094,004 465,020
Accrued litigation settlement 821,000 -
Warranty liability - (94,091)
Expense for warrants issued below market 11,875 16,667
Imputed interest on convertible notes 1,945,000 -
Acquired in-process research and development 14,577,942 -
Common stock issued for services 12,500 50,000
Provision for inventory valuation 260,033 -
Provision for doubtful accounts 197,565 365,093
Gain (loss) on sale of property and equipment (3,080) 765
Equity in net loss (income) of unconsolidated subsidiaries 3,211 (20,500)
Minority interest in net income of consolidated subsidiaries (4,900) (12,440)
Forgiveness of debt (10,220) -
Increase (decrease) from changes in:
Accounts receivable (29,377) (161,353)
Inventory 12,919 91,926
Organization costs refunded - 14,055
Additions to other assets (204,406) -
Other current assets 15,591 46,465
Accounts payable and accrued expenses (475,702) 109,664
------------ -----------
Net cash provided (used) by operating activities (4,840,285) 319,362
------------ -----------
Cash flows from investing activities
Purchases of property and equipment (677,004) (23,222)
Proceeds from sale of property and equipment 3,080 5,755
Investment in unconsolidated subsidiary - (6,250)
Purchase of certificates of deposit - restricted (1,962,601) -
Proceeds from maturity of certificate of deposit - restricted 60,000 -
Distributions from unconsolidated subsidiary 3,039 -
Sale of interest in unconsolidated subsidiary - 28,000
------------ -----------
Net cash provided (used) by investing activities (2,573,486) 4,283
------------ -----------
</TABLE>
- continued -
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities
Proceeds from notes payable $ 2,502,333 $ 218,000
Repayment of notes payable (2,499,833) (151,000)
Repayment of long-term debt (491,523) (370,871)
Payment of capital lease obligations (285,444) (246,451)
Proceeds from issuance of preferred stock, net of offering costs 12,290,000 -
Proceeds from exercise of warrants and options 356,013 1,820
Minority interest distributions
(36,865) (54,750)
------------- -----------
Net cash provided (used) by financing activities 11,834,681 (603,252)
---------- ---------
1 (2,234)
Effect of foreign currency translation on cash flows ---------- -----
Increase (decrease) in cash and cash equivalents 4,420,911 (281,841)
Cash and cash equivalents at beginning of year 79,316 361,157
------------- -----------
Cash and cash equivalents at end of year $ 4,500,227 $ 79,316
============= ===========
Supplemental cash flow information
- ----------------------------------
Interest paid $ 189,107 $ 129,859
============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATMENT OF STOCKHOLDER'S EQUITY
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Additional
----------
Preferred Stock Common Stock Paid-in Accumulated
--------- ----- ------ ----- ------- -----------
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 216,805 $2,168,050 1,521,449 $10,650 $3,268,255 $(3,511,165)
Conversion of preferred stock into
common stock (9,305) (93,050) 227,714 1,594 91,456
Common stock issued for services 50,000 350 62,150
Common stock issued for cancellation of
note payable 1,849 13 5,188
Common stock issued for employee stock
purchase plan 2,080 15 1,805
Foreign currency translation adjustment 1,764
Net loss - - - - - (551,909)
-------- --------- --------- ------ --------- ---------
Balance at December 31, 1995 207,500 2,075,000 1,803,092 12,622 3,428,854 (4,061,310)
Conversion of preferred stock into common
stock (200,000) (2,000,000) 4,894,461 34,261 1,965,739
Exercise of stock options 189,637 1,327 354,686
Common stock issued for the
acquisition of I-Link Worldwide 3,000,000 21,000 12,579,000
Sale of Class C preferred stock for cash,
net of offering costs of $2,110,000 240,000 2,400,000 9,890,000
Common stock issued for cancellation of
notes payable 720,407 5,043 699,756
Issuance of stock warrants below market
value of common stock 11,875
Interest expense associated with issuance
of convertible notes at a discount 1,945,000
Foreign currency translation adjustment 4
Net loss (23,064,240)
------- --------- ---------- ------ ---------- ----------
Balance at December 31, 1996 247,500 $2,475,000 10,607,597 $74,253 $30,874,910 $(27,125,546)
======= ========= ========== ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies
Nature of business
Medcross, Inc. and subsidiaries ("the Company") operate in three businesses.
Domestically the Company is a provider of diagnostic and clinical services to
healthcare facilities and directly to patients both with its own equipment and
equipment of other entities under management contracts. Through its acquisition
in February 1996 of I-Link Worldwide, Inc. ("I-Link"), the Company is a provider
of business communication services. In China, the Company sells and services
used medical equipment.
Principles of consolidation
The consolidated financial statements include the accounts of Medcross, Inc. and
the following subsidiaries:
- Medcross Imaging, Ltd., a limited partnership, provides mobile magnetic
resonance imaging services to healthcare facilities. The Company is the
sole general partner of the partnership and had an 81.75% ownership
interest as of December 31, 1996 and 1995.
- Waters Edge Scanning Associates, Inc., a Florida corporation, provides
magnetic resonance imaging services. This wholly owned subsidiary
acquired the assets of Waters Edge Scanning Associates, Ltd. and its
general partner, Florida Medical Enterprises, Inc. on June 1, 1993.
- Urological Ultrasound Services of Tampa Bay, Inc., a Florida corporation,
provides mobile ultrasound services. This wholly owned subsidiary began
operations in October 1994 after completion of an acquisition of the 75%
ownership interest not previously owned by the Company. Prior to that
time, the Company recorded its share of income or loss from the 25%
ownership interest on the equity method. On May 1, 1995, this subsidiary
distributed all of its assets net of liabilities to the Company. All of
the assets of this subsidiary, except cash, were contributed to Waters
Edge Scanning Associates, Inc. and this subsidiary was dissolved in 1996.
- Medcross Asia, Ltd., a Hong Kong corporation, was formed by the Company as
a wholly owned subsidiary in 1993. This corporation is seeking investment
and equipment trading opportunities in the Far East.
- Shenyang Medcross Huamei Medical Equipment Company, Ltd. (SMHME), a
People's Republic of China (PRC) corporation formed in January 1994, sells
and services used computerized tomography (CT) equipment in the Shenyang
Province of the PRC. The Company has a 51% ownership interest in SMHME.
- I-Link Worldwide Inc., a Utah corporation, was acquired by the Company
in February 1996 and is a wholly owned subsidiary. I-Link Worldwide Inc.
provides business communication services.
All significant intercompany transactions are eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with a maturity of three months or less.
F-7
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, continued
Non-Cash Transactions
Non-cash transactions not otherwise reflected in the consolidated statement of
cash flows include the following:
In February 1995, a holder of Class B Preferred Stock converted 9,305
shares into 227,714 shares of common stock.
In September 1995, one of the note holders of the $600,000 promissory note
demanded payment, due in common stock. A reduction of $5,201 of the debt
resulted in an issuance of 1,849 shares of common stock.
In February 1996, the Company acquired all of the outstanding shares of
I-Link Worldwide Inc. in exchange for 4,000,000 shares of Common Stock of
the Company, of which 2,600,000 shares were held in escrow, until August
1996 when 1,600,000 shares were released.
In August 1996, in accordance with the terms of the Stock Purchase
Agreement entered into during the I-Link acquisition, 1,600,000 shares of
Common Stock held in escrow for the benefit of the seller were released
resulting in acquired in-progress research and development expense in the
amount of $9,800,000 and a corresponding increase in additional paid-in
capital.
In 1996 holders of Class A Preferred Stock converted 200,000 shares into
4,894,461 shares of common stock.
During 1996, certain convertible promissory notes totaling $704,799
(principal amount) were converted into 720,407 shares of common stock.
During 1996, I-Link financed $605,609 of equipment through capital leases.
Inventory
Inventories consist of used and refurbished computerized tomography scanners
held for sale in China. Inventories are valued at the lower of cost or market
using the specific identification method.
Property and equipment
Property and equipment are stated at cost. Depreciation is calculated using the
declining balance method for medical equipment and straight-line method for
other assets over the estimated useful lives of the assets, two to nine years.
Expenditures for maintenance and repairs are charged to expense as incurred, and
renewals and betterments are capitalized. Gains or losses on disposals are
credited or charged to operations.
Intangible assets
Organization costs are amortized on the straight-line basis over a period of
sixty months. Loan costs are amortized as an adjustment to interest expense over
the period of the loans (36 months to 60 months). Syndication and other issuance
costs incurred with respect to equity offerings of the Company and sale of
limited partnership interests are deferred and offset against the proceeds of
the offerings at closing. Goodwill resulting from purchase of Waters Edge
Scanning Associates, Inc., is amortized on the straight-line basis over a period
of twenty-five years. The Company regularly evaluates whether events or
circumstances have occurred that indicate the carrying value of the intangible
assets may not be recoverable. When factors indicate the asset may not be
recoverable, the Company uses an estimate of the related undiscounted future
cash flows compared to the carrying value of intangibles to determine if an
impairment exists. Adjustments are made if the sum of expected future net cash
flows is less than carrying value.
F-8
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, continued
Revenue recognition
The Company recognizes revenue from health care services at the time services
are performed net of contractual allowances based on agreements with third party
payers. The Company records revenue from equipment sales when installation is
completed. Advance deposits received prior to installation are recorded as a
current liability. The Company recognizes revenue from business communication
services as services are rendered or as products are delivered to customers.
Warranty liability
Equipment sales are generally accompanied by a service warranty. Expected future
product warranty costs are recorded as an expense and liability when the product
is sold.
Foreign currency translation
The functional currency for the Company's foreign operations is the applicable
local currency. The translation from the applicable foreign currencies to U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for income statement items using a weighted
average exchange rate for the period. The gains or losses, net of applicable
deferred income taxes, resulting from such translations are included in
stockholders' equity. Some transactions of the Company and its subsidiaries are
made in currencies different from their own. Gains and losses from these
transactions are generally included in income as they occur. Net foreign
currency transaction gains or losses are not material for any of the periods
presented.
Income taxes
The Company records deferred taxes in accordance with the Financial Accounting
Standards Board (FASB) Statement 109, "Accounting for Income Taxes." The
Statement requires recognition of deferred tax assets and liabilities for the
temporary differences between the tax bases of assets and liabilities and the
amounts at which they are carried in the financial statements based upon the
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Net loss per share
Net loss per share of common stock is computed based on the weighted average
number of common and common equivalent shares outstanding during the period.
Options, warrants and convertible preferred stock are excluded from the
calculation, when their effect would be anti-dilutive.
Net loss per common share for 1996 and 1995 were calculated as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net loss per consolidated statement of operations $(23,064,240) $ (551,969)
Cumulative preferred stock dividends not paid in current year (343,629) (128,669)
Preferred stock dividend on class C convertible cumulative
redeemable preferred stock (20,880,000) -
----------- ---------
Net loss applicable to common stock $(44,287,869) $ (680,578)
=========== =========
Weighted average shares outstanding 6,780,352 1,756,540
=========== =========
Net loss per common share $ (6.53) $ ( .39)
=========== =========
</TABLE>
F-9
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, continued
The preferred stock dividend (non cash) on Class C convertible redeemable
preferred stock is calculated as the difference between the conversion price per
common share per the private offering memorandum as compared to the market price
for the common stock on the date the preferred shares were sold. The dividend
was recognized over the period between the sale of the preferred stock and the
date the preferred shares could first be converted.
Financial Instruments
As of December 31, 1996 and 1995, the carrying amounts for cash, cash
equivalents, certificates of deposit and other current assets or liabilities
that are considered to be financial instruments approximate their fair value
because of the short maturity of these instruments. The carrying amounts for the
Company's line of credit and other non convertible debt also approximates fair
value based on current rates available to the Company for debt of a similar
nature and maturity. The Company's convertible promissory notes, with a carrying
value of $717,000 at December 31, 1996 have a fair value of $1,452,000 based on
the quoted market price of the stock at December 31, 1996.
Reclassifications
Certain balances in the December 31, 1995 financial statements have been
reclassified to conform with the current year presentation. These changes had
no effect on previously reported net loss, total assets, liabilities or
stockholders' equity.
Note 2 - Major customers and concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains its cash and cash equivalents with financial
institutions in Utah and Florida and attempts to limit its exposure in any one
particular instrument. At December 31, 1996 the Company's cash deposits exceeded
the federally insured limits by $4,300,000.
The Company provided magnetic resonance imaging services to two major customers
in 1996 and 1995. The revenue and accounts receivable balances, net of
contractual allowances, at year-end for each of these customers were as follows:
<TABLE>
<CAPTION>
Revenue Accounts Receivable
------- -------------------
1996 1995 1996 1995
----- ---- ---- ----
<S> <C> <C> <C> <C>
Customer A $433,338 $566,945 $55,204 $87,223
Customer B 248,000 304,791 22,750 18,200
</TABLE>
Note 3 - Certificates of Deposit-Restricted
During 1996, I-Link entered into a 24 month; $3.5 million operating lease. As a
condition of that lease, I-Link obtained a letter of credit totaling $1.575
million. To secure the letter of credit the Company has restricted Certificates
of deposit (CDs) in the same amount. These funds will be released when the lease
expires. I-Link also has restricted CDs totaling $150,812 used to secure lines
of credit in connection with capital leases totaling approximately $610,000. As
of December 31, 1996, I-Link also has restricted CDs totaling $244,000 of which
$215,000 is used for a security deposit on the facilities which I-Link occupied
in early 1997. The remaining $30,000 is collateral for I-Link's corporate credit
cards. These monies are held in escrow accounts and bear interest which is to be
paid to I-Link. Of the above monies held in escrow, $208,500 will be released
during 1997.
Note 4 - Notes payable
<TABLE>
<S> <C>
Uncollateralized promissory note, payable to Mortgage Network International, interest
payable at 10.5% payable monthly. $ 88,000
==========
Line of credit, $700,000, payable to First Union National Bank, interest payable
at 3/4% above prime rate, (prime rate was 8.25% at December 31, 1996), principal
balance due June 30, 1996, collateralized by accounts receivable
and general assets of the Company. $ 290,000
Convertible promissory notes, interest payable quarterly at 8% per
annum, uncollateralized. 717,000
---------
Total notes payable $ 1,007,000
=========
</TABLE>
F-10
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Notes payable - continued
The Company has reached an agreement with First Union National Bank pursuant to
which the Company has agreed to secure alternative financing to repay amounts
outstanding under the line of credit while continuing to repay the outstanding
balance in increments of $10,000 per month commencing on July 1, 1996. The line
of credit contains restrictive covenants relating to equity requirements,
minimum cash balances, acquisitions, debt to equity ratios, borrowing base
requirements, and net cash flow coverage requirements.
The convertible promissory notes were issued in September 1996 in conjunction
with a private placement offering Class C Preferred Stock of the Company. The
promissory notes will automatically be converted into 11,950 shares of Class C
Preferred Stock at $60 per share upon the amendment of the Company's Articles of
Incorporation to increase the number of authorized shares of Preferred Stock to
at least 2,000,000. Each convertible note is due on July 31, 1997 with interest
at the rate of 8% per annum. The notes are prepayable by the Company without
penalty upon 30 days notice provided that the Company has effected an amendment
to its Articles of Incorporation to increase its authorized capital stock and
designated sufficient Class C Preferred Stock to accommodate conversion of the
notes, though the holders of the promissory notes may elect to convert the
notes in lieu of accepting repayment.
Interest expense (non-cash) of $1 million has been recognized by the Company
representing the difference between the conversion price per common share
relating to the convertible promissory notes and the exercise price of
warrants issued with other notes as compared to the market price of the Common
Stock on the date the promissory notes and warrants were issued.
Note 5 - Long-term debt - related party
Long-term debt at December 31, 1996 was as follows:
<TABLE>
<S> <C>
Uncollateralized promissory note, payable to Mortgage Network International due in 36 equal
monthly installments of principal and interest totaling $4,225.32. The interest rate is 10.5% $ 87,682
Less current portion 43,554
-------
$ 44,128
=======
</TABLE>
Note 6 - Commitments under long-term leases
As of December 31, 1996, I-Link financed approximately $610,000 of leased
capital assets. Capital lease payments made in 1996 and 1995 were $160,000 and
$45,000, respectively.
In 1996, I-Link entered into a two-year equipment lease relating to the
financing of an aggregate of $3.5 million worth of equipment purchases necessary
to build the I-Link network. As a condition of that equipment lease, I-Link
obtained a standby letter of credit totaling $1.575 million to the benefit of
the lessor. In order to obtain this letter of credit, I-Link deposited $1.575
million into a certificate of deposit to be held until the obligation is
satisfied. The certificate of deposit bears interest which is payable to I-Link,
and will be released to I-Link when the lease expires. At the end of the lease,
at I-Link's option, the equipment secured by the lease can be purchased at fair
market value. I-Link also leases fiber optic data lines. The terms vary from 1-6
years.
The Company leases office and network equipment facilities throughout the United
States. The terms vary from 1-7 years. I-Link delivered $214,000 in certificates
of deposit to the landlord as a security deposit for rented facilities which are
refundable in periodic amounts as the lease expires.
F-11
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Commitments under long-term leases, continued
Future minimum payments, by year and in the aggregate, under noncancellable
capital leases and operating leases with initial or remaining terms of one year
or more consist of the following at December 31, 1996.
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C>
1997 $ 228,000 $3,414,000
1998 187,000 3,053,000
1999 69,000 1,248,000
2000 - 1,243,000
2001 - 415,000
Thereafter - 252,000
-------- ---------
Total minimum payments 484,000 $9,625,000
=========
Less amount representing interest 60,248
--------
Present value of net minimum less payments 423,752
Less current portion 187,047
--------
Long-term capital lease obligations $ 236,705
========
</TABLE>
The Company's rental expense for operating leases was $1,316,000 and $41,172 for
fiscal years ending December 31, 1996 and 1995, respectively.
Note 7 - 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 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, 1,400,000 shares of the common stock were issued at the time
of acquisition. In August 1996, 1,600,000 shares of Common Stock were released
from escrow upon the receipt of proceeds from the completion of the Company's
offering of Class C Preferred Stock. The remaining 1,000,000 shares of common
stock are to be released from escrow upon the first to occur of the following:
(i) the monthly revenue derived from subscribers serviced by I-Link and
revenue derived from the sale of related products and/or services
equals or exceeds $1,000,000; or
(ii) the number of subscribers serviced by I-Link exceeds 100,000 one
year from the date of receipt by the Company of gross proceeds equal
to $4,000,000 from the sale of its securities pursuant to one or
more private or public offerings.
The acquisition cost of $12,600,000 (representing the 3 million shares issued to
date) was allocated to the net liabilities of $2,003,000 (based on their fair
market values) with the balance of $14,603,000 allocated to in-process research
and development and software costs acquired. These were expensed as
technological feasibility of the in-process technology had not yet been
established and the technology had no alternative future use.
The following unaudited pro forma summary presents the consolidated results of
operations for the Company for 1996 and 1995, as if the acquisition of I-Link
had occurred at the beginning of 1995. This pro forma information is presented
for informational purposes only and may not be indicative of the results of
operations that would have occurred had the acquisition taken place at the
beginning of 1995.
F-12
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Acquisition of subsidiary, continued
<TABLE>
<CAPTION>
Years ended December 31 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $2,383,000 $352,000
Net loss (17,386,000) (8,016,000)
Loss per common share $(5.52) $(2.60)
</TABLE>
At the time of the acquisition of I-Link, the Company issued certain convertible
promissory notes. The Company also issued convertible promissory notes in
September, 1996. Interest expense (non-cash) $1,945,000 has been recorded in
1996 relating to these promissory notes and warrants issued with other notes.
The interest expense is calculated as the difference between the conversion
price per common share per the promissory notes as compared to the market price
for the common stock on the date the promissory notes were issued. The interest
expense was recognized over the period between the date the promissory notes
were issued and the date the promissory notes could first be converted.
Note 8 - Income taxes
The income tax benefit for the years ended December 31, 1996 and 1995 consists
of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current tax expense $ - $ -
Deferred tax expense (benefit) - -
----------- -----------
Income tax benefit $ - $ -
=========== ===========
</TABLE>
The reported benefit from income taxes varies from the amount that would be
provided by applying the statutory U.S. Federal income tax rate to income before
taxes for the following reasons:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected federal statutory tax benefit $(7,841,842) $(187,649)
Increase (reduction) in taxes resulting from:
State income taxes (net of federal benefit) (673,059) (30,355)
Non-deductible meals and entertainment 7,283 33
Non-deductible litigation settlement expense 279,140 -
Non-deductible interest on convertible notes 661,300 -
Allowance for doubtful accounts - 115,644
Change in valuation allowance 7,559,551 108,484
Other 7,627 (6,157)
------------ ----------
$ - $ -
============ ==========
</TABLE>
At December 31, 1996, the Company had net operating loss and capital loss
carryforwards for both federal and state income tax purposes of approximately
$7,400,000 and $60,000, respectively. The net operating loss carryforwards will
expire between 2006 and 2011 if not used to reduce future taxable income. The
capital loss carryforwards will expire in 1997.
F-13
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Income taxes, continued
The components of the net deferred tax asset and liability as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Tax net operating loss carryforwards $ 2,759,930
Acquired in process research and development 5,257,333
Capital loss carryforwards 22,267
Excess book depreciation and amortization 61,706
Other 95,686
Valuation allowance (7,944,647)
-----------
Total deferred tax asset 252,275
Deferred tax liability: -------------
Allowance for doubtful accounts ( 252,275)
-------------
Total deferred tax liability ( 252,275)
-------------
Net deferred tax asset $ -
=============
</TABLE>
The valuation allowance at December 31, 1996 has been provided to reduce the
total deferred tax assets to the amount which is considered more likely than not
to be realized. The net increase in the valuation allowance for the year ended
December 31, 1996 was $7,559,551. The change in the valuation allowance is due
primarily to the increase in net operating loss carryforwards and acquired in-
process research and development costs which were expensed for books and
capitalized for tax purposes, and because the Company has not generated net
income from its business communication services. It is at least reasonably
possible that a change in the valuation allowance may occur in the near term.
Note 9 - Litigation settlement
A complaint was filed on April 12, 1996 by JW Charles Financial Services, Inc.
("JWC") against the Company in which JWC alleged that the Company breached the
terms of a warrant to purchase 331,000 shares of the Company's common stock
purchase ("warrant") by failing to prepare and file with the Securities and
Exchange Commission ("SEC") a registration statement covering the common stock
underlying the JWC warrant. JWC was seeking specific performance, i.e.
registering the shares with the SEC, and monetary damages. On or about April 11,
1997 the Company reached an agreement in principle relating to the settlement of
the lawsuit. The lawsuit will be dismissed upon payment of $600,000 to JWC in
consideration for the purchase of the warrant. The JWC warrant will be purchased
by an investor group led by the Company's general counsel and its treasurer and
chief financial officer. It is not expected that the Company's funds will be
utilized. In connection with the purchase of the JWC warrant, it is contemplated
that the Company will grant certain additional consideration to the investor
group, including new warrants to purchase 175,000 shares of common stock at an
exercise price equal to or in excess of the conversion price of the Class C
Preferred Stock. Such warrants will have registration rights and anti-dilution
provisions. The Company has recorded on its financial statements for the year
ended December 31, 1996 a liability and related expense for the settlement of
litigation in the amount of $821,000 representing the estimated difference
between the warrant price and the value of the warrant.
Note 10 - Stockholders' equity
Preferred stock
In 1992, the Board of Directors approved and filed with the state of Florida an
Amendment to the Articles of Incorporation designating 200,000 shares of
preferred stock as Class A Variable Rate Cumulative Convertible Preferred Stock
("Class A Preferred Stock") and 22,500 shares of preferred stock as Class B
Variable Rate Cumulative Convertible Preferred Stock ("Class B Preferred
Stock"). The Class A Preferred Stock and Class B Preferred Stock both have a par
value of $10 per share and are entitled to receive cumulative dividends at a
rate equal to 2% above the 30 day certificate of deposit rate in effect on the
first day of each month at the Texas Commerce Bank. The Company has the right to
redeem the Class A and Class B Preferred Stock for $10 per share plus the amount
of any accrued and unpaid dividends. Shares of Class A and
F-14
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Stockholders' equity, Preferred stock, continued
Class B Preferred Stock may be converted into such number of whole shares of
common stock as is determined by multiplying the number of shares of Class A
Preferred Stock by a fraction, the numerator of which is $10 and the denominator
is the conversion price ($.408625). Each share of Class A Preferred Stock will
entitle the holder thereof to that number of votes which is equal to the number
of shares of common stock into which the Class A Preferred Stock is convertible.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the Company, the holders of the Class A Preferred Stock shall be
entitled to distribution before any payments shall be made in respect to the
Class B Preferred Stock or common stock in amounts equal to the par value per
share plus all accrued and unpaid dividends and the holders of Class B Preferred
Stock shall be entitled to distribution before any payments shall be made in the
respect to common stock in an amount equal to the par value per share plus all
accrued and unpaid dividends.
In August 1996 the Company filed with the State of Florida an Amendment to the
Articles of Incorporation amending the designation of 240,000 shares of
preferred stock as Class C Convertible Cumulative Preferred Stock (the "Class C
Preferred Stock"). The Class C Preferred Stock has a par value of $10 per share
and holders are entitled to receive cumulative preferential dividends equal to
8% per annum of the liquidation preference per share of $60.00. Unless
previously redeemed, the Class C Preferred Stock is convertible into shares of
the Company's Common Stock ("Conversion Shares"), at any time commencing
November 21, 1996, at the option of the holder, into such number of shares of
the Company's Common Stock as shall equal $60 divided by the lower of (i) $2.50,
or (ii) the closing bid price for any five consecutive trading days during the
period commencing on September 6, 1996 and ending on March 5, 1998 (subject to
certain anti-dilution adjustments). As of December 31, 1996, none of the shares
of Class C Preferred Stock has been converted. The Class C Preferred Stock is
redeemable at any time prior to September 6, 2000, at the option of the Company
at a redemption price equal to $60 per share plus accrued and unpaid dividends,
provided (i) the Conversion Shares are covered by an effective registration
statement; and (ii) during the immediately preceding thirty (30) consecutive
trading days ending within fifteen (15) days of the date of the notice of
redemption, the closing bid price of the Company's Common Stock is not less than
$8.00 per share. The Class C Preferred Stock is redeemable at any time after
September 6, 2000, at the option of the Company at a redemption price equal to
$90 plus accrued and unpaid dividends, provided the Conversion Shares are
covered by an effective registration statement or the Conversion Shares are
otherwise exempt from registration.
At December 31, 1996, the Company had no shares of Class A Preferred Stock,
7,500 shares of Class B Preferred Stock, and 240,000 shares of Class C Preferred
Stock issued and outstanding.
At December 31, 1996, 30,000 of the 500,000 shares of preferred stock authorized
remain undesignated and unissued. Dividends in arrears at December 31, 1996 were
$19,599 and $288,000 for Class B Preferred Stock and Class C Preferred Stock,
respectively.
Note 11 - Stock-Based Compensation Plans
At December 31, 1996 the Company has five stock based compensation plans, which
are described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plan. Accordingly, no compensation cost
has been recognized for its fixed option plans. Had compensation cost for the
Company's stock-based compensation plan been determined based on the fair value
at the grant dates for awards under the plan consistent with the method outlined
by FASB Statement 123, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net loss As reported $(23,064,240) $(551,909)
Pro forma $(25,563,988) $(587,001)
Loss per share As reported $(6.53) $(.39)
Pro forma $(6.90) $(.41)
</TABLE>
F-15
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: expected volatility
of 103% and 103%,
F-16
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Stock-Based Compensation Plans, continued
risk free rates of 5.79% and 5.78%, expected lives of 3 and 3 years and dividend
yield of zero for both years.
<TABLE>
<CAPTION>
1996 1995
---- ----
Options Weighted Ave Options Weighted Ave
and Warrants Exercise Price and Warrants Exercise Price
------------------------------------------------ -----------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 850,169 $1.78 615,381 $3.19
Granted 5,322,000 5.45 331,526 1.87
Exercised (188,724) 2.02 0 0.00
Forfeited (222,150) 2.82 (96,738) 2.75
---------- ---- -------- ----
Outstanding at end of year 5,761,295 $5.14 850,169 $1.78
========= =======
Options and Warrants exercisable at year end 2,153,294 588,495
Weighted-average fair value of Options and
Warrants granted during the year $5.45 $1.87
</TABLE>
The following table summarizes information about fixed stock options and
warrants outstanding at December 31, 1996.
<TABLE>
<CAPTION>
Options and
Warrants Number
Outstanding at Weighted Average Weighted Exercisable at Weighted
Exercise price 12/31/96 Remaining Life Average Exercise 12/31/96 Average Exercise
Price Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.875 to $2.500 1,701,961 5.7 years $2.00 1,701,961 $2.00
$3.875 to $4.875 746,334 7.1 years 4.34 201,334 4.18
$5.000 to $6.5000 124,500 9.0 years 5.55 0 0.00
$6.750 to $7.000 3,188,500 4.6 years 6.99 249,999 7.00
----------------------------------------------------------------------------------------------------------------
5,761,295 5.3 years $5.14 2,153,294 $2.79
========= ========= ===== ========= =====
</TABLE>
Executive stock option plan
The Company's Executive Stock Option Plan which expired in June 1995, authorized
the granting of stock options to key employees of the Company including
officers. Options granted under the Plan are non-qualified stock options
exercisable at a price not less than the highest bid price per share at which
the stock is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation System on the date the option is granted. Options are
exercisable not less than one year or more than five years after the grant date.
As of December 31, 1996, no options for the purchase of common stock were
outstanding. During 1996, 3,780 options were exercised and no options were
exercised in 1995.
Director stock option plan
The Company's Director Stock Option Plan under which Board terminated future
grants in October 1995, authorized the granting of stock options to Directors of
the Company. Options granted under the Plan are non-qualified stock options
exercised for a price equal to the fair market value per share of common stock
on the date of any such grant. Options are exercisable not less than six months
or more than ten years after the date of grant.
As of December 31, 1996, options for the purchase of 8,169 shares of common
stock at prices ranging from $0.875 to
F-17
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Stock-Based Compensation Plans, continued
$3.875 per share were outstanding, all of which are exercisable within 60 days.
During 1996, 15,228 options were exercised and no options were exercised in
1995.
Stock purchase plan
In accordance with the Employee Qualified Stock Purchase Plan adopted in June
1990, employees may contribute up to 10 percent of their base wages towards the
purchase of the Company's common stock. The option price is the lesser of 85% of
the market value on the first business day of the Payment Period (September 1)
or the last business day of the Payment Period (August 31). As of December 31,
1996, the Company had 35,146 shares of common stock reserved for issuance on
exercise of the purchase rights. On August 31, 1996, 913 shares of common stock
were issued at a price of $0.875 per share. On August 31, 1995, 2,080 shares of
common stock were issued at a price of $0.875 per share.
1995 Director stock option plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Director Stock Option and Appreciation Rights Plan, which plan
provides for the issuance of incentive options, non-qualified options and stock
appreciation rights (the "1995 Director Plan").
The 1995 Director Plan provides for automatic and discretionary grants of stock
options which qualify as incentive stock options (the "Incentive Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as options which do not so qualify (the "Non-Qualified Options") to be
issued to directors. In addition, stock appreciation rights (the "SARs") may be
granted in conjunction with the grant of Incentive Options and Non-Qualified
Options.
The 1995 Director Plan provides for the grant of Incentive Options,
Non-Qualified Options, and SARs to purchase up to 250,000 shares of common stock
(subject to adjustment in the event of stock dividends, stock splits, and other
similar events). To the extent that an Incentive Option or Non-Qualified Option
is not exercised within the period of exercisability specified therein, it will
expire as to the then unexercised portion. If any Incentive Option,
Non-Qualified Option or SAR terminates prior to exercise thereof and during the
duration of the 1995 Director Plan, the shares of common stock as to which such
option or right was not exercised will become available under the 1995 Director
Plan for the grant of additional options or rights to any eligible employee. The
shares of common stock subject to the 1995 Director Plan may be made available
from either authorized but unissued shares, treasury shares, or both.
The 1995 Director Plan also provides for the grant of Non-Qualified Options on a
discretionary basis pursuant to the following formula: each member of the Board
of Directors then serving shall receive a Non-Qualified Option to purchase
10,000 shares of common stock at an exercise price equal to the fair market
value per share of the common stock on that date. Pursuant to such formula,
directors received options to purchase 10,000 shares of common stock as of
October 17, 1995, and will receive options to purchase 10,000 shares of common
stock on the first business day of each January beginning in 1996. Each option
is immediately exercisable for a period of ten years from the date of grant. The
Company has 250,000 shares of common stock reserved for issuance under the 1995
Director Option Plan. As of December 31, 1996, options exercisable to purchase
190,000 shares of common stock at prices ranging from $1.00 to $1.25 per share
are outstanding and exercisable within 60 days. During 1996, 40,000 options were
exercised.
1995 Employee stock option plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Employee Stock Option and Appreciation Rights Plan (the "1995
Employee Plan"), which plan provides for the issuance of Incentive Options,
Non-Qualified Options, and SARs.
Directors of the Company are not eligible to participate in the 1995 Employee
Plan. The 1995 Employee Plan provides for the grant of stock options which
qualify as Incentive Stock Options under Section 422 of the Code, to be issued
to officers
F-18
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
who are employees and other employees, as well as Non-Qualified Options to be
issued to officers, employees, and consultants. In addition, SARs may be granted
in conjunction with the grant of Incentive Options and Non-Qualified Options.
F-19
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Stock-based compensation plans, continued
The 1995 Employee Plan provides for the grant of Incentive Options,
Non-Qualified Options, and SARs of up to 400,000 shares of common stock (subject
to adjustment in the event of stock dividends, stock splits, and other similar
events). To the extent that an Incentive Option or Non-Qualified Option is not
exercised within the period of exercisability specified therein, it will expire
as to the then unexercisable portion. If any Incentive Option, Non-Qualified
Option or SAR terminates prior to exercise thereof and during the duration of
the 1995 Employee Plan, the shares of common stock as to which such option or
right was not exercised will become available under the 1995 Employee Plan for
the grant of additional options or rights to any eligible employee. The shares
of common stock subject to the 1995 Employee Plan may be made available from
either authorized but unissued shares, treasury shares, or both. The Company has
400,000 shares of common stock reserved for issuance under the 1995 Employee
Plan. As of December 31, 1996, options to purchase 75,000 shares of common stock
with exercise prices of $1.125 have been granted under the 1995 Employee Plan.
To date, no options have been exercised under the 1995 Employee Plan.
Other warrants and options
Pursuant to the terms of a Financial Consulting Agreement dated as of November
3, 1994 between the Company and JW Charles Financial Services, Inc., the Company
issued a Common Stock Purchase Warrant (the "JW Charles Warrant") covering
250,000 (331,126 as adjusted) shares of common stock to JW Charles Financial
Services as partial consideration for its rendering financial consulting
services to the Company. The warrant is exercisable at a price of $1.51 per
share and expires on November 3, 1999.
The JW Charles Warrant (the "Warrant") contain anti-dilution provisions
providing for adjustments in the exercise price. The Warrant also contains
anti-dilution provisions providing for adjustments in the number of shares
covered by the warrant. The holder of the Warrant has no voting, dividend, or
other stockholder rights or privileges unless and until the Warrants have been
exercised. The holder of the Warrant has been granted "piggy back" registration
rights under the Securities Act of 1933 with respect to the Warrants and the
underlying shares of common stock. The Company will pay the expense of such
registration and of such registration qualifications of the Warrant and
underlying shares of common stock under the Securities Act of 1933 of such dates
as the holder of the Warrant may determine (See Note #9).
Pursuant to the issuance of a promissory note by I-Link to Scott Cook, the
Company issued a Common Stock Purchase Option covering 100,000 shares of the
Company's common stock. The option is exercisable at a price of $1.00 and
expires on December 31, 1999.
In April 1996 the Company approved the issuance of 1 million options to John
Edwards at an option price of $7 per share as part of his employment agreement.
The options vest over a 3 year period and expire in 2006.
On July 1, 1996 the Company approved options to purchase 1,500,000 and 500,000
shares of common stock to Clay Wilkes and Alex Radulovic respectively. Each
option has an exercise price of $7.00 per share, vesting in 25% increments in
the event that the average closing bid price of a share of the Company's common
stock for five consecutive trading days exceeds $10, $15, $20 and $25,
respectively. Such option becomes exercisable (to the extent vested) on June 30,
1997, vests in its entirety on June 30, 2001 and lapses on June 30, 2002.
In August 1996, Commonwealth Associates, the Placement Agent for the Company's
offering of Class C Preferred Stock and 8% Convertible Notes, designated Joseph
Cohen as its nominee for election to the Board of Directors and Michael Falk, an
affiliate of Commonwealth Associates, as a non-voting advisor to the Board of
Directors. Commonwealth Associates was also granted, in connection with such
offering, the right to approve the Company's selection of a second outside
director to be nominated for election at the next annual or special meeting of
stockholders. Mr. Cohen serves as a Class II Director of the Company and a
member of the Compensation and Audit Committees of the Board of Directors. The
Company has agreed to issue options to purchase 64,000 shares of Common Stock to
Mr. Cohen, exercisable at the fair market value of the Common Stock on September
30, 1996. Of such options, 24,000 vest and become exercisable immediately upon
grant, and 20,000 shall vest and become exercisable on the first anniversary of
the grant, and 20,000 shall vest and become exercisable on the second
anniversary of the grant.
In August 1996, William Flury, Vice President of Sales & Marketing of I-Link
loaned I-Link the sum of $100,000. The
F-20
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Stock-based compensation plans, continued
loan plus a loan origination fee of $5,000 was repaid in September 1996. In
connection with such loan, the Company agreed to issue Mr. Flury a warrant to
purchase 5,000 shares of Common Stock for two years at $2.50 per share. The
funds from the loan were used for general working capital purposes of I-Link.
In August 1996, John Edwards, President and Chief Executive Officer of I-Link
loaned I-Link the sum of $131,250 (including a $6,250 original issue discount),
which was repaid in August 1996. In connection with such loan, the Company
agreed to issue Mr. Edwards a warrant to purchase 25,000 shares of Common Stock
for two years at $4.875 per share. Funds from the loan were used to pay a
$100,000 payment due to AT&T and for general working capital purposes of I-Link.
In September 1996, the Company closed a private placement offering of Class C
Preferred Stock. As a result of this transaction, the Company issued a warrant
to purchase 250,000 shares of its Common Stock at an exercise price of $2.50 per
share as compensation to the Placement Agent. In addition, a Consulting
Agreement was entered into with the Placement Agent, in which a warrant to
purchase 500,000 shares of the Company's Common Stock at an exercise price of
$2.50 per share was issued.
John Edwards agreed to amend his employment contract on August 21, 1996, to
reduce his salary from $175,000 to $96,000. In consideration of the salary
reduction, the Company agreed to grant him options, which vested immediately, to
purchase 250,000 shares of Common Stock for 10 years at an exercise price of
$4.875 per share.
In October, 1996 the Company agreed to issue 250,000 shares of common stock each
to William Flury and Karl S. Ryser Jr. pursuant to their employment agreements.
The options were issued at $4.41 based on the closing price of the stock at
grant date. The options vest quarterly over a three-year period and expire in
2000.
During 1996, the Company agreed to issue 343,000 options to employees at a price
equal to the closing stock price on the grant date. The options vest quarterly
over a three-year period and expire in 10 years.
During 1996 the Company issued 120,000 warrants to non-employees at $4 per
share. The warrants expire in 1999.
Note 12 - Geographic segment information
The Company's operations consist of providing diagnostic and clinical outpatient
health care services and business communication services domestically and the
sale and service of used medical equipment in the People's Republic of China
(PRC). Financial information for the different geographic segments is as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1996 Domestic China Corporate Eliminations Consolidated
- ----------------- -------- ----- --------- ------------ ------------
Communications
Network
-------
Healthcare
----------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 1,967,384 $ 170,532 $ 0 $ 335,254 $ (90,094) $ 2,383,076
=========== ============ ========== =========== ========== ===========
Operating Profit (Loss) $ 41,615 $ (19,501,391) $ (284,615) $ (358,029) $ (90,094) $(20,192,514)
=========== ============ ========== =========== ========== ===========
Identifiable Assets $ 2,509,402 $ 8,196,473 $ 750,468 $ 185,258 $ 267,771 $ 11,433,830
=========== ============ ========== =========== ========== ===========
Amortization and
Depreciation $ 377,561 $ 690,920 $ 1,191 $ 24,332 $ - $ 1,094,004
=========== ============ ========== =========== ========== ===========
</TABLE>
F-21
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital Expenditures $ 0 $ 677,004 $ 0 $ 0 $ - $ 677,004
=========== ============ ========== =========== ========== ===========
</TABLE>
F-22
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Geographic segment information, continued
<TABLE>
<CAPTION>
Year Ended
December 31, 1995 Domestic China Corporate Eliminations Consolidated
- ----------------- -------- ----- --------- ------------ ------------
Communications
Network
-------
Healthcare
----------
<S> <C> <C> <C> <C> <C> <C>
Revenue $2,486,708 $ N/A $ 340,233 $ 423,956 $ (127,944) $3,122,953
========= ============= ============= ========= ========= =========
Operating Profit (Loss) $ 196,714 $ N/A $ (171,083) $ (519,386) $ 0 $ (493,755)
========= ============= ============= ========= ========= =========
Identifiable Assets $2,509,402 $ N/A $ (1,098,742) $ 682,277 $ (682,157) $4,146,683
========= ============= ============= ========= ========= =========
Amortization and
Depreciation $ 377,561 $ N/A $ 13,011 $ 13,511 $ 0 $ 465,020
========= ============= ============= ========= ========= =========
Capital Expenditures $ 0 $ N/A $ 2,046 $ 375 $ -- $ 23,222
========= ============= ============= ========= ========= =========
</TABLE>
The corporate office provides management and operational services for domestic
outpatient health care services. The elimination's represent charges for these
services to entities included in the consolidation.
Note 13 - Related party transactions
In addition to related party transactions disclosed elsewhere, during the first
quarter of 1995, the Company received advances totaling $218,000 from Mortgage
Network International ("MNI"). Henry Y.L. Toh, a Director of the Company, has
management control over MNI. Such advances were previously payable upon demand.
Subsequent to the extension of such advances, the Board of Directors approved
delivery of a promissory note representing the aggregate amount of such
advances, which promissory note matured by its terms on October 1, 1995 and
bears interest at one percent over the prime rate of interest established by
Southwest Bank of Texas, N.A. Subsequently, the Company and MNI modified the
Note such that: (i) the principal amount of $130,000 with interest thereon at
the rate of 10.5% will be paid in thirty-six (36) equal payments of
approximately $4,200 and (ii) the remaining principal amount of $88,000 with
interest thereon at the rate of 10.5% will be paid in twenty-one (21) equal
monthly payments of $4,600.
Note 14 - Employment Agreements
The Company has entered into employment contracts with eight of its executive
officers and management personel. These agreements generally continue until
terminated by the executive or the Company, and provide for salary continuation
for a specified number of months under certain circumstances. Certain of the
agreements provide the employees with certain additional rights, including the
vesting of unvested stock options, in the event of a change of control of the
Company occurs. The agreements contain non-competition and confidentiality
provisions. As of December 31, 1996, if the eight employees under contact were
to be terminated by the Company, the Company's liability would be approximately
$1,425,000.
Note 15 - Subsequent events
On January 13, 1997, pursuant to the terms of a Share Exchange Agreement for the
Acquisition of Family Telecommunications Incorporated by Medcross, Inc.
effective as of January 1, 1997 (the "Exchange Agreement"), the Company acquired
the outstanding stock of Family Telecommunications Incorporated, a Utah
corporation ("FTI"), from the stockholders of FTI, namely, Robert W. Edwards,
Jr. and Jerald L. Nelson. The consideration for the transaction consists of an
aggregate of 400,000 shares of the Company's common stock to be issued by the
Company upon the satisfaction of certain conditions including approval by the
Company's shareholders of an amendment to the Articles of Incorporation
authorizing an increase in the number of shares of common stock from 20 million
to 50 million and no material breach of any representation by the former
stockholders. The purchase price was determined based upon the negotiated value
of the assets and operations of FTI. The acquisition will be accounted for using
the purchase method of accounting.
During 1996 the Company advanced $685,000 to FTI for equipment purchases of
which $120,000 remained outstanding and was included in Other Assets at December
31, 1996.
John W. Edwards, President, a Director and Chief Executive Officer of the
Company, and Robert W. Edwards, Jr., the
F-23
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
principal shareholder and one of the two shareholders of FTI, are brothers.
There was no affiliation or relationship between the Company, its affiliates,
officers or directors or associates of such persons and FTI or any of its
officers, directors or stockholders prior to the execution of the Exchange
Agreement except as set forth herein.
FTI is an FCC licensed long-distance carrier and provider of telecommunications
services.
F-24
<PAGE>
INDEX TO EXHIBITS
MEDCROSS, INC. FORM 10-KSB
Exhibit No. Description
- ---------- -----------
3(f) Articles of Incorporation of Family Telecommunications Incorporated
and Articles of Amendment to the Articles of Incorporation.
3(g) Bylaws of Family Telecommunications Incorporated.
4(n) Placement Agent's Common Stock Warrant Agreement and Certificate.
4(o) Consultant's Common Stock Warrant Agreement and Certificate.
10(x) Consulting Agreement dated August 20, 1996 between the Company and
Commonwealth Associates.
10(y) Sales Agency Agreement dated July 1, 1996 between the Company and
Commonwealth Associates and Amendment No. 1 thereto.
10(z) Commercial Lease dated May 21, 1996 between I-Link Worldwide Inc.
and Draper Land Partnership II and First Amendment dated July 22,
1996.
*10(ff) 1997 Recruitment Stock Option Plan.
10(gg) Lease Agreement dated July 1, 1996 between Broadway Associates and
FTI Communications
10(hh) Lease Between Phoenix City Square Partnership and Robert W. Edwards
and Denise A. Edwards
10(ii) Carrier Agreement Between MCI Telecommunications Corporation and
FTI, Inc.
10(jj) Strategic Member Reseller Agreement between I-Link Worldwide Inc.
and Wealthnet Incorporated
10(kk) Settlement Agreement between Wealthnet Incorporated and Family
Telecommunications Incorporated
<PAGE>
Exhibit No. Description
- ---------- -----------
10(ll) Agreement Regarding Certificate of Deposit between Draper Land
Partnership II and I-Link Worldwide Inc.
21 Subsidiaries of the registrant.
23(b) Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
* Indicates a management contract or compensatory plan or arrangement
required to be filed herewith.
<PAGE>
Exhibit 3(f)(i)
ARTICLES OF INCORPORATION
OF
FAMILY TELECOMMUNICATIONS INCORPORATED
The undersigned person who is eighteen (18) years of age or older, acting
incorporator under the Provisions of Utah's Revised Business Corporation Act
(hereinafter referred to as the "Act") adopts the following Articles of
Incorporation:
ARTICLE I
The name of this corporation if Family Telecommunications Incorporated (the
"corporation").
ARTICLE II
The corporation is organized for the purpose of providing services in the
telecommunications industry and nay activities ancillary thereto and to engage
in any lawful act or activity for which corporations may be organized under the
Act.
ARTICLE III
The aggregate number of shares which this corporation shall have authority
to issue in ten million common shares.
<PAGE>
ARTICLE IV
The address of the initial registered office of the corporation is 376
East 400 South, Suite 300, Salt Lake City, Utah 84111. The name of the initial
registered agent of the corporation at that address is Gary R. Henrie.
ARTICLE V
To the fullest extent permitted by the Act or any other applicable law as
now in effect or as it may hereafter be amended, a director of this corporation
shall not be personally liable to the corporation or its shareholders for
monetary damages for any action taken or any failure to take any action, as a
director.
Neither any amendment nor repeal of this Article V, nor the adoption of any
provision in these Articles of Incorporation inconsistent with this Article V,
shall eliminate or reduce the effect of this Article V in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article V,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
ARTICLE VI
To the fullest extent permitted by the Act or any other applicable law as
now in effect or as it may hereafter be amended, if any officer or director of
this corporation is made a party to a proceeding because he is or was an officer
or director of this corporation, the corporation shall indemnify the officer or
director against liability incurred in the proceeding and advance expenses to
the officer or director with respect to the proceeding, if:
2
<PAGE>
his conduct was in good faith;
he reasonably believes that his conduct was in, or not opposed to the
corporation's best interests; and
in the case of any criminal proceeding,, he had no reasonable cause to
believe his conduct was unlawful
Neither any amendment nor repeal of this Article VI, nor the adoption of
any provision in these Articles of Incorporation with this Article VI, shall
eliminate or reduce the effect of this Article VI in respect of any right to
advancement of expenses or indemnification arising out of an event occurring
prior to such amendment, repeal or adoption of an inconsistent provisions.
ARTICLE VII
The name and address of the incorporator of the corporation is as follows:
Gary R. Henrie
3376 East 400 South, Suite 300
Salt Lake City, Utah 84111
IN WITNESS WHEREOF, the undersigned, being the incorporator of the
corporation, executes these Articles of Incorporation and certifies to the truth
of the facts as stated herein this 20/th/ day of March, 1996.
INCORPORATOR:
--------------------------------
Gary R. Henrie
The appointment of the undersigned as the initial registered agent of the
corporation is hereby accepted.
-------------------------------
Gary R. Henrie
3
<PAGE>
Exhibit 3(f)(ii)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
FAMILY TELECOMMUNICATIONS INCORPORATED
Pursuant to the provisions of Section 16-10a-1003 and 16-10a-1006, of the
Utah Revised Business Corporation Act (the "ACT"), the undersigned corporation
adopts the following Articles of Amendment to the Articles of Incorporation (the
"Amendment"):
FIRST. The name of the corporation is Family Telecommunications
Incorporated.
SECOND: The text of ARTICLE III is hereby amended and restated so that it
reads in its entirety as follows:
ARTICLE III
The aggregated number of shares which this corporation shall have authority
to issue is five million common shares, with each share having a par value of
one-tenth cent ($.001).
THIRD. These Articles of Amendment do not provide for an exchange,
reclassification or cancellation of issued shares. These Articles of Amendment
amend Article III of the Articles of Incorporation in effect prior to the
adoption of the Articles of Amendment to the Articles of Incorporation.
FOURTH: The Articles of Amendment to the Articles of Incorporation were
adopted by the shareholders of the corporation on August 28, 1996.
FIFTH: Shares of the corporation issued and outstanding on August 28,
1996 total two million (2,000,000) common shares, among which there are no
separate voting groups.
<PAGE>
SIXTH. The Articles of Amendment were approved by the shareholders of the
corporation with two million (2,000,000) shares voting for the Articles of
Amendment, and zero (0) voting against the Articles of Amendment, and zero (0)
shares abstaining.
IN WITNESS WHEREOF, the undersigned, being the President of the
corporation, executes these Articles of Amendment to the Articles of
Incorporation this 28th day of August, 1996, and affirms under penalties of
perjury, that the adoption of the Articles of Amendment to the Articles of
Incorporation is the act and deed of the corporation on behalf of which these
Articles of Amendment to the Articles of Incorporation are executed, and the
facts set forth herein are true.
FAMILY TELECOMMUNICATIONS INCORPORATED
By:
---------------------------------
Robert W. Edwards, President
2
<PAGE>
Exhibit 3 (g)
BYLAWS
OF
FAMILY TELECOMMUNICATIONS INCORPORATED
ARTICLE I
NAME, REGISTERED OFFICE AND REGISTERED AGENT
Section 1.1. Name. The name of this Corporation is: Family
Telecommunications Incorporated.
Section 1.2. The registered Office and Registered Agent. The address of
the registered office of this Corporation is 376 East 400 South, Suite 300, Salt
Lake City, Utah 84111. The name of the registered agent of this Corporation at
that address is Gary R. Henrie. The Corporation shall at all times maintain a
registered office. The location of the registered office may be changed by the
Board of Directors. The Corporation may also have offices in such other places
as the Board may from time to time designate.
ARTICLE III
SHAREHOLDER MEETINGS
Section 2.1. Annual Meeting. The annual meeting of the shareholders of
the Corporation shall be held at such place within or without the State of Utah
as shall be set forth in compliance with these Bylaws. The meeting shall be
held of the first Monday in the month of March of each calendar year at 1:00
p.m. or at such other time and day as the Board of
<PAGE>
Directors may subsequently determine. This meeting shall be for the election of
Directors and for the transaction of such other business as may properly come
before it.
Section 2.2. Notice of Shareholder Meetings. The Secretary shall give
written notice stating the place, the date, and hour of each shareholder meeting
and, in the case of a special meeting the purpose(s) for which the meeting is
called and the name of the person by whom or at whose direction the meeting is
called. Such notice shall be delivered not less than ten (10) nor more than
sixty (60) days prior to the date of the meeting, either personally or by mail,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid.
Section 2.4. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Utah, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
A waiver of notice signed by all shareholders entitled a vote at a meeting may
designate any place, either within or without the State of Utah, as the place
for holding of such meeting. If no designation is made, or if a special meeting
be otherwise called, the place of meeting shall be the principal business office
of the Corporation
Section 2.5. Record Date. The Board of Directors may fix a date not less
than ten (10) nor more than sixty (60) days prior to any meeting as the record
date for the purpose of determining shareholders entitled to notice of and to
vote at any such meeting of the shareholders. The stock transfer books may be
closed by the Board of Directors for a stated period not to exceed sixty (60)
days for the purpose of determining shareholders entitled to
2
<PAGE>
receive payment of any dividend, or in order to make a determination of
shareholders for any purpose.
Section 2.6. Voting. The holder of an outstanding share entitled to vote
at any meeting may vote at such meeting in person or by proxy. Except as may be
otherwise provided in the Articles of Incorporation, every shareholder shall be
entitled to one (1) vote for each share standing in his name on the records of
the Corporation. Except as otherwise provided by lay or as provided herein or
as may be otherwise provided in the Articles of Incorporation, all shareholder
actions shall be determined by majority of the votes cast at any meeting of
shareholders by the holders of proxies of shares entitled to vote thereon.
Section 2.8. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. The duration of the proxy and
its revocability shall be governed by Section 722 of the Utah Revised Business
Corporation Act (the "Act"), as currently in effect or as hereinafter amended.
Section 2.9. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting and without prior
notice if a consent in writing, setting forth the action so taken, shall be
signed by holders of the outstanding shares of the Corporation having not less
than the minimum number of votes that would be necessary to authorize or take
the action at a meeting at which all shares entitled to vote thereon were
present and voted.
3
<PAGE>
Section 2.10. Meetings by Telecommunication. Any or all of the
shareholders of the Corporation may participate in any annual or special meeting
of shareholders by, or the meeting may be conducted through the use of, any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. A shareholder participating in the meeting
can hear each other during the meeting. A shareholder participating in a
meeting by this means shall be considered to be present at such meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors may adopt such rules and regulations
for the conduct of its meetings and the management of the Corporation as it
deems proper.
Section 3.2. Number, Tenure and Qualifications. The Board of Directors of
the Corporation shall consist of three directors. Unless removed pursuant to
Section 3.9, each director shall hold office until the next annual meeting of
shareholders and until his successor shall have been duly elected and qualified.
Directors need not be residents of the State of Utah or shareholders of the
Corporation.
Section 3.3. Regular Meetings. A regular meeting of the Board of
Directors shall held without other notice than by this Bylaw, immediately
following after and at the same place as the annual meeting of shareholders.
The Board of Directors may provide, by resolution, the time and place for the
holding of additional regular meetings without other notice than such
resolution.
4
<PAGE>
Section 3.4. Special Meetings. Special meetings of the Board of Directors
may be called by order of the Chairman of the Board, the President, or two-
thirds (2/3) of the directors. The secretary shall give notice of the time and
place of each special meeting by mailing the same at least five (5) days before
the meeting or by telephoning or telegraphing the same at least two (2) days
before the meeting to each director.
Section 3.5. Meetings by Telecommunications. Any or all directors may
participate in any regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
hear each other during the meeting. A director participating in a meeting by
this means is considered to be present in person at the meeting. A director
participating in a meeting by this means is considered to be present in person
at the meeting.
Section 3.6. Quorum. A majority of the members of the Board of Directors
shall constitute a quorum for the transaction of business, but less than a
quorum may adjourn any meeting from time to time until a quorum shall be
present, whereupon the meeting may be held, as adjourned, without further
notice. At any meeting at which every director shall be present, even though
without any notice, any business may transacted.
Section 3.7. Manner of Acting. At all meetings of the Board of Directors,
each directors shall have one (1) vote. The act of a majority present at a
meeting shall be the act of the Board of Directors, provided a quorum is
present.
Section 3.8. Vacancies. A vacancy in the Board of Directors shall be
deemed to exist in case of death, resignation, or removal of any director, or if
the authorized number of directors is to be elected, to elect the full,
authorized number to be elected at that meeting. If any
5
<PAGE>
vacancy shall occur in the Board of Directors through death, resignation,
removal or other cause, or if it should appear desirable to have additional
directors serve on an interim basis until the next annual meeting of
shareholders, the remaining directors may, the vote of the majority of such
remaining directors, appoint such persons as they may determine to become
substitute directors or new interim directors who shall be directors during such
absence, disability or interim period or until the replaced director shall
return to duty or until the next annual meeting of shareholders. The
determination by the Board of Directors, as shown in the minutes, of the fact of
such absence or disability or the desirability of an interim director and the
duration of the terms of such directors shall be conclusive as to all persons
and Corporation.
Section 3.9 Removal. Directors may be removed at any time without cause by
vote of the shareholders holding more than fifty percent (50%) of the shares
outstanding and entitled to vote. Such vacancy shall be filled by the directors
then in office, though less than a quorum, and any person so designated or
appointed shall hold office until the next annual meeting or until his successor
is duly elected and qualified: provided that any directorship to be filled by
reason of removal by the shareholders may be filled by election by the
shareholders at the meeting at which the director is removed. No reduction of
the authorized number of directors shall have the effect of removing any
director prior to the expiration of his term of office.
Section 3.10. Resignation. A director may resign at any time by delivering
written notification thereof to the President or Secretary of the Corporation.
A resignation shall become effective upon its acceptance by the Board of
Directors: provided, however, that if the Board of Directors has not acted
thereon within ten (10) days after the date of its delivery, the resignation
shall be deemed accepted upon the tenth (10/th/) day.
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Section 3.11. Presumption of Assent. A director who is present at a meeting
of the Board of Directors at which action on any corporate matter is taken shall
be presumed to have assented to the action taken unless his dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after adjournment of the meeting. Such
right of dissent shall not apply to a director who voted in favor of such
action.
Section 3.12. Compensation. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each such
meeting or stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation thereof.
Section 3.13. Informal Action by Directors. Any action required to be taken
at a meeting of directors or any action which may be taken at a meeting of
directors, may be taken without a meeting by written consent, setting forth the
action so taken, signed by all of the directors of the Corporation.
Section 3.14. Chairman. The Board of Directors may elect from its own
number a Chairman of the Board, who shall preside at all the meetings of the
Board of Directors, and shall perform such other duties as may be prescribed
from time to time by the Board of directors.
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ARTICLE IV
OFFICERS
Section 4.1. Number. The officers of the Corporation shall be one
(1) President, one (1) Chief Executive officer, and one (1) Secretary, each of
whom shall be elected by a majority of the Board of Directors. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors. In its discretion, the Board of Directors
may leave unfilled for any such period as it may determine any office except
those of President and Secretary. Any two (2) or more offices may be held by
the same person. Officers need not be directors or shareholders of the
Corporation. Notwithstanding anything herein to the contrary, the initial
officers may be appointed by the incorporator.
Section 4.2. Election and Term of Office. The officers of the
Corporation to be elected by the board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
convenient. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided.
Section 4.3. Resignation. Any officer may resign at any time by
delivering a written resignation either to the President or to the Secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
Section 4.4. Removal. Any officer or agent may be removed by the Board
of Directors, with or without cause, whenever in its judgement the best
interests of the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights. Any such removal shall
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require a majority vote of the Board of Directors, exclusive of the officer in
question if he is also a director.
Section 4.5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, or if a new office shall be
created, may be filled by the Board of Directors for the unexpired portion of
the term.
Section 4.6. President. The President shall be the chief
administrative officer of the Corporation. He shall preside at all meetings of
the shareholders and, in the absence of the Chairman of the Board, at meetings
of the Board of Directors. He shall exercise such duties as customarily pertain
to the office of the President and shall have general and active supervision
over the property, business and affairs of the Corporation and over its several
officers. He may appoint officers, agents, or employees other than those
appointed by the Board of Directors. He may sign, execute and deliver in the
name of the Corporation notes, powers of attorney, contracts, bonds and other
obligations, and shall perform other such duties as may be prescribed from time
to time by the Board of Directors or by the Bylaws.
Section 4.7. Chief Executive Officer. The Chief Executive Officer
shall perform all duties delegated to him by the President.
Section 4.8. Secretary. The Secretary shall, subject to the direction
of the President, keep the minutes of all meetings of the shareholders and the
Board of Directors and, to the extent ordered by the Board of Directors or the
President, the minutes of meetings of all committees. She shall cause notice to
be given of meetings of shareholders, of the Board of Directors, and of any
committee appointed by the Board. She may sign or execute notes and contracts
with the President thereunto authorized in the name of the Corporation. She
shall perform such other duties as may be prescribed from time to time by the
Board of Directors or by these Bylaws. She shall be sworn to the faithful
discharge of her duties. If
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necessary, assistant Secretaries shall assist the Secretary and shall keep and
record such minutes of meetings as shall be directed by the Board of Directors.
Section 4.9. Other Officers. Other officers shall perform such duties
and such powers as may be assigned to them by the Board of Directors.
Section 4.10. Salaries. The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by the Board of
Directors, except that the Board of Directors may delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents. No officer shall be prevented from receiving
any such salary or compensation by reason of the fact that he is also a director
of the Corporation.
Section 4.11. Surety Bonds. If the Board of Directors shall so
require, any officer or agent of the Corporation shall execute to the
Corporation a bond in such sums and with such surety or sureties as the Board of
Directors may direct.
ARTICLE V
COMMITTEES
Section 5.1. Executive Committee. The Board of Directors may appoint
from among its members an Executive Committee of not less than two (2) members,
one (1) of whom shall be the President, and shall designate one (1) of such
members as Chairman. The Board may also designate one (1) or more of its
members as alternates to serve as members of the Executive Committee in the
absence or disability of a regular member(s). The Board of directors reserves
to itself alone the power to declare dividends, issue stock, recommend to
shareholders any action requiring their approval, change the membership of any
committee at any time, fill vacancies therein, and disband any committee either
with or without cause at
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any time. Subject to the foregoing limitations, the Executive Committee shall
possess and exercise all other powers of the Board of Directors during the
intervals between meetings.
Section 5.2. Other Committees. The Board of Directors may also
appoint from among its own members such other committees as the Board of
Directors may determine. Such committees shall in each case consist of not less
than two (2) directors, and shall have such powers and duties as shall from time
to time be prescribed by the Board. If not appointed to be a member of a
committee, the President shall be a member ex-officio of each committee
appointed by the Board of Directors. A majority of the members of any committee
may fix rules of procedure from such committee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 6.1. Contracts. The Board of Directors ma authorize any
officer(s) or agent(s) to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation, and such authority may
be either general or confined to specific instances.
Section 6.2. Loans. No loan or advance shall be contracted on behalf
of the Corporation, no negotiable paper or other evidence of its obligation
under any loan or advance shall be issued in its name, and no property of the
Corporation shall be mortgaged, pledged, hypothecated or transferred as security
for the payment of any loan, advance, indebtedness or liability of the
Corporation unless and expect as authorized by the Board of Directors. Any such
authorization may be either general or confined to specific instances.
Section 6.3. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as
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the Board of Directors may select, or as may be selected by any officer or agent
so authorized by the Board of Directors.
Section 6.4. Checks and Drafts. All notes, drafts, acceptances,
checks, endorsements and evidences of indebtedness of the Corporation shall be
signed by such officer(s) or such agent(s) of the Corporation and in such manner
as the Board of Directors from time to time may determine Endorsements for
deposits to the credit of the Corporation in any of its duly authorized
depositories shall be made in such manner as the Board of Directors from time to
time may determine.
Section 6.5. Bonds and Debentures. Every bond or debenture issued by
the Corporation shall be evidenced by an appropriate instrument which shall be
signed by the President and by another officer of the Corporation and the seal
of the Corporation may, but need not, be affixed thereto.
ARTICLE VII
STOCK AND STOCK CERTIFICATES
Section 7.1 Certificates of Stock. Each stockholder shall be entitled
to a certificate signed by, or in the name of the Corporation by two officers of
the Corporation, certifying the number of shares owned by him. Any of or all
the signatures on the certificate may be facsimile.
Section 7.2 Transfers of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section
7.4 of Article VII of these bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
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Section 7.3 Record Date. The Board of Directors may fix a record
date, which shall not be more than 60 nor less than 10 days before the date of
any meeting of stockholders, nor more than 60 days prior to the time for the
other action hereinafter described, as of which there shall be determined the
stockholders who are entitled to (a) notice of or to vote at any meeting of
stockholders or any adjournment thereof to (b) express consent to corporate
action in writing without a meeting to (c ) receive payment of any dividend or
other distribution or allotment of any rights or (d) to exercise any rights with
respect to any change , conversion or exchange of stock or with respect to any
other lawful action.
Section 7.4 Lost, Stolen or Destroyed Certificates. In the event of
the loss, theft or destruction of any certificates of stock, another may be
issued in its place pursuant to such regulations as the Board of Directors may
establish concerning proof of such loss, theft or destruction and concerning the
giving of a satisfactory bond or bonds of indemnity.
Section 7.5 Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
Section 7.6 Shares Without Certificates. Unless the Articles of
Incorporation provides otherwise, the Board of Directors may authorize the issue
of some or all of the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the Corporation.
Within a reasonable time after the issue or transfer of shares without
certificates, the Corporation shall send the shareholder a written statement
containing such information as is required by the Act.
If the Corporation is authorized to issue different classes of shares
or different series within a class, the written statement shall describe the
designations, relative rights, preferences, and limitations applicable
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to each class and the variation in rights, preferences and limitations
determined for each series (and the authority of the Board of Directors to
determine variations for future series.)
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification. The Corporation shall and does hereby
indemnify and hold harmless each person and his heirs and administrators who
shall serve at any time as a director, officer, employee, agent or fiduciary of
the Corporation from and against any and all claims, judgments and liabilities
to which such persons shall become subject by reason of his having heretofore or
hereafter been a director, officer, employee, agent or fiduciary of the
Corporation, or by reason of any action alleged to have been heretofore or
hereafter taken or omitted to have been taken by him as such director, officer,
employee, agent or fiduciary to the full extent permitted by the Act as
presently in effect or as hereafter amended, and shall reimburse any such person
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability: provided that the Corporation shall have the power
to defend such person from all suits and claims. The rights accruing to any
person under the foregoing provisions of this section shall not exclude any
other right to which he may lawfully be entitled, nor shall anything herein
contained restrict the right of the Corporation to indemnify or reimburse such
person in any proper case, even though not specifically provided for herein or
otherwise permitted. The Corporation, its directors, officers, employees and
agents, shall be fully protected in taking any action or making any payment, or
in refusing so to do in reliance upon the advice of counsel.
Section 8.2 Other Indemnification. The indemnification herein
provided shall not be deemed exclusive of any other right to indemnification to
which any person seeking indemnification may be entitled
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under any bylaw, agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action taken in his official capability and as to action
taken in any other capacity while holding such office. It is the intent hereof
that all officers, directors, employees, agents or fiduciaries be and hereby are
indemnified to the fullest extent permitted by the laws of the State of Utah and
these Bylaws. The indemnification herein provided shall continue as to any
person who has ceased to be a director, officer, employee, agent or fiduciary
and shall inure to the benefit of the heirs, estate and personal representative
of any such person.
Section 8.3 Insurance. The Board of Directors may, in its discretion,
direct that the Corporation purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, agent or fiduciary of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, agent or fiduciary of another Corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against liability under the provisions of this section.
Section 8.4 Settlement by Corporation. The right of any person to be
indemnified shall be subject always to the right of the Corporation by the Board
of Directors, in lieu of such indemnity, to settle any claim, action, suit or
proceeding at the expense of the Corporation by the payment of the amount of
such settlement and the costs and expenses incurred in connection therewith.
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ARTICLE IX
WAIVER OF NOTICE
Section 9.1. Waiver of Notice. Whenever any notice is required to
be given to any shareholder or director of the Corporation under the provisions
of the Act, a waiver thereof in writing signed by the person(s) entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the gibing of such notice. Attendance at any meeting shall
constitute a waiver of notice of such meeting, except where attendance is for
the express purpose of objecting to the legality of that meeting.
ARTICLE X
MISCELLANEOUS
Section 10.1. Facsimile Signature. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized by these
bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors or a committee
thereof.
Section 10.2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation.
Section 10.3. Reliance Upon Books, Reports, and Records. Each
director, each member of any committee designated by the Board of Directors, and
each officer of the Corporation shall, in the performance of his duties, be
fully protected in relying in good faith upon the books of account or other
records of the Corporation, including reports made to the Corporation by any of
its officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 10.4. Fiscal Year. The fiscal year of the Corporation shall
be as fixed by the Board of Directors.
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Section 10.5. Time Periods. In applying any provision of these
bylaws which requires that an act be done or not done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded, and day of the event shall be included.
ARTICLE XI
AMENDMENTS
Section 11.1. Amendments. These bylaws may be amended or repealed by
the Board of Directors at any meeting or by the stockholders at any meeting.
The above and foregoing bylaws were adopted by and for the Corporation
by the incorporator on the 21/st/ day of March, 1996.
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EXHIBIT 4(N)
______________________________
COMMONWEALTH ASSOCIATES
AND
MEDCROSS, INC.
__________
PLACEMENT AGENT'S COMMON STOCK
WARRANT AGREEMENT
DATED AS OF AUGUST 21, 1996
______________________________
<PAGE>
PLACEMENT AGENT'S WARRANT AGREEMENT dated as of August 21, 1996, between
COMMONWEALTH ASSOCIATES, a Delaware Limited Partnership (hereinafter referred to
variously as the "Holder" or the "Placement Agent") and MEDCROSS, INC., a
Florida corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue to the Placement Agent warrants
("Warrants") to purchase up to an aggregate 250,000 shares of common stock, par
value $.007 per share, of the Company ("Common Stock"); and
WHEREAS, the Placement Agent has agreed pursuant to the sales agency
agreement (the "Sales Agency Agreement") dated as of July 1, 1996 between the
Placement Agent and the Company, to sell on behalf of the Company in a private
offering ("the "Offering") pursuant to Regulation D under the Securities Act of
1933, as amended (the "Act") up to 240,000 shares of the Company's Class C
Convertible Cumulative Redeemable Preferred Stock, $10.00 par value per share
(the "Securities"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the closing date of the Offering (the "Closing Date") by the Company
to the Placement Agent in consideration for, and as part of the compensation in
connection with the Offering;
NOW, THEREFORE, in consideration of the premises, the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
<PAGE>
1. Grant. The Holder is hereby granted the right to purchase, at any
time from March 1, 1997 until 5:30 P.M., New York time, August 20, 2001 (the
"Warrant Exercise Term"), up to an aggregate 250,000 shares of the Company's
Common Stock (the "Warrant Shares") at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) of $2.50 per Share, subject to the
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terms and conditions of this Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
(S)3.1 The Warrants initially are exercisable at an aggregate initial
exercise price of $2.50 per share payable by certified or official bank check in
New York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Purchase Price
(as hereinafter defined) for the Warrant Shares purchased at the Company's
principal offices, the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
Warrant Shares so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holder thereof, in whole or in
part (but not as to fractional shares of the Common Stock underlying the
Warrants). In the case of the purchase of less than all the Warrant Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate
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upon the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Warrant Shares purchasable
thereunder.
(S)3.2 Cashless Exercise. At any time during the Warrant Exercise Term,
the Holder may, at its option, exchange the Warrants represented by such
Holder's Warrant certificate, in whole or in part (a "Warrant Exchange"), into
the number of fully paid and non-assessable Warrant Shares determined in
accordance with this Section 3.2, by surrendering such Warrant certificate at
the principal office of the company or at the office of its transfer agent,
accompanied by a notice stating such Holder's intent to effect such exchange,
the number of Warrant Shares to be exchanged and the date on which the Holder
requests that such Warrant Exchange occur (the "Notice of Exchange") The
Warrant Exchange shall take place on the date specified in the Notice of
Exchange, or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the Warrant Shares issuable
upon such Warrant Exchange and, if applicable, a new Warrant of like tenor
evidencing the balance of the Warrant Shares remaining subject to the Holder's
Warrant certificate, shall be issued as of the Exchange Date and delivered to
the Holder within three (3) days following the Exchange Date. In connection with
any Warrant Exchange, the Holder's Warrant certificate shall represent the right
to subscribe for and acquire (I) the number of Warrant Shares (rounded to the
next highest integer) equal to (A) the number of Warrant Shares specified by the
Holder in its Notice of Exchange (the "Total Share Number") less (B) the number
of Warrant Shares equal to the quotient obtained by dividing (i) the product of
the Total Share Number and the existing Exercise Price (as hereinafter defined)
per Share by (ii) the Market Price (as hereafter defined) of a share of Common
Stock.
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As used herein, the phrase "Market Price" at any date shall be
deemed to be the last reported sale price, or, in case no such reported sale
takes place on such day, the average of the last reported sale 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.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for Warrant Shares or other securities, properties or
rights underlying such Warrants, shall be made forthwith (and in any event
within three (3) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Section 7 hereof) be issued in the name of, or in such names as may be directed
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by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid
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to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Warrant
Shares (and/or other securities, property or rights issuable upon the exercise
of the Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. Restriction on Transfer of Warrants.
Upon exercise, in part or in whole, of the Warrants, certificates
representing the Warrant Shares, shall bear a legend substantially similar to
the legend set forth in Section 7.1.
The Holder of a Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrants are being acquired as an investment and
not with a view to the distribution thereof.
6. Exercise Price.
(S)6.1 Initial and Adjusted Exercise Price. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant shall be $2.50.
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The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
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(S)6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
(S)7.1 Registration Under the Securities Act of 1933. The Warrants,
the Warrant Shares and any of the other securities issuable upon exercise of the
Warrants have not been registered under the Securities Act of 1933, as amended
(the "Act"). Upon exercise, in part or in whole, of the Warrants, certificates
representing the Warrant Shares and any of the other securities issuable upon
exercise of the Warrants (collectively, the "Warrant Securities") shall bear the
following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"), and
may not be offered or sold except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent applicable,
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) an opinion of counsel, if
such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act is
available.
(S)7.2 Piggyback Registration. If, at any time from the date hereof
through August 20, 2003, the Company proposes to register any of its securities
under the Act (other than in connection with a merger or pursuant to Form S-8)
it will give written notice by registered mail, at least thirty (30) days prior
to the filing of each such registration statement, to each of the Placement
Agent and to all other Holders of the Warrants and/or the Warrant Securities of
its intention to do so. If any of the Placement Agent or other Holders of the
Warrants and/or Warrant Securities notify the Company within twenty (20) days
after receipt of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford
each of the Placement Agent and such Holders of the Warrants and/or Warrant
Securities the opportunity to have any such Warrants and/or
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Warrant Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(S)7.3 Demand Registration.
(a) At any time commencing August 20 1997, through and including August
1, 2003, the Holders of the Warrants and/or Warrant Securities representing a
"Majority" (as hereinafter defined) of such securities (assuming the exercise of
all of the Warrants) shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Placement Agent and such Holders, in order to comply with
the provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Securities for nine (9) consecutive months by such Holders
and any other Holders of the Warrants and/or Warrant Securities who notify the
Company within ten (10) days after receiving notice from the Company of such
request; provided, however, that in the event the Company fails to file a
registration statement, and use its best efforts to have same declared
effective, covering the conversion shares issuable upon conversion of certain
10% Notes (the "Notes") of the Company (the "Conversion Shares") within
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ninety-five (95) days of a request by the holders of a majority of the
Conversion Shares and/or Notes to register the Conversion Shares, then, in such
event, the commencement date of the demand registration rights granted under
this Section 7.3(a) shall be accelerated from August 20, 1997 to the day
immediately following the expiration of such 95 day period, and in such
circumstances, the period specified in Section 7.4(a) shall be reduced from 95
days to 30 days.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have complied with Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company agrees that upon twenty (20)
days prior written notice of election of a Majority of the Holders of the
Warrants and/or Warrant Securities, and the failure of the Company to comply
with Section 7.4(a) on or before the expiration of such 20 day period, it shall
repurchase (i) any and all Warrant Securities at the higher of the Market Price
(as defined in Section 8.1(a)) per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the exercise prices of such Warrant. Such repurchase shall be in
immediately available funds and shall close within two (2) days after the later
of (i) the expiration of the period specified in Section 7.4(a) or (ii) the
delivery of the written notice of election specified in this Section 7.3(d).
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(S)7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within ninety-five (95) days of receipt of any demand therefor, shall
use its best efforts to have any registration statements declared effective at
the earliest possible time, and shall furnish each Holder desiring to sell
Warrant Securities such number of prospectuses as shall reasonably be requested.
Best efforts shall include the reasonable efforts to insure the availability of
financial statements and other matters necessary to effectuate the filing.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s) counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If
the Company shall fail to comply with the provisions of Section 7.4(a), the
Company shall, in addition to any other equitable or other relief available to
the Holder(s), be liable for any or all incidental, special and consequential
damages and damages due to loss of profit sustained by the Holder(s) requesting
registration of their Warrant Securities. Notwithstanding anything herein to the
contrary, provided the Company complies with the provisions of Section 7.3(c),
the Company shall have no liability under the foregoing sentence of this Section
7.4(b).
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s),
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provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify the Placement Agent contained in Section 10 of the Sales
Agency Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in
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Section 10 of the Sales Agency Agreement pursuant to which the Placement Agent
has agreed to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall use its best efforts not to permit the inclusion
of any securities other than the Warrants and Warrant Securities to be included
in any registration statement filed pursuant to Section 7.3 hereof or permit any
other registration statement to be or remain effective during the effectiveness
of a registration statement filed pursuant to Section 7.3 hereof (except
-------
registration statements on Form S-8 or filed pursuant to contractual commitments
existing on the date hereof), without the prior written consent of the Holders
of the Warrants and Warrant Securities representing a majority of such
securities. In the event the Company is required to include securities other
than the Warrants and Warrant Securities in a registration statement filed under
Section 7.3, the Holders shall be entitled to one additional right to demand the
preparation and filing of a registration under Section 7.3
(h) The Company shall furnish to each broker-dealer participating as an
underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the
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independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company as soon as practicable, but in any event not later than
45 days after the end of the 12-month period beginning on the day after the end
of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), shall make generally available
to its security holders, in the manner specified in Rule 158(b) of the Rules and
Regulations, and to the Placement Agent, an earnings statement which will be in
the detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the effective date of the Registration
Statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and the
managing underwriters, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the
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registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance to the
Company, each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter.
The Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(1) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of the ir respective affiliates, members of their
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family, persons acting as nominees or in conjunction therewith or (ii) have not
been resold to the public pursuant to a registration statement filed with the
Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
(S)8.1 (a) Computation of Adjusted Exercise Price. Except as hereinafter
provided, in case the Company shall at any time after the date hereof issue or
sell any shares of Common Stock (other than the issuances or sales referred to
in Section 8.7 hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants, to subscribe for shares of Common Stock and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for
shares of Common Stock, for a consideration per share less than the Exercise
Price in effect immediately prior to the issuance or sale of such shares or the
"Market Price" (as defined in Section 8. l(vi) hereof) per share of Common Stock
on the date immediately prior to the issuance or sale of such shares or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (A) an
amount equal to the sum of (X) the product of (a) the lower of (i) the Exercise
Price in effect immediately prior to such issuance or sale and (ii) the Market
Price per share of Common Stock on the date immediately prior to the issuance or
sale of such shares, in either event, reduced, but not below the par value of
the Common Stock, by the positive difference between the (u) "Market Price" per
share of Common Stock on the date immediately prior to the issuance or sale and
(v) the amount per share received in connection with such issuance or sale,
multiplied by (b) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus, (Y) the aggregate of the
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amount of all consideration, if any, received by the Company upon such issuance
or sale, by (B) the total number of shares of Common Stock outstanding
immediately after such issuance or sale; provided, however, that in no event
shall the Exercise Price be adjusted pursuant to this computation to an amount
in excess of the Exercise Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock, as
provided by Section 8.3 hereof.
(b) In addition to the foregoing, in the event the closing bid price
of the Company's Common Stock is less than $2.50 at any time during the period
commencing on the first anniversary of the Final Closing of the Offering and
ending 18 months thereafter (the "Adjustment Period") the exercise price shall
be adjusted as herein provided. In the event the closing bid price of the
Common Stock is less than $2.50 for five consecutive trading days during the
Adjustment Period, the Exercise Price shall be reduced to the lower of the then
current Exercise Price or the lowest of the average closing bid price of the
Common Stock for five consecutive trading days during the Adjustment Period. In
no event shall the Conversion Price be adjusted below $1.25 on account of this
adjustment in this subparagraph 8(b).
(c) For the purposes of this Section 8 the term Exercise Price shall
mean the Exercise Price per share of Common Stock set forth in Section 6 hereof,
as adjusted from time to time pursuant to the provisions of this Section 8.
For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
- -------
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to
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<PAGE>
be the amount of cash received by the Company for such shares (or, if shares of
Common Stock are offered by the Company for subscription, the subscription
price, or, if either of such securities shall be sold to underwriters or dealers
for public offering without a subscription offering, the initial public offering
price) before deducting therefrom any compensation paid or discount allowed in
the sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 8.1.
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(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date shall be
deemed to be the last reported sale price, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
last three (3) 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 by the Nasdaq Stock Market, National Market ("Nasdaq"), or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by the
NASD 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.
(S)8.2 Options. Rights Warrants and Convertible and Exchangeable
Securities. In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share less than the Exercise Price in effect or the Market
Price immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, or without consideration, the
Purchase Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or
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exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of Section
8.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in such options, rights or warrants at the
time of issuance, plus the consideration (determined in the same manner as
consideration received on the issue or sale of shares in accordance with
the terms of the Warrants), if any, received by the Company for such
options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock issuable
upon conversion or exchange of any convertible or exchangeable securities
shall be deemed to be issued and outstanding at the time of issuance of
such securities, and-for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or
sale of shares of Common Stock in accordance with the terms of the
Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or
exchange thereof.
(c) If any change shall occur in the price per share provided for in
any of the options rights or warrants referred to in subsection (a) of this
Section 8.2, or in the price per share at which the securities referred to
in subsection (b) of this Section 8.2 are convertible or exchangeable, such
options, rights or warrants or conversion or exchange
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rights, as the case may be, shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
(d) Notwithstanding the foregoing, the Exercise Price shall not be
adjusted to a price less than $2.00 per share [as adjusted from time to
time in accordance with paragraph 8.3] (the "Base Price") on account of
this paragraph 8.2 unless the "consideration per share" referred to above
for any such issuance or sale is less than the Base Price.
(S)8.3 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the-case of combination.
(S)8.4 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise of each Warrant shall be adjusted
to the nearest full amount by multiplying a number equal to the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant
Securities issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
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(S)8.5 Definition of Common Stock. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company as may be amended as of
the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock, consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the shares of Common
Stock outstanding as of the date hereof, the Holder, at its option, may receive
upon exercise of any Warrant either shares of Common Stock or a like number of
such securities with greater or superior voting rights.
(S)8.6 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
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(S)8.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Securities sold in the Offering
or the shares of Common Stock issuable upon the conversion or exercise of
any Securities sold in the Offering, or the conversion or exercise of
securities outstanding on the date hereof, or contemplated to be issued by
the memorandum of the Offering including the Dividend Shares as defined
therein; or
(b) If the amount of said adjustment shall be less than two cents
($.02) per Warrant, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall
amount to at least two cents ($.02) per Warrant.
(S)8.9 Dividends and Other Distributions. In the event that the Company
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or otherwise
distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether issued by
the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution as if the Warrants had been exercised immediately prior to such
dividend or
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distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection 8.9.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and
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agrees that, upon exercise of the Warrants and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. As long as the Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Common Stock issuable upon the exercise of the Warrants to be listed (subject
to official notice of issuance) on all securities exchanges on which the Common
Stock may then be listed and/or quoted.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
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(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property assets and business as an entirety shall
be proposed; then, in any one or more of said events the Company shall give
written notice of such event at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the
transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription
rights, options or warrants, or any proposed dissolution, liquidation,
winding up or sale.
13. Notices.
All notices requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the
Holders.
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14. Supplements and Amendments. The Company and the Placement Agent may
from time to time supplement or amend this Agreement without the approval of any
holders of Warrant Certificates (other than the Placement Agent) in order to
cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Placement Agent may deem necessary or desirable and which the
Company and the Placement Agent deem shall not adversely affect the interests of
the Holders of Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of business
on August 30, 2005. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on August 30, 2005.
17. Governing Law: Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Placement Agent and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which
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jurisdiction shall be exclusive. The Company, the Placement Agent and the
Holders hereby irrevocably waive any objection to such exclusive jurisdiction or
inconvenient forum. Any such process or summons to be served upon any of the
Company, the Placement Agent and the Holders (at the option of the party
bringing such action, proceeding or claim) may be served by transmitting a copy
thereof, by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address set forth in Section 13 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the
party so served in any action, proceeding or claim. The Company, the Placement
Agent and the Holders agree that the prevailing party(ies) in any such action or
proceeding shall be entitled to recover from the other party(ies) all of
its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
18. Entire Agreement: Modification. This Agreement (including the Sales
Agency Agreement to the extent portions thereof are referred to herein) contains
the entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
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21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Placement Agent and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Placement Agent and any other Holder(s) of the Warrant
Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
Attest: MEDCROSS, INC.
____________________________ By: ______________________________
Secretary Name:
Title:
[SEAL] COMMONWEALTH ASSOCIATES
By: ______________________________
Name:
Title:
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THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, August 21, 2001
No. W-C2 250,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Commonwealth Associates, or
registered assigns, is the registered holder of 250,000 Warrants to purchase
initially, at any time from March 1, 1997 until 5:30 p.m. New York time on
August 20, 2001 ("Expiration Date"), up to 250,000 fully-paid and non-assessable
shares of common stock, par value $.007 per share ("Common Stock") of Medcross,
Inc., a Delaware corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $2.50 per
share of Common Stock upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of August 21,
1996 between the Company and COMMONWEALTH ASSOCIATES, (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank check
in New York Clearing House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Placement Agent's Warrants evidenced hereby,
unless exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants pursuant to the Placement Agent's Warrant
Agreement, which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants.
The Placement Agent's Warrant Agreement provides that upon the occurrence
of certain events the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the
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number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter or otherwise impair, the rights
of the holder as set forth in the Placement Agent's Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Placement
Agent's Warrant Agreement, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Placement Agent's Warrant Agreement shall have the meanings
assigned to them in the Placement Agent's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of August 21, 1996
MEDCROSS, INC.
Attest:
By___________________________
Name:
Title:
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Secretary
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[SEAL]
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________ shares of Common
Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the order of
Medcross Inc. in the amount of $____________, all in accordance with the terms
hereof. The undersigned requests that a certificate for such securities be
registered in the name of _________________________ whose address is
_____________________________________________ and that such Certificate be
delivered to ___________________________ whose address is
_____________________________________________.
Dated:
Signature _____________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
_______________________________
Insert Social Security or Other
Identifying Number of Holder
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ASSIGNMENT FORM
---------------
The Holder hereby assigns and transfers unto
Name ______________________________________________________________
(Please typewrite or print in block letters)
Address ___________________________________________________________
___________________________________________________________
the right to purchase Common Stock of _____________ represented by this Warrant
to the extent of _______________ shares of Common Stock as to which such right
is exercisable and does hereby irrevocably constitute and appoint
________________________________ Attorney, to transfer the same on the books of
_____________ with full power of substitution in the premises.
Date: ___________________, 199_
______________________________
Name of Registered Holder
______________________________
Signature
______________________________
Signature, if held jointly
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EXHIBIT 4(O)
__________________________________________
COMMONWEALTH ASSOCIATES
AND
MEDCROSS, INC.
----------------
CONSULTANT'S COMMON STOCK
WARRANT AGREEMENT
DATED AS OF AUGUST 21, 1996
__________________________________________
<PAGE>
Consultant'S WARRANT AGREEMENT dated as of August 21, 1996, between
COMMONWEALTH ASSOCIATES, a Delaware Limited Partnership (hereinafter referred to
variously as the "Holder" or the "Consultant") and MEDCROSS, INC., a Florida
corporation (the "Company") .
W I T N E S S E T H :
WHEREAS, the Company proposes to issue to the Consultant warrants
("Warrants") to purchase up to an aggregate 500,000 shares of common stock, par
value $.007 per share, of the Company ("Common Stock"); and
WHEREAS, the Consultant has agreed pursuant to the investment banking
agreement (the "Investment Banking Agreement") dated as of August 21, 1996
between the Consultant and the Company, to provide investment banking and other
services; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued in consideration for, and as part of the compensation in connection with
the Investment Banking Agreement;
NOW, THEREFORE, in consideration of the premises, the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Holder is hereby granted the right to purchase, at any
time from March 1, 1997 until 5:30 P.M., New York time, August 20, 2001 (the
"Warrant Exercise Term"), up to an aggregate 500,000 shares of the Company's
Common Stock (the "Warrant
<PAGE>
Shares") at an initial exercise price (subject to adjustment as provided in
Section 8 hereof) of $2.50 per Share, subject to the terms and conditions of
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this Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
(S)3.1 The Warrants initially are exercisable at an aggregate initial
exercise price of $2.50 per share payable by certified or official bank check in
New York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Purchase Price
(as hereinafter defined) for the Warrant Shares purchased at the Company's
principal offices, the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
Warrant Shares so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holder thereof, in whole or in
part (but not as to fractional shares of the Common Stock underlying the
Warrants). In the case of the purchase of less than all the Warrant Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Warrant Shares
purchasable thereunder.
(S)3.2 Cashless Exercise. At any time during the Warrant Exercise Term,
the Holder may, at its option, exchange the Warrants represented by such
Holder's Warrant certificate, in
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whole or in part (a "Warrant Exchange"), into the number of fully paid and non-
assessable Warrant Shares determined in accordance with this Section 3.2, by
surrendering such Warrant certificate at the principal office of the company or
at the office of its transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange") The Warrant Exchange shall take place on the
date specified in the Notice of Exchange, or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Warrant Shares issuable upon such Warrant Exchange and, if applicable, a new
Warrant of like tenor evidencing the balance of the Warrant Shares remaining
subject to the Holder's Warrant certificate, shall be issued as of the Exchange
Date and delivered to the Holder within three (3) days following the Exchange
Date. In connection with any Warrant Exchange, the Holder's Warrant certificate
shall represent the right to subscribe for and acquire (I) the number of Warrant
Shares (rounded to the next highest integer) equal to (A) the number of Warrant
Shares specified by the Holder in its Notice of Exchange (the "Total Share
Number") less (B) the number of Warrant Shares equal to the quotient obtained by
dividing (i) the product of the Total Share Number and the existing Exercise
Price (as hereinafter defined) per Share by (ii) the Market Price (as hereafter
defined) of a share of Common Stock.
As used herein, the phrase "Market Price" at any date shall be deemed
to be the last reported sale price, or, in case no such reported sale takes
place on such day, the average of the last reported sale 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
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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.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for Warrant Shares or other securities, properties or
rights underlying such Warrants, shall be made forthwith (and in any event
within three (3) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Section 7 hereof) be issued in the name of, or in such names as may be directed
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by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Warrant
Shares (and/or other securities, property or rights issuable upon the exercise
of the Warrants) shall be executed
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on behalf of the Company by the manual or facsimile signature of the then
present Chairman or Vice Chairman of the Board of Directors or President or Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then present Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Restriction on Transfer of Warrants.
Upon exercise, in part or in whole, of the Warrants, certificates
representing the Warrant Shares, shall bear a legend substantially similar to
the legend set forth in Section 7.1.
The Holder of a Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrants are being acquired as an investment and
not with a view to the distribution thereof.
6. Exercise Price.
(S)6.1 Initial and Adjusted Exercise Price. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant shall be $2.50.
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The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
(S)6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
(S)7.1 Registration Under the Securities Act of 1933. The Warrants, the
Warrant Shares and any of the other securities issuable upon exercise of the
Warrants have not been registered
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under the Securities Act of 1933, as amended (the "Act"). Upon exercise, in part
or in whole, of the Warrants, certificates representing the Warrant Shares and
any of the other securities issuable upon exercise of the Warrants
(collectively, the "Warrant Securities") shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"),
and may not be offered or sold except pursuant to (i) an
effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
(S)7.2 Piggyback Registration. If, at any time from the date hereof
through August 20, 2003, the Company proposes to register any of its securities
under the Act (other than in connection with a merger or pursuant to Form S-8)
it will give written notice by registered mail, at least thirty (30) days prior
to the filing of each such registration statement, to each of the Consultant and
to all other Holders of the Warrants and/or the Warrant Securities of its
intention to do so. If any of the Consultant or other Holders of the Warrants
and/or Warrant Securities notify the Company within twenty (20) days after
receipt of any such notice of its or their desire to include any such securities
in such proposed registration statement, the Company shall afford each of the
Consultant and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrants and/or Warrant Securities registered under
such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not
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<PAGE>
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
(S)7.3 Demand Registration.
(a) At any time commencing August 20, 1997, through and
including August 1, 2003, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Commission, on one occasion, a registration statement and such other documents,
including a prospectus, as may be necessary in the opinion of both counsel for
the Company and counsel for the Consultant and such Holders, in order to comply
with the provisions of the Act, so as to permit a public offering and sale of
their respective Warrant Securities for nine (9) consecutive months by such
Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request; provided, however, that in the event the Company fails to file
a registration statement, and use its best efforts to have same declared
effective, covering the conversion shares issuable upon conversion of certain
10% Notes (the "Notes") of the Company (the "Conversion Shares") within ninety-
five (95) days of a request by the holders of a majority of the Conversion
Shares and/or Notes to register the Conversion Shares, then, in such event, the
commencement date of the demand registration rights granted under this Section
7.3(a) shall be accelerated from August 20, 1997 to the day immediately
following the expiration of such 95
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day period, and in such circumstances, the period specified in Section 7.4(a)
shall be reduced from 95 days to 30 days.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have complied with Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company agrees that upon twenty (20)
days prior written notice of election of a Majority of the Holders of the
Warrants and/or Warrant Securities, and the failure of the Company to comply
with Section 7.4(a) on or before the expiration of such 20 day period, it shall
repurchase (i) any and all Warrant Securities at the higher of the Market Price
(as defined in Section 8.1(a)) per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the exercise prices of such Warrant. Such repurchase shall be in
immediately available funds and shall close within two (2) days after the later
of (i) the expiration of the period specified in Section 7.4(a) or (ii) the
delivery of the written notice of election specified in this Section 7.3(d).
(S)7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
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(a) The Company shall use its best efforts to file a
registration statement within ninety-five (95) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested. Best efforts shall include all reasonable efforts by
the Company to insure the availability of financial statements and other matters
necessary to effectuate the filing.
(b) The Company shall pay all costs (excluding fees and expenses
of Holder(s) counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section 7.4(a), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), be liable for any or all incidental, special and consequential
damages and damages due to loss of profit sustained by the Holder(s) requesting
registration of their Warrant Securities. Notwithstanding anything herein to the
contrary, provided the Company complies with the provisions of Section 7.3(c),
the Company shall have no liability under the foregoing sentence of this Section
7.4(b).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general
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consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Consultant contained in Section 10 of the
Sales Agency Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant
to a registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 10 of the
Sales Agency Agreement pursuant to which the Consultant has agreed to indemnify
the Company.
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(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall use its best efforts not to permit the
inclusion of any securities other than the Warrants and Warrant Securities to be
included in any registration statement filed pursuant to Section 7.3 hereof or
permit any other registration statement to be or remain effective during the
effectiveness of a registration statement filed pursuant to Section 7.3 hereof
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(except registration statements on Form S-8 or filed pursuant to contractual
commitments existing on the date hereof), without the prior written consent of
the Holders of the Warrants and Warrant Securities representing a majority of
such securities. In the event the Company is required to include securities
other than the Warrants and Warrant Securities in a registration statement filed
under Section 7.3, the Holders shall be entitled to one additional right to
demand the preparation and filing of a registration under Section 7.3
(h) The Company shall furnish to each broker-dealer
participating as an underwriter, if any, a signed counterpart, addressed to such
Holder or underwriter, of (i) an opinion of counsel to the Company, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with
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respect to such registration statement (and the prospectus included therein)
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities.
(i) The Company as soon as practicable, but in any event not
later than 45 days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (90 days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Consultant, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and the managing underwriters, if any, copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each Holder and underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc.
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("NASD"). Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder shall reasonably request.
(k) The Company shall enter into an underwriting agreement with
the managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance to the
Company, each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter.
The Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(1) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor, employee
or agent thereof or any of their respective affiliates,
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members of their family, persons acting as nominees or in conjunction therewith
or (ii) have not been resold to the public pursuant to a registration statement
filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
(S)8.1 (a) Computation of Adjusted Exercise Price. Except as hereinafter
provided, in case the Company shall at any time after the date hereof issue or
sell any shares of Common Stock (other than the issuances or sales referred to
in Section 8.7 hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants, to subscribe for shares of Common Stock and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for
shares of Common Stock, for a consideration per share less than the Exercise
Price in effect immediately prior to the issuance or sale of such shares or the
"Market Price" (as defined in Section 8. l(vi) hereof) per share of Common Stock
on the date immediately prior to the issuance or sale of such shares or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (A) an
amount equal to the sum of (X) the product of (a) the lower of (i) the Exercise
Price in effect immediately prior to such issuance or sale and (ii) the Market
Price per share of Common Stock on the date immediately prior to the issuance or
sale of such shares, in either event, reduced, but not below the par value of
the Common Stock, by the positive difference between the (u) "Market Price" per
share of Common Stock on the date immediately prior to the issuance or sale and
(v) the amount per share received in connection with such issuance or sale,
multiplied by (b) the total number of shares of Common
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Stock outstanding immediately prior to such issuance or sale plus, (Y) the
aggregate of the amount of all consideration, if any, received by the Company
upon such issuance or sale, by (B) the total number of shares of Common Stock
outstanding immediately after such issuance or sale; provided, however, that in
no event shall the Exercise Price be adjusted pursuant to this computation to an
amount in excess of the Exercise Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock, as provided by Section 8.3 hereof.
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(b) In addition to the foregoing, in the event the closing bid
price of the Company's Common Stock is less than $2.50 at any time during the
period commencing on the first anniversary of the Final Closing of a certain
private offering (the "Offering") of up to 240,000 shares of the Company's Class
C Convertible Cumulative Redeemable Preferred Stock, $10.00 par value, per share
(the "Securities") and ending 18 months thereafter (the "Adjustment Period") the
exercise price shall be adjusted as herein provided. In the event the closing
bid price of the Common Stock is less than $2.50 for five consecutive trading
days during the Adjustment Period, the Exercise Price shall be reduced to the
lower of the then current Exercise Price or the lowest of the average closing
bid price of the Common Stock for five consecutive trading days during the
Adjustment Period. In no event shall the Conversion Price be adjusted below
$1.25 on account of this adjustment in this subparagraph 8(b).
(c) For the purposes of this Section 8 the term Exercise Price
shall mean the Exercise Price per share of Common Stock set forth in Section 6
hereof, as adjusted from time to time pursuant to the provisions of this Section
8.
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For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
- -------
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if either of such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend
or other distribution on any stock of the Company) of shares of Common Stock for
a consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
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(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date shall be
deemed to be the last reported sale price, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
last three (3) 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 by the Nasdaq Stock Market, National Market ("Nasdaq"), or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by the
NASD 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.
(S)8.2 Options. Rights Warrants and Convertible and Exchangeable
Securities. In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe
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for shares of Common Stock, or issue any securities convertible into or
exchangeable for shares of Common Stock, for a consideration per share less than
the Exercise Price in effect or the Market Price immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration, the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 8.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in such options, rights or warrants at the
time of issuance, plus the consideration (determined in the same manner as
consideration received on the issue or sale of shares in accordance with
the terms of the Warrants), if any, received by the Company for such
options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock issuable
upon conversion or exchange of any convertible or exchangeable securities
shall be deemed to be issued and outstanding at the time of issuance of
such securities, and-for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or
sale of shares of Common Stock in accordance with the terms of the
Warrants) received by the Company for such securities, plus the
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<PAGE>
minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof.
(c) If any change shall occur in the price per share provided for in
any of the options rights or warrants referred to in subsection (a) of this
Section 8.2, or in the price per share at which the securities referred to
in subsection (b) of this Section 8.2 are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case
may be, shall be deemed to have expired or terminated on the date when such
price change became effective in respect of shares not theretofore issued
pursuant to the exercise or conversion or exchange thereof, and the Company
shall be deemed to have issued upon such date new options, rights or
warrants or convertible or exchangeable securities at the new price in
respect of the number of shares issuable upon the exercise of such options,
rights or warrants or the conversion or exchange of such convertible or
exchangeable securities.
(d) Notwithstanding the foregoing, the Exercise Price shall not be
adjusted to a price less than $2.00 per share [as adjusted from time to
time in accordance with paragraph 8.3] (the "Base Price") on account of
this paragraph 8.2 unless the "consideration per share" referred to above
for any such issuance or sale is less than the Base Price.
(S)8.3 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the-case of combination.
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(S)8.4 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise of each Warrant shall be adjusted
to the nearest full amount by multiplying a number equal to the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant
Securities issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
(S)8.5 Definition of Common Stock. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company as may be amended as of
the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock, consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the shares of Common
Stock outstanding as of the date hereof, the Holder, at its option, may receive
upon exercise of any Warrant either shares of Common Stock or a like number of
such securities with greater or superior voting rights.
(S)8.6 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of
20
<PAGE>
shares of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of shares of Common Stock of
the Company for which such warrant might have been exercised immediately prior
to such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 8. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
(S)8.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Securities sold in the Offering
or the shares of Common Stock issuable upon the conversion or exercise of
any Securities sold in the Offering, or the conversion or exercise of
securities outstanding on the date hereof or contemplated to be issued by
the memorandum of the Offering including the Dividend Shares as defined
therein; or
(b) If the amount of said adjustment shall be less than two cents
($.02) per Warrant, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall
amount to at least two cents ($.02) per Warrant.
(S)8.9 Dividends and OtherDistributions. In the event that the Company
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or otherwise
distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether
21
<PAGE>
issued by the Company or by another, or any other thing of value, the Holders of
the unexercised Warrants shall thereafter be entitled, in addition to the shares
of Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection 8.9.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent
22
<PAGE>
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock may then be
listed and/or quoted.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of
23
<PAGE>
current or retained earnings, as indicated by the accounting treatment of
such dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property assets and business as an entirety shall
be proposed; then, in any one or more of said events the Company shall give
written notice of such event at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the
transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription
rights, options or warrants, or any proposed dissolution, liquidation,
winding up or sale.
24
<PAGE>
13. Notices.
All notices requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. The Company and the Consultant may from
time to time supplement or amend this Agreement without the approval of any
holders of Warrant Certificates (other than the Consultant) in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Consultant may deem necessary or desirable and which the Company and the
Consultant deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of business
on August 30, 2005. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on August 30, 2005.
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<PAGE>
17. Governing Law: Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Consultant and the Holders hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or of the United States of America for the Southern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company, the Consultant and the Holders hereby irrevocably waive any
objection to such exclusive jurisdiction or inconvenient forum. Any such process
or summons to be served upon any of the Company, the Consultant and the Holders
(at the option of the party bringing such action, proceeding or claim) may be
served by transmitting a copy thereof, by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in
Section 13 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company, the Consultant and the Holders agree that the prevailing party(ies)
in any such action or proceeding shall be entitled to recover from the other
party(ies) all of its/their reasonable legal costs and expenses relating to such
action or proceeding and/or incurred in connection with the preparation
therefor.
18. Entire Agreement: Modification. This Agreement (including the Sales
Agency Agreement to the extent portions thereof are referred to herein) contains
the entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or
26
<PAGE>
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Consultant and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Consultant and any other Holder(s) of the Warrant Certificates
or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ATTEST: MEDCROSS, INC.
__________________________ By: ________________________________
Secretary Name:
Title:
ATTEST: COMMONWEALTH ASSOCIATES
__________________________ By: ________________________________
Secretary Name:
Title:
28
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, August , 2001
No. W- _________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ___________________, or registered
assigns, is the registered holder of ______ Warrants to purchase initially, at
any time from March 1, 1997 until 5:30 p.m. New York time on August 20, 2001
("Expiration Date"), up to _____ fully-paid and non-assessable shares of common
stock, par value $.007 per share ("Common Stock") of Medcross, Inc., a Delaware
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $2.50 per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of August ,
1996 between the Company and COMMONWEALTH ASSOCIATES, (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank check
in New York Clearing House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Consultant's Warrants evidenced hereby,
unless exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants pursuant to the Consultant's Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Consultant's Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter or otherwise impair, the rights of the holder
as set forth in the Consultant's Warrant Agreement.
1
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Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Consultant's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Consultant's Warrant Agreement shall have the meanings assigned to them in the
Consultant's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of August 20, 1996
[SEAL] MEDCROSS, INC.
Attest:
By___________________________
Name:
Title:
- --------------------------
Secretary
2
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________ shares of Common
Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the order of
Medcross Inc. in the amount of $____________, all in accordance with the terms
hereof. The undersigned requests that a certificate for such securities be
registered in the name of _________________________ whose address is
_____________________________________________ and that such Certificate be
delivered to ___________________________ whose address is
_____________________________________________.
Dated:
Signature _____________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
_______________________________
Insert Social Security or Other
Identifying Number of Holder)
3
<PAGE>
ASSIGNMENT FORM
The Holder hereby assigns and transfers unto
Name ______________________________________________________________
(Please typewrite or print in block letters)
Address ___________________________________________________________
___________________________________________________________
the right to purchase Common Stock of _____________ represented by this Warrant
to the extent of _______________ shares of Common Stock as to which such right
is exercisable and does hereby irrevocably constitute and appoint
________________________________ Attorney, to transfer the same on the books of
_____________ with full power of substitution in the premises.
Date: ___________________, 199_
______________________________
Name of Registered Holder
______________________________
Signature
______________________________
Signature, if held jointly
4
<PAGE>
EXHIBIT 10(X)
COMMONWEALTH ASSOCIATES
733 THIRD AVENUE
NEW YORK, NEW YORK 10017
August 20, 1996
Medcross, Inc.
3227 Bennet Street North
St. Petersburg, Florida 33713
Attention: Mr. Henry Toh
Chairman of the Board
Dear Mr. Toh:
This letter, when executed by the parties hereto, will constitute an
agreement between Medcross, Inc. (the "Company") and Commonwealth Associates
("Commonwealth") pursuant to which the Company agrees to retain Commonwealth and
Commonwealth agrees to be retained by the Company under the terms and conditions
set forth below.
1. The Company hereby retains Commonwealth to perform consulting
services related to corporate finance and other financial services matters, and
Commonwealth hereby accepts such retention. In this regard, subject to the
terms set forth below, Commonwealth shall furnish to the Company advice and
recommendations with respect to such aspects of the business and affairs of the
Company as the Company shall, from time to time, reasonably request upon
reasonable notice. In addition, Commonwealth shall hold itself ready to assist
the Company in evaluating and negotiating particular contracts or transactions,
if requested to do so by the Company, upon reasonable notice.
2. As compensation for the services described in paragraph 1 above,
the Company shall pay to Commonwealth a fee of $200,000, for the full term of
this Agreement of 12 months, payable in full in advance on the date hereof, and
shall sell to Commonwealth (or its designated affiliates) upon the execution of
this agreement, 500,000 common stock purchase warrants at a price of $.001 per
warrant. Such warrants will expire five years after the Offering is consummated
and will be exercisable at $2.50 per share. The warrants may be exercised as to
all or a lesser number of shares and will contain provisions for registration of
the resale of the underlying shares at the Company's expense, cashless exercise
and for adjustment in the number of such shares and the exercise price to
prevent dilution. In addition to its compensation hereunder, the Company will
reimburse Commonwealth for any and all reasonable expenses incurred by
Commonwealth in the performance of its duties hereunder, and Commonwealth shall
account for such expenses to the Company; provided, however, that any expenses
in excess of $1,000 shall require the prior written approval of the Company,
which will not be unreasonably withheld. Such reimbursement shall accumulate
and be paid monthly. Nothing contained herein shall prohibit Commonwealth from
receiving any additional
<PAGE>
compensation under paragraphs 3 and 4 herein or otherwise. In addition to the
$200,000 fee set forth above, the Company shall pay to Commonwealth, as
compensation for its services, an amount equal to 2% of all subscription amounts
above $10,000,000 received by the Company in connection with the Company's
private placement offering of Series C Preferred Stock; provided, however, in
calculating the amount of such additional 2% fee, there shall be excluded from
the total subscription amount the conversion of debt into Series C Preferred
Stock by Scott Cook or T6-G Limited Partnership.
3. In addition, Commonwealth shall hold itself ready to assist the
Company in evaluating and negotiating particular contracts or transactions, if
requested to do so by the Company, upon reasonable notice, and will undertake
such evaluations and negotiations upon prior written agreement as to additional
compensation to be paid by the Company to Commonwealth with respect to such
evaluations and negotiations. Nothing herein shall require the Company to
utilize Commonwealth's services in any particular transactions nor shall limit
the Company's obligations arising under any other agreement or understanding.
4. The Company and Commonwealth further acknowledge and agree that
Commonwealth may act as a finder or financial consultant in various business
transactions in which the Company may be involved, such as mergers, acquisitions
or joint ventures. The Company hereby agrees that in the event Commonwealth
shall introduce to the Company another party or entity, and that as a result of
such introduction, a transaction is consummated, the Company shall pay to
Commonwealth a fee of five (5%) percent of the first $5,000,000 and two and one-
half (2-1/2%) percent of the amount over $5,000,000 of the consideration paid or
received by the Company (or by any subsidiary or affiliated entity of the
Company) in any transaction (including mergers, acquisitions, joint ventures and
other business transactions) consummated by the Company or any subsidiary or
affiliated entity of the Company, which were introduced to the Company by the
Placement Agent. Such fee shall be paid in cash at the closing of the
transaction to which it relates, and shall be payable whether or not the
transaction involves stock, or a combination of stock and cash, or is made on
the installment sale basis. In addition, if the Company shall, within 12 months
immediately following the termination of this Agreement, consummate a
transaction with any party first introduced by Commonwealth to the Company prior
to such termination, the Company shall pay to Commonwealth a fee with respect to
such transaction calculated in accordance with this paragraph.
5. All obligations of Commonwealth contained herein shall be subject
to Commonwealth's reasonable availability for such performance, in view of the
nature of the requested service and the amount of notice received. Commonwealth
shall devote such time and effort to the performance of its duties hereunder as
Commonwealth shall determine is reasonably necessary for such performance.
Commonwealth may look to such others for such factual information, investment
recommendations, economic advice and/or research, upon which to base its advice
to the Company hereunder, as it shall deem appropriate. The Company shall
furnish to Commonwealth all information reasonably relevant to the performance
by Commonwealth of its obligations under this Agreement, or particular projects
as to which Commonwealth is acting as advisor, which will permit Commonwealth to
know all facts material to the advice to be
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rendered, and all material or information reasonably requested by Commonwealth.
In the event that the Company fails or refuses to furnish any such material or
information reasonably requested by Commonwealth, and thus prevents or impedes
Commonwealth's performance hereunder, any inability of Commonwealth to perform
shall not be a breach of its obligations hereunder.
6. Nothing contained in this Agreement shall limit or restrict the
right of Commonwealth or of any partner, employee, agent or representative of
Commonwealth, to be a partner, director, officer, employee, agent or
representative of, or to engage in, any other business, whether of a similar
nature or not, nor to limit or restrict the right of Commonwealth to render
services of any kind to any other corporation, firm, individual or association.
7. Commonwealth will hold in confidence any confidential information
which the Company provides to Commonwealth pursuant to this Agreement unless the
Company gives Commonwealth permission in writing to disclose such confidential
information to a specific third party. In addition, all confidential
information which the Company provided to Commonwealth in connection with any
prior or ongoing offering shall be considered confidential information for
purposes of this Agreement. Notwithstanding the foregoing, Commonwealth shall
not be required to maintain confidentiality with respect to information (i)
which is or becomes part of the public domain; (ii) of which it had independent
knowledge prior to disclosure; (iii) which comes into the possession of
Commonwealth in the normal and routine course of its own business from and
through independent non-confidential sources; or (iv) which is required to be
disclosed by Commonwealth by governmental requirements. If Commonwealth is
requested or required (by oral questions, interrogatories, requests for
information or document subpoenas, civil investigative demands, or similar
process) to disclose any confidential information supplied to it by the Company,
or the existence of other negotiations in the course of its dealings with the
Company or its representatives, Commonwealth shall, unless prohibited by law,
promptly notify the Company of such request(s) so that the Company may seek an
appropriate protective order.
8. The Company agrees to indemnify and hold harmless Commonwealth,
its partners, employees, agents, representatives and controlling persons (and
the officers, directors, employees, agents, representatives and controlling
persons of each of them) from and against any and all losses, claims, damages,
liabilities, costs and expenses (and all actions, suits, proceedings or claims
in respect thereof) and any legal or other expenses in giving testimony or
furnishing documents in response to a subpoena or otherwise (including, without
limitation, the cost of investigating, preparing or defending any such action,
suit, proceeding or claim, whether or not in connection with any action, suit,
proceeding or claim in which Commonwealth is a party), as and when incurred,
directly or indirectly, caused by, relating to, based upon or arising out of
Commonwealth's services pursuant to this Agreement. The Company further agrees
that Commonwealth shall incur no liability to the Company or any other party on
account of this Agreement or any acts or omissions arising out of or related to
the actions of Commonwealth relating to this Agreement or the performance or
failure to perform any services under this
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Agreement except for Commonwealth's intentional or willful misconduct. This
paragraph shall survive the termination of this Agreement.
9. This Agreement may not be transferred, assigned or delegated by
any of the parties hereto without the prior written consent of the other party
hereto.
10. The failure or neglect of the parties hereto to insist, in any
one or more instances, upon the strict performance of any of the terms or
conditions of this Agreement, or their waiver of strict performance of any of
the terms or conditions of this Agreement, shall not be construed as a waiver or
relinquishment in the future of such term or condition, but the same shall
continue in full force and effect.
11. This Agreement is for a term of 12 months and may not be
terminated by the Company. This Agreement may be terminated by Commonwealth at
any time upon 30 days' notice. Paragraphs 4, 7 and 8 shall survive the
expiration or termination of this Agreement under all circumstances.
12. Any notices hereunder shall be sent to the Company and to
Commonwealth at their respective addresses set forth above. Any notice shall be
given by registered or certified mail, postage prepaid, and shall be deemed to
have been given when deposited in the United States mail. Either party may
designate any other address to which notice shall be given, by giving written
notice to the other of such change of address in the manner herein provided.
13. This Agreement has been made in the State of New York and shall
be construed and governed in accordance with the laws thereof without giving
effect to principles governing conflicts of law.
14. This Agreement contains the entire agreement between the parties,
may not be altered or modified, except in writing and signed by the party to be
charged thereby, and supersedes any and all previous agreements between the
parties relating to the subject matter hereof.
15. This Agreement shall be binding upon the parties hereto, the
indemnified parties referred to in Section 7, and their respective heirs,
administrators, successors and permitted assigns.
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If you are in agreement with the foregoing, please execute two copies
of this letter in the space provided below and return them to the undersigned.
Very truly yours,
COMMONWEALTH ASSOCIATES
By:_______________________________________
An Authorized Representative
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
MEDCROSS, INC.
By:___________________________
Name:
Title:
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EXHIBIT 10(Y)
MEDCROSS, INC.
240,000
SHARES OF CLASS C CONVERTIBLE
CUMULATIVE REDEEMABLE PREFERRED STOCK
SALES AGENCY AGREEMENT
July 1, 1996
Commonwealth Associates
722 Third Avenue
New York, New York 10017
Dear Sirs:
Medcross, Inc., a Florida corporation (the "Company"), proposes to
offer for sale in a private offering (the "Offering") pursuant to Regulation D
under the Securities Act of l933, as amended (the "Act"), up to 240,000 shares
of the Company's Class C Convertible Cumulative Redeemable Preferred Stock,
$10.00 par value per share (the "Class C Preferred Stock" or the "Shares"). The
Class C Preferred Stock is convertible into shares of the Company's Common Stock
(the "Conversion Shares"), at any time after three months from the first closing
of the Offering (the "First Closing"), at the option of the holder, into such
number of shares of the Company's Common Stock as shall equal $60 divided by the
lower of (i) $2.50 or (ii) the closing bid price for any five consecutive
trading days during the period commencing on the final closing of the Offering
(the "Final Closing") and ending eighteen months thereafter; provided however,
that in no event shall the conversion price be adjusted below $1.25 on account
of this adjustment (the "Conversion Price"). The Conversion Price is also
subject to further adjustment under certain circumstances to prevent dilution.
Unless previously redeemed, the Shares are automatically converted into the
Conversion Shares on the fifth anniversary of the Final Closing at a Conversion
Price equal to the lower of the then current Conversion Price or 50% of the
average closing bid price of the Company's Common Stock for the 10 trading days
immediately preceding the fifth anniversary of the Final Closing. Dividends on
the Shares are payable in shares of the Company's Common Stock (the "Dividend
Shares") or cash. The terms of the Shares and the Offering are more fully
described in the documents referred to below. This is to confirm our agreement
concerning your acting as our exclusive placement agent (the "Placement Agent")
in connection with such sale of the Shares.
<PAGE>
The Company has prepared and delivered to the Placement Agent copies of a
confidential private offering memorandum, dated August 6, 1996 as same shall be
amended from timt to time (the "Memorandum"), relating to, among other things,
the Company, the Shares, and the terms of the offering of the Shares. Such
confidential private offering memorandum, including all exhibits and appendices
thereto and memorandum delivered therewith, is referred to herein as the
"Documents" unless such confidential private offering memorandum or any such
exhibits, appendices, or documents shall be supplemented or amended in
accordance with this Agreement, in which event the term "Documents" shall refer
to such confidential private offering memorandum and such exhibits, appendices,
and documents as so supplemented or amended from and after the time of delivery
to the Placement Agent of such supplement or amendment.
Unless the context otherwise requires, all references to the "Company"
shall include all subsidiaries (the "Subsidiaries").
l. Appointment of Placement Agent.
(a) On the basis of the representations and warranties contained
herein, and subject to the terms and conditions set forth herein, the Company
hereby appoints you as its Placement Agent and grants to you the exclusive
right to offer, as its agent, the Shares pursuant to the terms of this
Agreement. On the basis of such representations and warranties, and subject to
such conditions, you hereby accept such appointment and agree to use your best
efforts to secure subscriptions to purchase up to 240,000 Shares pursuant to the
terms of this Agreement. The exclusive agency granted the Placement Agent
hereunder shall extend to any other equity or debt financing which the Company
may consider during term hereof and the Company agrees to refer all proposals
for any such financing to the Placement Agent. The Company expressly
acknowledges and agrees that the Placement Agent's obligations hereunder are not
on a firm commitment basis and that the execution of this Agreement does not
constitute a commitment by the Placement Agent to purchase the Shares and does
not ensure the successful placement of the Shares or any portion thereof.
Further, the Placement Agent's obligation to use its best efforts to assist the
Company in the Offering is subject to the completion of a due diligence review
of the Company, the industry and the market for such securities generally.
(b) Notwithstanding the exclusivity granted hereunder, this agreement
shall not prohibit, nor shall the Placement Agent be entitled to any
compensation on account of, any transaction effected pursuant to the Company's
current agreement with Mark Rice prior to the first closing of the sale of
Shares in the Offering. The agency created hereby is not terminable by the
Company except upon termination of the offering of the Shares contemplated
hereby in accordance with the terms of this Agreement.
2. Terms of the Offering.
(a) The Offering shall consist of up to 240,000 Shares of the Company
at a purchase price equal to $60.00 per Share. The Offering is being made on a
"best efforts - all
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or none" basis as to 133,333 Shares (the "Minimum Offering") and on a "best
efforts" basis as to an additional 106,667 Shares (the "Maximum Offering").
Unless the Minimum Offering is sold, no Shares will be sold and all
subscriptions will be returned to subscribers without interest or deductions.
(b) The Offering shall commence on or about July 31, 1996, and shall
expire at 5:00 p.m., New York time, on August 31, 1996 and may be extended for
an additional 60 days upon mutual consent of the Company and the Placement
Agent. Such period, as same may be so extended, shall hereinafter be referred
to as the "Offering Period."
(c) The Offering shall be conducted in accordance with Regulation D
under the Act ("Regulation D"). In connection therewith, the Placement Agent
hereby agrees:
(i) Not to solicit any offer to buy from or offer to sell to
any person any Shares unless the Placement Agent shall reasonably believe that
(A) such person, and each other person for whom such person is acting, is an
"accredited investor" within the meaning of Regulation D, and (B) such person
otherwise meets the suitability requirements for investing in the Shares set
forth in the Documents (each person meeting the requirements of this Section
2(c)(i) being hereinafter referred to as a "Prospective Investor").
(ii) Not to solicit any offer to buy from or offer to sell to
any Prospective Investor any Shares unless the Placement Agent shall reasonably
believe that any purchase of Shares by such Prospective Investor shall be for
such person's own account or for the account of another person for whom such
person is acting, for investment and not with a view to any public resale or
distribution thereof.
(iii) Not to solicit any offer to buy or offer to sell Shares
by any form of general solicitation or advertising, including, but not limited
to, any advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar medium or broadcast over television or radio in
any seminar or meeting whose attendees have been invited by any general
solicitation or advertising.
(iv) Not to solicit any offer to buy from or any offer to sell
to any Prospective Investor any Shares unless the Placement Agent has sent to
such Prospective Investor a copy of the Documents.
(v) Not to solicit any offer to buy or make any offer to sell
any Shares to any person, or in any jurisdiction, unless the Blue Sky Survey
furnished by counsel to the Company, as amended from time to time, indicates
such solicitation or offer is lawful.
(d) Each Prospective Investor who desires to purchase Shares shall
be required to deliver to the Placement Agent one copy of a purchase agreement
in the form annexed to the Documents (a "Purchase Agreement"), one copy of an
investor questionnaire (the "Questionnaire"), and good funds or written
authorization in the amount necessary to
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purchase the number of Shares such Prospective Investor desires to purchase. The
Placement Agent shall not have any obligation to independently verify the
accuracy or completeness of any information contained in any Purchase Agreement
or the authenticity, sufficiency, or validity of any check delivered by any
Prospective Investor in payment for Shares.
(e) The Company and the Placement Agent have established a Special
Account with Citibank, N.A. (the "Special Account"). The Placement Agent shall
promptly deliver each check received from a Prospective Investor to the Bank for
deposit in the Special Account and shall deliver the executed copies of the
Purchase Agreement received from such Prospective Investor to the Company. The
Company shall notify the Placement Agent promptly of the acceptance or
rejection or any subscription.
(f) If subscriptions to purchase at least the Minimum Offering are
not received from Prospective Investors prior to the expiration of the Offering
Period and accepted by the Company, the Offering shall be cancelled, all funds
received by the Placement Agent shall be refunded in full without interest and
this Agreement and the agency created hereby shall be terminated without any
further obligation on the part of either party, except as provided in Section
l0 hereof.
(g) You may engage other persons selected by you to assist you in
the Offering (each such person being hereinafter referred to as a "Selling
Group Member") and you may allow such persons such part of the compensation and
payment of expenses payable to you hereunder as you shall determine. Each
Selling Group Member shall be required to agree in writing to comply with the
provisions of this Section 2. The Company hereby agrees to make such
representations and warranties to, and covenants and agreements with, any
Selling Group Member (including an agreement to indemnify such Selling Group
Member substantially similar to Section l0(a) hereof) as you or such Selling
Group Member may reasonably request.
3. Closing.
(a) Subject to the conditions set forth in Section 7 hereof, if
subscriptions for the Minimum Offering have been received in escrow prior to the
expiration of the Offering Period and accepted by the Company, a closing under
this Agreement (the "Initial Closing") shall be held at the offices of the
Placement Agent, or such other place as the parties may agree, as soon as
practicable (but not later than five (5) business days) following the date upon
which the Placement Agent and the Company confirm in writing to each other that
subscriptions for the Minimum Offering have been accepted or at such other
place, time, or date as the Company and you shall agree upon. The date upon
which the Initial Closing is held shall hereinafter be referred to as the
"Initial Closing Date."
(b) At any time prior to the expiration of the Offering Period
following the Initial Closing and after receipt in escrow and acceptance by the
Company of subscriptions for the sale of additional Shares in increments of
$250,000 ("Interim Closing Amount") up to the Maximum Offering, one or more
closings (each an "Interim Closing") shall take place in the
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manner herein set forth with respect to the Initial Closing. In the event that
the Offering Period expires prior to receipt in escrow and acceptance by the
Company of an Interim Closing Amount, a final closing shall be held at such time
regardless of the amount then held in escrow. The final Interim Closing to be
held in accordance herewith shall be deemed the "Final Closing" and the date
thereof shall be the "Final Closing Date". References herein to a "Closing"
shall mean the Initial Closing, any Interim Closing or the Final Closing, as the
context requires, and the date thereof shall be referred to as a "Closing Date."
4. Compensation.
(a) If subscriptions for the Minimum Offering are received in escrow
prior to the expiration of the Offering Period and accepted by the Company, you
shall be entitled, on each Closing Date, as compensation for your services as
Placement Agent under this Agreement, to selling Commissions equal to 7% of the
gross proceeds received by the Company from the sale of the Shares effected at
each Closing and 3% of the gross proceeds from the sale of the Shares effected
at each Closing in payment for a non-accountable expense allowance; provided,
however, that no selling commissions or non-accountable expenses shall be
payable with respect to the sale of Shares to Messrs. Cook and Wong and T6-G
Limited Partnership. Such amounts may be deducted by you out of the funds
received from the sale of the Shares and deposited in the Escrow Account, on
each Closing Date.
(b) In addition to the compensation payable to the Placement Agent
set forth in clause (a) above, the Company shall sell to the Placement Agent (or
its designated affiliates) on the Initial Closing, and concurrent with, and as a
condition precedent to, the closing of the Offering, 250,000 common stock
purchase warrants at a price of $.001 per warrant. Such warrants will expire
five years after the Offering is consummated and will be exercisable at $2.50
per share commencing March 1, 1997. The warrants may be exercised as to all or a
lesser number of shares (the "Warrant Shares")and will contain provisions for
registration for public resale of the underlying shares at the Company's
expense, cashless exercise and adjustment in the number of such shares and the
exercise price to prevent dilution.
5. Representations and Warranties of the Company and the Placement Agent.
(a) The Company represents and warrants to, and agrees with, the
Placement Agent that:
(i) The Documents contain, and at all times during the period
from the date hereof to and including the later of the Closing Date, the
expiration of the Offering Period, and the Additional Closing Date (if any),
will contain, all information required to be contained therein, if any, pursuant
to Rule 502 of Regulation D and the applicable securities and "blue sky" laws,
and does not, and during such period will not, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Each material
contract, agreement, instrument, lease,
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<PAGE>
license, or other document required to be described in the Documents has been
accurately described herein.
(ii) No document provided by the Company to Prospective
Investors pursuant to Section 6(f) hereof, and no oral information provided by
the Company to Prospective Investors, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(iii) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of its state of incorporation,
with full power and authority, and all material and necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with, all federal, state, local, and other
tribunals, to own, lease, license, and use its properties and assets and to
carry on its business in the manner described in the Documents. The Company is
duly qualified to do business and is in good standing in every jurisdiction in
which its ownership, leasing, licensing, or use of property and assets or the
conduct of its business makes such qualification necessary, except where the
failure to so qualify will not materially affect the Company's business,
properties or financial condition.
(iv) The Company has, as of the date hereof, an authorized and
outstanding capitalization as set forth in the Documents. There is no
commitment, plan, or arrangement to issue, and no outstanding option, warrant,
or other right calling for the issuance of, any share of capital stock of the
Company or any security or other instrument which by its terms is convertible
into, exercisable for, or exchangeable for capital stock of the Company, except
as may be properly described in the Documents. There is outstanding no security
or other instrument which by its terms is convertible into or exchangeable for
any class of capital stock of the Company, except as may be properly described
in the Documents.
(v) The audited financial statements of the Company included
in the Documents fairly present the financial position, the results of
operations, and the other information purported to be shown therein at the
respective dates and for the respective periods to which they apply. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved, are
correct and complete, and are in accordance with the books and records of the
Company. No other financial statements are required to be included in the
Documents. There has at no time been a material adverse change in the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of the Company from the latest information set forth in the
Documents, except as may be properly described in the Documents as having
occurred or as may occur.
(vi) There is no litigation, arbitration, claim, governmental
or other proceeding (formal or informal), or investigation pending, threatened,
or in prospect (or any basis therefor known to the Company) with respect to the
Company, or any of its operations, businesses, properties, or assets, except as
may be properly described in the Documents or such
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as individually or in the aggregate do not now have and will not in the future
have a material adverse effect upon the operations, business, properties, or
assets of the Company. The Company is not, to the best of its knowledge, in
violation of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree, except as may be properly described in the Documents or
such as in the aggregate do not have and will not in the future have a material
adverse effect upon the operations, business, properties, or assets of the
Company.
(vii) The Company has good and marketable title in fee simple
absolute to all real properties and good title to all other properties and
assets which the Documents indicates are owned by it, free and clear of all
liens, charges, pledges, mortgages, security interests, and encumbrances, except
as may be properly described in the Documents or such as in the aggregate do not
now have and will not in the future have a material adverse effect upon the
financial condition, results of operations, business, properties, or assets of
the Company.
(viii) The Company is not, to the best knowledge of the Company,
in violation or breach of, or in default with respect to complying with any
material provision of any contract, agreement, instrument, lease, license,
arrangement, or understanding which is material to the Company, and each such
contract, agreement, instrument, lease, license, arrangement, and understanding
is in full force and effect and is the legal, valid, and binding obligation of
the parties thereto enforceable as to them in accordance with its terms. The
Company enjoys peaceful and undisturbed possession under all leases and licenses
under which it is operating. The Company is not in violation or breach of, or in
default with respect to, any term of its certificate of incorporation or by-
laws.
(ix) There is no right under any patent, patent application,
trademark, trademark application, trade name, service mark, copyright,
franchise, or other intangible property or asset (all of the foregoing being
herein called "Intangibles") necessary to the business of the Company as
presently conducted or as the Documents indicates it contemplates conducting,
except as may be so designated in the Documents. To the best of its knowledge,
the Company has not infringed, is not infringing, and has not received notice of
infringement with respect to asserted Intangibles of others.
(x) The Company has all requisite power and authority to
execute, deliver, and perform this Agreement and the Investment Banking
Agreement, and to consummate the transactions contemplated hereby and thereby.
All necessary corporate proceedings of the Company have been duly taken to
authorize the execution, delivery, and performance by the Company of this
Agreement and the Investment Banking Agreement and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the Investment
Banking Agreement have been duly authorized, executed, and delivered by the
Company, is the legal, valid, and binding obligation of the Company, and is
enforceable as to the Company in accordance with its terms. No consent,
authorization, approval, order, license, certificate, or permit of or from, or
registration, qualification, declaration, or filing with, any federal, state,
local, foreign, or other governmental authority or any court or other tribunal
is required by the Company for the execution, delivery, or performance by the
Company of this Agreement and
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the Investment Banking Agreement, and the consummation of the transactions
contemplated hereby and thereby, except the filing of a Notice of Sales of
Securities on Form D pursuant to Regulation D and such consents, authorizations,
approvals, registrations, and qualifications as may be required under securities
or "blue sky" laws in connection with the issuance, sale, and delivery of the
Shares pursuant to this Agreement. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to which
the Company is a party, or to which any of its properties or assets are subject
which has not been obtained is required for the execution, delivery, or
performance of this Agreement, the Shares and the consummation of the
transactions contemplated hereby and thereby, will not violate, result in a
breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease, license, arrangement, or
understanding, violate or result in a breach of any term of the certificate of
incorporation or by-laws of the Company, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or decree binding on
the Company or to which any of its operations, businesses, properties, or assets
are subject. The Shares and the Warrants to be issued and sold by the Company
hereunder, and Conversion Shares when issued in accordance with the terms of the
Shares, and the Warrant Shares issuable upon exercise of the Warrants and
payment therefor, are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof and thereof, will be
validly issued, fully paid and non-assessable and will conform to the
descriptions thereof contained in the Documents; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Shares, Conversion
Shares and Warrants, and the Warrant Shares has been duly and validly taken; and
the certificates representing the Shares, Conversion Shares, the Warrants, and
the Warrant Shares will be in due and proper form. Upon the issuance and
delivery pursuant to the terms hereof of the Shares and Warrants, to be sold by
the Company hereunder, the Placement Agent, the investors, and/or their
designees, will acquire good and marketable title to such Shares and Warrants
free and clear of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever.
(xi) The Shares, Dividend Shares, Conversion Shares and Warrant
Shares conform to all statements relating thereto contained in the Documents.
The Shares, when issued and delivered to the Placement Agent pursuant to the
terms of this Agreement, the Dividend Shares and Conversion Shares, when issued
and delivered pursuant to the terms of the Shares, and the Warrant Shares when
issued and delivered pursuant to the terms of the Warrants, shall be validly
authorized, validly issued, fully paid and nonassessable, without any liability
attaching the ownership thereof, and shall not have been issued in violation of
any preemptive rights of stockholders.
(xii) Subsequent to the dates as of which information is
given in the Documents, and except as may otherwise be properly described in the
Documents, the Company has not (A) issued any securities or incurred any
liability or obligation, primary or contingent,
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for borrowed money, (B) entered into any transaction not in the ordinary course
of business, or (C) declared or paid any dividend on its capital stock.
(xiii) Neither the Company nor any of its officers, directors,
or affiliates, has engaged or will engage, directly or indirectly, in any act or
activity that may jeopardize the status of the offering and sale of the Shares
as an exempt transaction under the Act or under the securities or "blue sky"
laws of any jurisdiction in which the Shares may be offered or sold.
(b) The Placement Agent represents and warrants to, and agrees with,
the Company that:
(i) It is (1) a broker-dealer registered with the Commission
pursuant to the Exchange Act of 1934, as amended and no proceeding has been
initiated to revoke such registration; (2) a member in good standing of the
National Association of Securities Dealers; and (iii) a broker-dealer registered
with the securities authorities of each jurisdiction in which it will make
offers and sales of the Shares, and all such offers and sales shall only be made
by individuals as required by all applicable federal and state securities laws;
(ii) The Selling Agent shall not offer or sell the Shares in
any state or states without the approval of the Company and completion by the
Company of all, or any, Blue Sky filings for such states and shall not offer or
sell the Shares in any state or states in which it is not qualified or
registered as a broker-dealer or authorized to engage in the brokerage business;
(iii) The offer, offer for sale and sale of the Shares by
Selling Agent will be made upon the terms and conditions set forth in the
Documents;
(iv) The Selling Agent has not taken and will not take any
action in conflict with Regulation D under the 1933 Act or applicable state
securities or blue sky laws, or which would make the exemption provided by Rule
506 under the 1933 Act or the exemption, qualification or registration pursuant
to applicable state securities or Blue Sky laws unavailable with respect to the
offer for sale and sale of the Shares. The Selling Agent and its officers,
directors, and/or partners, are not subject to any disqualification, including
but not limited to, any judgment, decree, order or decision issued by the SEC,
the Commodity Futures Trading Commission, any state securities regulatory
authority, any court of competent jurisdiction, the United States Postal
Service, any self-regulatory organization or any other state or federal
regulatory authority, that would make Rule 506 exemption or any state private
offering exemption unavailable.
(v) The Selling Agent will not offer or sell and has not
offered or sold the Shares except in compliance with the requirements of
Regulation D of the 1933 Act and of any applicable state statute or regulation,
and in connection therewith will not offer or sell and has not offered or sold
the Shares by means of any form of general solicitation or general advertising.
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6. Covenants of the Company.
The Company covenants that it will:
(a) Notify you immediately, and confirm such notice in writing, (i)
when any event shall have occurred during the period commencing on the date
hereof and ending on the later of the Closing Date and the expiration of the
Offering Period, as a result of which the Documents would include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) of the receipt of any notification with respect to the modification,
rescission, withdrawal, or suspension of the qualification or registration of
the Shares, or of an exemption from such registration or qualification, in any
jurisdiction. The Company will use its best efforts to prevent the issuance of
any such modification, rescission, withdrawal, or suspension, and if any such
modification, rescission, withdrawal, or suspension of the qualification is
issued, and you so request, to use its best efforts to obtain the lifting
thereof as promptly as possible.
(b) Not to make any supplement or amendment to the Documents unless
such supplement or amendment complies with the requirements of the Act and
Regulation D and the applicable securities and "blue sky" laws and unless you
shall have approved of such supplement or amendment in writing. If, at any
time during the period commencing on the date hereof and ending on the later
of the Closing Date and the expiration of the Offering Period, any event shall
have occurred as a result of which the Documents contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or if, in
the opinion of counsel to the Company or counsel to the Placement Agent, it is
necessary at any time to supplement or amend the Documents to comply with the
Act, Regulation D, or any applicable securities or "blue sky" laws, the Company
will promptly prepare an appropriate supplement or amendment (in form and
substance satisfactory to you) which will correct such statement or omission or
which will effect such compliance.
(c) Deliver without charge to the Placement Agent such number of
copies of the Documents and any supplement or amendment thereto as may
reasonably be requested by the Placement Agent.
(d) Not, directly or indirectly, solicit any offer to buy from, or
offer to sell to any person any Shares, except through the Placement Agent or
with the Placement Agent's express knowledge and consent.
(e) Use its best efforts to qualify or register the Shares for
offering and sale under, or establish an exemption from such qualification or
registration under, the securities or "blue sky" laws of such jurisdictions as
you may reasonably request; provided, however, that the Company will not be
obligated to qualify as a dealer in securities in any jurisdiction in
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which it is not so qualified. The Company will not consummate any sale of Shares
in any jurisdiction or in any manner in which such sale may not be lawfully
made.
(f) At all times during the period commencing on the date hereof and
ending on the later of the Closing Date and the expiration of the Offering
Period, provide to each Prospective Investor or his purchaser representative,
if any, on request, such information (in addition to that contained in the
Documents) concerning the Offering, the Company and any other relevant matters,
as it possesses or can acquire without unreasonable effort or expense, and to
extend to each Prospective Investor or his purchaser representative, if any, the
opportunity to ask questions of, and receive answers from, the Company
concerning the terms and conditions of the Offering and the business of the
Company and to obtain any other additional information, to the extent it
possess the same or can acquire it without reasonable effort or expense, as
such Prospective Investor or purchaser representative may consider necessary in
making an informed investment decision or in order to verify the accuracy of the
information furnished to such Prospective Investor or purchaser representative,
as the case may be.
(g) Provide to each Prospective Investor any information required to
be delivered by Rule 502(b)(2)(iii) of Regulation D.
(h) Disclose to each Prospective Investor, in writing, any material
relationship between such Prospective Investor's purchaser representative, if
any, or its affiliates, on the one hand, and the Company or its affiliates, on
the other hand, which, to the knowledge of the Company, then exists or is
understood to be contemplated or has existed at any time during the previous
two years and any compensation received or to be received or to be received as
a result of such relationship.
(i) Before accepting any subscription to purchase Shares from, or
making any sale to, any Prospective Investor, have reasonable grounds to
believe and will believe (after making reasonable inquiry) that (A) such
Prospective Investor meets the suitability requirements for investing in the
Shares set forth in the Documents, and (B) such Prospective Investor is an
accredited investor.
(j) Notify you promptly of the acceptance or rejection of any
subscription. The Company shall not (i) accept subscriptions from, or make sales
of Shares to, any Prospective Investors who are not accredited investors, or
(ii) unreasonably reject any subscription for Shares.
(k) File five copies of a Notice of Sales of Securities on Form D
with the Securities and Exchange Commission (the "Commission") no later than l5
days after the first sale of the Shares. The Company shall file promptly such
amendments to such Notice on Form D , or any additional Notice on Form D,as
shall become necessary and shall also comply with any filing requirement
imposed by the laws of any state or jurisdiction in which offers and sales are
made. The Company shall furnish you with copies of all such filings.
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(l) Not, directly or indirectly, engage in any act or activity which
may jeopardize the status of the offering and sale of the Shares as exempt
transactions under the Act or under the securities or "blue sky" laws of any
jurisdiction in which the Offering maybe made. Without limiting the generality
of the foregoing, and notwithstanding anything contained herein to the
contrary, the Company shall not, directly or indirectly, engage in any offering
of securities which, if integrated with the Offering in the manner prescribed by
Rule 502(a) of Regulation D and applicable releases of the Commission, may
jeopardize the status of the offering and sale of the Shares as exempt
transactions under Regulation D.
(m) Apply the net proceeds from the sale of the Shares as set forth
in the Documents.
(n) Not, during the period commencing on the date hereof and ending
on the later of the Closing Date or the expiration of the Offering Period,
issue any press release or other communication, or hold any press conference
with respect to the Company, its financial condition, results of operations,
business, properties, assets, or liabilities, or the Offering, without your
prior written consent.
(o) Not, for a period of three years from the date hereof, solicit
any offer to buy from or offer to sell to any person introduced to the Company
by you in connection with the Offering, directly or indirectly, any securities
of the Company, except as contemplated by the Shares, or of any other entity, or
all or substantially all of the assets of the Company, a division of the
Company, or any other entity, or provide the name of any such person to any
other securities broker or dealer or selling agent, except as otherwise required
by law. In the event that the Company or any of its officers, directors, or
affiliates, directly or indirectly, solicits offers to buy from or offers to
sell to any such person any such securities, or provides the name of any such
person to any other securities broker or dealer or selling agent, and such
person purchases such securities or purchases securities from any such other
securities broker or dealer or selling agent, the Company shall pay to the
Placement Agent an amount equal to l0% of the aggregate purchase price of the
securities so purchased by such person.
(p) The Company agrees that subject to completion of the Minimum
Offering, the Placement Agent shall have an irrevocable preferential right for a
period of five years from the date the Offering is completed to purchase for its
account or to sell for the account of the Company, or any subsidiary of or
successor to the Company, any securities of the Company or any such subsidiary
or successor which the Company, any such subsidiary or successor may seek to
sell through an underwriter, placement agent or broker-dealer whether pursuant
to registration under the Act or otherwise. The Company, any such subsidiary or
successor will consult the Placement Agent with regard to any such offering and
will offer the Placement Agent the opportunity to purchase or sell any such
securities on terms not more favorable to the Company, any such subsidiary or
successor than it or they can secure elsewhere. If the Placement Agent fails to
accept such offer within 20 business days after the mailing of a notice
containing such offer by registered mail addressed to the Placement Agent, then
the Placement Agent shall have no further claim or right with respect to the
financing proposal contained in such notice. If,
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however, the terms of such proposal are subsequently modified in any material
respect, the preferential right referred to herein shall apply to such modified
proposal as if the original proposal had not been made. The Placement Agent's
failure to exercise its preferential right with respect to any particular
proposal shall not affect its preferential rights relative to future proposals.
In addition, the Company agrees that subject to completion of the Offering, the
Company shall not issue any securities for a period of 12 months from the Final
Closing without the Placement Agent's approval, which shall not be unreasonably
withheld, except for options granted under the Company's existing or
contemplated stock option plans, and also excluding shares issuable upon the
conversion or exercise of outstanding derivative securities.
(q) The Company will nominate and use its best efforts to cause to be
elected a designee of the Placement Agent to the Company's Board of Directors
effective from the Final Closing and for a period of five years from the Final
Closing Date. Such designee shall also be entitled to be a member of the Audit
and Executive committees of the Company for a period of five years from the
Closing Date. The Company also agrees that the Placement Agent shall have the
right to designate a non-voting advisor to the Board of Directors.
7. Payment of Expenses.
(a) The Company hereby agrees to pay all fees, charges, and expenses
incident to the performance by the Company of its obligations hereunder,
including, without limitation, all fees, charges, and expenses in connection
with (a) the preparation, printing, filing, distribution, and mailing of the
Documents, the Purchase Agreement, the Questionnaire, and all other documents
relating to the offering, purchase, sale, and delivery of the Shares, and any
supplements or amendments thereto, including the cost of all copies thereof, (b)
the preparation and reproduction of this Agreement (c) the issuance, sale,
transfer, and delivery of the Shares, including any transfer or other taxes
payable thereon and the fees of any Transfer Agent or Registrar, (d) the
registration or qualification of the Shares or the securing of an exemption
therefrom under state or foreign "blue sky" or securities laws, without
limitation, filing fees payable in the jurisdictions in which such registration
or qualification or exemption therefrom is sought, the costs of preparing
preliminary, supplemental, and final "Blue Sky Surveys" relating to the offer
and sale of the Shares; and (e) the retention of the Escrow Agent, including the
fees and expenses of the Escrow Agent for serving as such and the fees and
expenses of its counsel, if an escrow account is established in place of, or in
addition to, the Special Account.
(b) If subscriptions to purchase at least 133,333 Shares are not
received prior to the expiration of the Offering Period, or if this Agreement is
terminated by the Placement Agent pursuant to Section 8 hereof prior to the
issuance, sale, and delivery of any Shares, the Company shall reimburse the
Placement Agent for its reasonable out-of-pocket expenses in serving as
Placement Agent under this Agreement (including, without limitation, the
reasonable fees and expenses of its counsel) up to a maximum of $150,000.
Amounts, if any, previously paid by the Company to the Placement Agent in
respect of such expenses shall be credited toward this obligation.
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8. Conditions of Placement Agent's Obligations. The obligations of the
Placement Agent pursuant to this Agreement shall be subject, in its discretion,
to the continuing accuracy of the representations and warranties of the Company
contained herein and in each certificate and document contemplated under this
Agreement to be delivered to the Placement Agent, as of the date hereof and as
of the Closing Date to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) At the Closing, the Placement Agent shall have received the
favorable opinion of DeMartino Finkelstein Rosen & Virga, counsel for the
Company, dated the date of delivery, addressed to the Placement Agent, and in
form and scope satisfactory to counsel for the Placement Agent, to the effect
that:
(i) the Company is a corporation duly organized, validly
existing, and in good standing under the laws of its state of incorporation,
with full power and authority and, to the knowledge of such counsel, all
necessary consents, authorizations, approvals, orders, licenses, certificates,
and permits of and from, and all declarations and filings with, all federal,
state, local, foreign, and other governmental authorities and all courts and
other tribunals, to own, lease, license, and use its properties and assets and
to conduct its business in the manner described in the Documents. The Company is
duly qualified to do business and is in good standing in every jurisdiction in
which its ownership, leasing, licensing, or use of property and assets or the
conduct of its business makes such qualification necessary (except where the
failure to so qualify would not have a material adverse effect upon the
Company);
(ii) To the best of our knowledge, the Company has, an
authorized and outstanding capitalization as set forth in the Memorandum as of
the date indicated therein, and the shares of Common Stock have not been issued
and are not owned or held in violation of any preemptive right of stockholders.
To the best knowledge of such counsel, there is no commitment, plan, or
arrangement to issue, and no outstanding option, warrant, or other right calling
for the issuance of, any share of capital stock of the Company or any security
or other instrument which by its terms is convertible into, exercisable for, or
exchangeable for capital stock of the Company, except as may be properly
described in the Documents. To the best knowledge of such counsel, there is
outstanding no security or other instrument which by its terms is convertible
into or exchangeable for capital stock of the Company, except as may be properly
described in the Documents.
(iii) To the best knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending or threatened with respect to the Company or
any of its operations, businesses, properties, or assets except as may be
properly described in the Documents or such as individually or in the aggregate
do not now have and will not in the future have a material adverse effect upon
the operations, business, properties, or assets of the Company. To the best
knowledge of such counsel, the Company is not in violation of, or in default
with respect to, any law, rule, regulation, order, judgment, or decree, except
as may be properly described in the
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<PAGE>
Documents or such as in the aggregate do not now have and will not in the future
have a material adverse effect upon the operations, business, properties, or
assets of the Company;
(iv) To the best knowledge of such counsel, the Company is not
in violation or breach of, or in default with respect to, complying with any
provision of any contract, agreement, instrument, lease or license which is
material to the business of the Company, except as may be described in the
Documents;
(v) To the best knowledge of such counsel, the Company is not
in violation or breach of, or in default with respect to, any term of its
certificate of incorporation or by-laws;
(vi) The Company has all requisite power and authority to
execute, deliver, and perform each of this Agreement, the Warrants, the
Investment Banking Agreement and to consummate the transactions contemplated
hereby and thereby. All necessary corporate proceedings of the Company have been
taken to authorize the execution, delivery, and performance by the Company of
this Agreement, the Warrants and the Investment Banking Agreement, and the
consummation of the transactions contemplated hereby and thereby. This
Agreement, the Warrants and the Investment Banking Agreement have been duly
authorized, executed, and delivered by the Company, is the legal, valid, and
binding obligation of the Company, and (subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors' rights
generally) is enforceable as to the Company in accordance with its terms. No
consent, authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any federal, state, local, or other
governmental authority or any court or other tribunal is required by the Company
for the execution, delivery, or performance by the Company of this Agreement,
the Warrants, the Investment Banking Agreement and the consummation of the
transactions contemplated hereby and thereby, except the filing of a Notice of
Sales of Securities on Form D pursuant to Regulation D and such consents,
authorizations, approvals, registrations, and qualifications as may be required
under securities or "blue sky" laws in connection with the issuance, sale, and
delivery of the Shares pursuant to this Agreement. No consent of any party to
any contract, agreement, instrument, lease, license, arrangement, or
understanding known to such counsel to which the Company is a party, or to which
any of its properties or assets are subject, which has not been obtained, is
required for the execution, delivery, or performance of this Agreement, the
Warrants, the Investment Banking Agreement and the consummation of the
transactions contemplated hereby and thereby, will not violate, result in a
breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease or license known to such
counsel, except as disclosed in the Documents; and the certificates representing
the Shares, Conversion Shares and the Warrant Shares will be in due and proper
form. Upon the issuance and delivery pursuant to the terms hereof of the Shares
and Warrants, to be sold by the Company hereunder, the Placement Agent, the
investors, and/or their designees, will acquire good and marketable title to
such Shares and Warrants free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
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<PAGE>
(vii) The Shares, Conversion Shares and Warrant Shares conform
to all statements relating thereto contained in the Documents. The Shares, when
issued and delivered to the Placement Agent pursuant to the terms of this
Agreement and Conversion Shares, when issued and delivered pursuant to the terms
of the Shares, and the Warrant Shares when issued and delivered pursuant to the
terms of the Warrants, shall be validly authorized, validly issued, fully paid
and nonassessable, without any liability attaching to the ownership thereof, and
shall not have been issued in violation of any preemptive rights of
stockholders.
(viii) The Documents (except that no opinion need be expressed as
to the financial statements, related schedules, or other financial data
contained therein) complies as to form in all material respects with
requirements of the Act and the regulations thereunder. To the best knowledge of
such counsel, any contract, agreement, instrument, lease, license, or document
required to be described in the Documents has been accurately described therein;
(ix) To the best knowledge of such counsel, no modification,
rescission, suspension, or withdrawal of registration or qualification of the
Shares, or of an exemption from such registration or qualification, has been
issued and no proceedings for that purpose have been instituted or threatened;
(x) Although we are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Documents (except to the extent expressly stated above), we
advise that (relying as to materiality to a large extent on officers and other
representatives of the Company), no facts have come to our attention that lead
us to believe that the Documents (except for the financial statements (including
the notes thereto and the auditors' reports thereon), schedules (including the
auditors' reports thereon) and other financial or statistical data included or
incorporated by reference therein, as to which we express no opinion), contained
any untrue statement of material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading and (b) the
Documents (except for the financial statements (including the notes thereto and
the auditors' reports thereon), schedules (including the auditors' reports
thereon) and other financial or statistical data included or incorporated by
reference therein, as to which we express no opinion) contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(xi) Assuming that the Placement Agent has complied with the
manner of sale requirements or Regulation D and has confined its selling
activities to those states referenced in the Blue Sky surveys provided to the
Company by Blue Sky counsel and has complied with the material terms of the
Sales Agency Agreement, the offer and sale of the Shares and Warrants in the
manner contemplated by the Documents, this Agreement, and the Purchase Agreement
(i) are exempt transactions under the Act, and (ii) will not be integrated with
any offering of securities made prior to the Offering or any such offering
proposed to be
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made of which such counsel has knowledge in a manner that would render
unavailable any exemption from the registration provisions of the Act.
In rendering such opinion, counsel for the Company may rely
(A) as to matters involving the application of laws other than the laws of the
United States and the corporate law of the State of Florida, to the extent
counsel for the Company deems proper and to the extent specified in such
opinion, upon an opinion or opinions (in form and substance satisfactory to
counsel for the Placement Agent) of other counsel, acceptable to counsel for the
Placement Agent, familiar with the applicable laws, in which case the opinion of
counsel for the Company shall state that the opinion or opinions of such other
counsel are satisfactory in scope, form, and substance to counsel for the
Company and that reliance thereon by counsel for the Company and the Placement
Agent is reasonable; (B) as to matters of fact, to the extent they deem proper,
on certificates of responsible officers of the Company; and (C) to the extent
they deem proper, upon written statements or certificates of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to counsel for the Placement
Agent.
(b) On or prior to the Closing Date the Placement Agent shall have
been furnished such information, documents, certificates, and opinions as it
may reasonably require for the purpose of enabling it to review the matters
referred to in Section 8(a), and in order to evidence the accuracy,
completeness, or satisfaction of any of the representations, warranties,
covenants, agreements, or conditions herein contained, or as it may otherwise
reasonably request.
(c) At the Closing the Placement Agent shall have received a
certificate of the chief executive officer and of the chief financial officer
of the Company, dated the Closing Date to the effect that, as of the date of
this Agreement and as of the Closing Date the representations and warranties of
the Company contained herein were and are accurate, and that as of the Closing
Date the obligations to be performed by the Company hereunder on or prior
thereto have been fully performed.
(d) All proceedings taken in connection with the issuance, sale, and
delivery of the Shares shall be satisfactory in form and substance to you and
your counsel.
(e) There shall not have occurred, at any time prior to the Closing
(A) any domestic or international event, act, or occurrence which has materially
disrupted, or in your opinion will in the immediate future materially disrupt;
the securities markets; (B) a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market; (C) any outbreak of
major hostilities or other national or international calamity; (D) any banking
moratorium declared by a state or federal authority; (E) any moratorium
declared in foreign exchange trading by major international banks or other
persons; (F) any material interruption in the mail service or other means of
communication within the United States; (G) any material adverse
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change in the business, properties, assets, results of operations, or financial
condition of the Company; or (H) any change in the market for securities in
general or in political, financial, or economic conditions which, in your
judgment, makes it inadvisable to proceed with the offering, sale, and delivery
of the Shares.
(f) On or before the Closing Date, the Company shall have executed
and delivered to the Placement Agent, and shall have entered into a separate
agreement (the "Investment Banking Agreement") with the Placement Agent,
pursuant to which (i) the Company shall employ the Placement Agent as its
Investment Banker and Financial Consultant for an additional period of 12
months; (ii) pay the Placement Agent a fee of $200,000 plus 2% of the amount of
gross proceeds raised in the Offering in excess of $10,000,000 for such 12 month
period which shall be payable in full in advance at the First Closing, except no
fee shall be paid with respect to the sale of Shares to Messrs. Cook and Wong
and T6-G Limited Partnership; and (iii) pay the Placement Agent a fee of five
(5%) percent of the first $5,000,000 and two and one-half (2-1/2%) percent of
the amount over $5,000,000 of the consideration paid or received by the Company
(or by any subsidiary or affiliated entity of the Company) in any transaction
(including mergers, acquisitions, joint ventures and other business
transactions) consummated by the Company or any subsidiary or affiliated entity
of the Company, which were introduced to the Company by the Placement Agent. As
additional compensation under the Investment Banking Agreement, the Company
shall sell to the Placement Agent (or its designated affiliates) upon the
execution of the Investment Banking Agreement, 500,000 common stock purchase
warrants at a price of $.001 per warrant. Such warrants will expire five years
after the Offering is consummated and will be exercisable at $2.50 per share
commencing March 1, 1997. The warrants may be exercised as to all or a lesser
number of shares (the "Warrant Shares") and will contain provisions for
registration of the resale of the underlying shares at the Company's expense,
cashless exercise and for adjustment in the number of such shares and the
exercise price to prevent dilution.
(h) On or before the Initial Closing Date, the Company shall provide
the Placement Agent with true copies of duly executed, legally binding and
enforceable agreements pursuant to which for a period of 12 months from the
Final Closing Date, each of the Company's directors, officers and all
shareholders owning restrictive securities prior to the Offering, other than
those as to which the Placement Agent has agreed to waive this requirement in
writing, agrees that it or he or she will not directly or indirectly, issue,
offer to sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein without written consent of the Placement Agent
(collectively, the "Lock-up Agreements"). On or before the Initial Closing
Date, the Company shall deliver instruments to the transfer agent, if any,
authorizing it to place appropriate legends on the certificates representing the
securities subject to the Lock-up Agreements and to place appropriate stop
transfer orders on the Company's ledgers.
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(g) On or before the Initial Closing Date, the Company shall provide
the Placement Agent with true copies of duly executed, legally binding and
enforceable agreements pursuant to which certain holders of options, warrants
and convertible securities sufficient to allow for the closing of the Offering
and the conversion of the Shares at a conversion price not lower than $2.06,
agree not to exercise such securities unless and until the Company has effected
an increase in its authorized Common Stock to 50,000,000 shares.
Any certificate or other document signed by any officer of
the Company and delivered to you or to your counsel shall be deemed a
representation and warranty by the Company hereunder as to the statements made
therein. If any condition to your obligations hereunder has not been fulfilled
as and when required to be so fulfilled, you may terminate this Agreement or, if
you so elect, in writing waive any such conditions which have not been fulfilled
or extend the time for their fulfillment. In the event that you elect to
terminate this Agreement, you shall notify the Company of such election in
writing. Upon such termination, neither party shall have any further liability
or obligation to the other except as provided in Section ll hereof.
9. Conditions of Company's Obligations.
The obligations of the Company pursuant to this Agreement shall be
subject, in its discretion, to the performance by the Placement Agent in all
material respects of its obligations hereunder and to the accuracy of the
Placement Agents representations and warranties. In the event that the Company
elects to terminate this Agreement, it shall notify the Placement Agent of such
election in writing. Upon such termination, neither party shall have any
further liability or obligation to the other except as provided in Section ll
hereof.
l0. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Placement
Agent, its officers, directors, partners, employees, agents, and counsel, and
each person, if any, who controls the Placement Agent within the meaning of
Section l5 of the Act or Section 20(a) of the Securities Exchange Act of l934,
as amended (the "Exchange Act"), against any and all loss, liability, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section l0, but not be limited to, attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation) as and when incurred
arising out of, based upon, or in connection with (i) any untrue statement or
alleged untrue statement of a material fact contained in the Documents or in any
document delivered or statement made pursuant to Section 6(f), or (B) in any
application or other document or communication (in this Section l0 collectively
called an "application") executed by or on behalf of the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to register or qualify the Shares under the "blue sky" or
securities laws thereof or in order to secure an exemption from such
registration or qualification or filed with the Commission; or any omission or
alleged omission
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to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company as stated in Section l0(b) with respect to the Placement Agent expressly
for inclusion in the Documents or in any application, as the case may be; or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Agreement. The foregoing agreement to indemnify shall
be in addition to any liability the Company may otherwise have, including
liabilities arising under this Agreement.
If any action is brought against the Placement Agent or any of its
officers, directors, partners, employees, agent, or counsel, or any controlling
persons of the Placement Agent (an "indemnified party"), in respect of which
indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the Company
(the "indemnifying party") in writing of the institution of such action (but
the failure so to notify shall not relieve the indemnifying party from any
liability it may have other than pursuant to this Section l0(a)) and the
indemnifying party shall promptly assume the defense of such action, including
the employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party shall have the right
to employ its own counsel in any such case, but the fees and expense of such
counsel shall be at the expense of such indemnified party unless the employment
of such counsel shall have been authorized in writing by the indemnifying party
in connection with the defense of such action or the indemnifying party shall
not have promptly employed counsel satisfactory to such indemnified party or
parties to have charge of the defense of such action or such indemnified party
or parties hall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to one or more of the
indemnifying parties, in any of which events such fees and expenses shall be
borne by the indemnifying party and the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this paragraph to the contrary notwithstanding, the
indemnifying party shall not be liable for any settlement of any such claim or
action effected without its written consent. The Company agrees promptly to
notify the Placement Agent of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of the Shares, the Documents, or any application.
(b) The Placement Agent agrees to indemnify and hold harmless the
Company, its officers, directors, employees, agents, and counsel, and each other
person, if any, who controls the Company within the meaning of Section l5 of the
Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company to the Placement Agent in Section l0(a), but only
with respect to actual or specific damages resulting directly from (i)
statements or omissions, if any, made in the Documents in reliance upon and in
conformity with written information furnished to the Company as stated in this
Section l0(b) with respect to the Placement Agent expressly for inclusion in
the Documents, and (ii) the failure of the Placement Agent to comply with the
provisions of Section 2(c) hereof or with the "blue sky" or securities laws of
the jurisdictions in which the Placement Agent solicits offers to buy or offers
to sell any Shares. Under no circumstances shall the Placement Agent be
20
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required to provide indemnity for any special, incidental, or consequential
damages resulting from any such statements, omission, or failure to comply. If
any action shall be brought against the Company or any other person so
indemnified based on the Documents and in respect of which indemnity may be
sought against the Placement Agent pursuant to this Section l0(b), the
Placement Agent shall have the rights and duties given to the indemnifying
party, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
l0(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section l0(a)
or l0(b) but it is found in a final judicial determination, not subject to
further appeal, that such indemnification may not be enforced in such case,
even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act, or otherwise, then the Company (including for this
purpose any contribution made by or on behalf of any officer, director,
employee, agent, or counsel of the Company, or any controlling person of the
Company), on the one hand, and the Placement Agent (including for this purpose
any contribution by or on behalf of an indemnified party), on the other hand,
shall contribute to the losses, liabilities, claims, damages, and expenses
whatsoever to which any of them may be subject, in such proportions as are
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Placement Agent, on the other hand; provided, however, that if
applicable law does not permit such allocation, then other relevant equitable
considerations such as the relative fault of the Company and the Placement Agent
in connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses shall also be considered. The relative benefits received
by the Company, on the one hand, and the Placement Agent, on the other hand,
shall be deemed to be in the same proportion as (x) the total proceeds from
the Offering (net of compensation payable to the Placement Agent pursuant to
Section 4(a) hereof but before deducting expenses) received by the Company, and
(y) the compensation received by the Placement Agent pursuant to Section 4(a)
hereof.
The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission, or alleged
omission relates to information supplied by the Company or by the Placement
Agent, and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement, alleged statement, omission,
or alleged omission. The Company and the Placement Agent agree that it would be
unjust and inequitable if the respective obligations of the Company and the
Placement Agent for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
or by any other method of allocation that does not reflect the equitable
considerations referred to in this Section l0(c). In no case shall the
Placement Agent be responsible for a portion of the contribution obligation in
excess of the compensation received by it pursuant to Section 4(a) hereof. No
person guilty of a fraudulent misrepresentation shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section l0(c), each person, if any, who
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<PAGE>
controls the Placement Agent within the meaning of Section l5 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partners,
employee, agent, and counsel of the Placement Agent, shall have the same rights
to contribution as the Placement Agent, and each person, if any, who controls
the Company within the meaning of Section l5 of the Act or Section 20(a) of the
Exchange Act and each officer, director, employee, agent, and counsel of the
Company, shall have the same rights to contribution as the Company, subject in
each case to the provisions of this Section l0(c). Anything in this Section
l0(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section l0(c) is intended to supersede any
right to contribution under the Act, the Exchange Act, or otherwise.
11. Termination.
(a) The agency created hereby shall remain in effect until (i) the
completion of the Offering, or (ii) the earlier termination as herein provided.
If no Shares are sold pursuant to the Offering before the expiration of the
Offering Period, and the Company has effected no other financing contemplated by
paragraph 1 hereof, this Agreement shall be deemed terminated without any action
by either party. The Placement Agent may terminate the agency created hereby for
any reason upon written notice to the Company. In any case, neither party shall
have any liability or continuing obligation to the other except that, regardless
of the method of termination, (i) the Company agrees to reimburse the Placement
Agent for, or otherwise pay and bear, the expenses and fees to be paid and borne
by the Company as provided for in paragraph 7 above and to reimburse the
Placement Agent for the full amount of its actual out-of-pocket expenses (which
shall include, without limitation, the fees and disbursements of the Placement
Agent's counsel, travel and lodging expenses, mailing, printing and reproduction
expenses, and any expenses reasonably incurred by the Placement Agent in
conducting its due diligence) less amounts previously paid to the Placement
Agent in reimbursement for such expenses and the advance against the non-
accountable expense allowance delivered upon the execution of this Agreement,
and (ii) the Indemnification Provisions in paragraph 12 shall remain in full
force and effect; provided further, that in the event the Company terminates
this agreement, and within one year from the date of such termination,
consummates any financing introduced to, the Company by the Placement Agent,
during the term hereof, the Placement Agent shall be entitled to receive 10% of
the aggregate amount of such financing.
(b) All representations, warranties, covenants, and agreements
contained in this Agreement shall be deemed to be representations, warranties,
covenants, and agreements at the Closing Date and, such representations,
warranties, covenants, and agreements, including the indemnify and contribution
agreements contained in Section l0, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Placement
Agent or any indemnified person, or by or on behalf of the Company or any
person or entity which is entitled to be indemnified under Section l0(b), and
shall survive termination of this Agreement or the issuance, sale, and delivery
of the Shares. In addition, notwithstanding any election hereunder or any
termination of this Agreement, and whether or not the terms of this Agreement
are otherwise carried out, the provisions of Sections 7, l0, ll, and l3 shall
survive
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termination of this Agreement and shall not be affected in any way by such
election or termination or failure to carry out the terms of this Agreement or
any part thereof.
l2. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the Company,
shall be mailed, delivered, or telexed or telegraphed and confirmed by letter,
to Medcross, Inc., 3227 Bennet Street North, St. Petersburg, Florida 33713,
Attention: President, with a copy to DeMartino Finkelstein Rosen & Virga, 1818 N
Street, N.W., Suite 400, Washington, D.C.; or if sent to the Placement Agent,
shall be mailed, delivered or telexed or telegraphed and confirmed by letter, to
Commonwealth Associates, 722 Third Avenue, New York, New York 10017 Attention:
President, with a copy to Goldstein & DiGioia LLP, 369 Lexington Avenue, New
York, New York 10017. All notices hereunder shall be effective upon receipt by
the party to which it is addressed.
l3. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Placement Agent and the Company and the persons and
entities referred to in Section l0 who are entitled to indemnification or
contribution, and their respective successors, legal representatives, and
assigns (which shall not include any purchaser, as such, of Shares), and no
other person shall have or be construed to have any legal or equitable right
remedy, or claim under or in respect of or by virtue of this Agreement or any
provision herein contained.
l4. Construction. This Agreement shall be construed in accordance with
the laws of the State of New York, without giving effect to conflict of laws.
l5. Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute an original and all of which, when taken together, shall
constitute one agreement.
If the foregoing correctly sets forth the understanding between us, please
so indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among us.
Very truly yours,
MEDCROSS, INC.
By ________________________________
Name:
Title:
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Accepted as of the date first above written.
New York, New York
COMMONWEALTH ASSOCIATES
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
24
<PAGE>
August 30, 1996
Medcross Inc.
3227 Bennet Street North
St. Petersburg Florida 33713
Re: Private Placement of
Class C Preferred Stock
-----------------------
Sir/Madam:
Reference is made to that certain Sales Agency Agreement dated as of July
1, 1996 ("Sales Agency Agreement") between Medcross, Inc. (the "Company") and
Commonwealth Associates regarding the Company's private placement offering of up
to $14,400,000 of Class C Convertible Cumulative Redeemable Preferred Stock
("Class C Stock") through Commonwealth Associates as Placement Agent. All terms
not otherwise defined herein shall have the meanings ascribed to them in the
Sales Agency Agreement.
This letter, when countersigned by the parties, shall confirm our agreement
to:
1. Extend the Offering Period to Friday September 6, 1996; and
2. Amend the Offering to provide that the maximum offering amount shall
be increased by $717,000 upon such terms as shall be agreed upon.
Please indicate your acceptance of the terms of this Letter by executing
below and returning a copy of this Letter to our office.
Very Truly Yours
Commonwealth Associates
By:__________________________
Accepted and Agreed:
Medcross Inc.
By:____________________________
Name:
Title:
25
<PAGE>
Exhibit 10(z)
COMMERCIAL LEASE
THIS LEASE (the "Lease") dated this 21 day of May, 1996, is entered into by
and between DRAPER LAND PARTNERSHIP II, a Utah Limited Partnership ("Landlord"),
and I-LINK, INC., a Corporation ("Tenant").
1. PREMISES.
(a) Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the term and subject to the terms and conditions hereinafter set
forth, to each and all of which Landlord and Tenant hereby mutually agree, those
certain premises (the "Premises"), highlighted on Exhibit A attached hereto,
which include approximately 6,945 Rentable (6,070 Useable) square feet of office
space (the exact Rentable and Useable sq. ft. to be determined by final space
plan). For purposes of the Lease, the Premises shall be measured in accordance
with the Building Owners and Management Association (BOMA) Method, American
National Standard (ANSI Z65.1-1980, reaffirmed 1989) of floor measurement. The
location of the Premises is commonly known as: 65 East Wadsworth Park Dr. (13800
South), Bldg. A, Draper, UT, 84020 (the "Building").
(b) In addition, the Premises shall include the appurtenant right to use,
in common with others, the site, parking and landscaped areas. Landlord shall
provide Tenant, at no additional charge, 28 non-reserved parking stalls in the
adjacent parking lots to the east, west and north of the Premises.
(c) Acceptance of Premises. Unless otherwise notified by Tenant within
thirty (30) days of taking possession, by entry hereunder Tenant accepts the
Premises as being in the condition in which Landlord is obligated to deliver the
Premises. Tenant shall at the end of the term and any extension herein surrender
to Landlord the Premises and all alterations, additions and improvements thereto
in the same condition as when received; ordinary wear and tear, damage by fire,
earthquake, or act of God excepted. Landlord has no liability and has made no
representation to alter, improve, or repair the Premises or any part thereof,
except as specified in Article 2(c), 2(d) & 6 herein.
2. TERM, OPTION, TENANT IMPROVEMENTS.
(a) Lease Term. The initial Lease Term shall be five (5) years and shall
commence July 1, 1996 ("Commencement Date"), Commencement Date subject to
substantial completion of Tenant Improvements. If Landlord is solely responsible
for not delivering possession of the Premises to Tenant within forty-five (45)
days of the Commencement Date, Tenant may upon ten (10) days written notice
terminate the Lease. In the event of Tenant's termination due to late delivery,
Landlord shall not be liable for such late delivery or failure to deliver
possession of the Premises. (Except as Noted in Paragraph 43.)
(b) Option. Provided that Tenant is not in default under the Lease, and not
later than one hundred eighty (180) days of expiration of the Lease or any
extension period herein, Tenant may by written notice to Landlord extend the
Lease by exercising a 5-year option on a timely basis. Tenant shall possess the
Premises during the Option period upon the same terms and conditions of the
Lease, except that Base Rent under Article 4(a) herein will be adjusted for the
Option period to the then fair market rate for similar space in similar
condition in the surrounding area.
(c) Base Building Improvements. At Landlord's sole cost and expense,
Landlord shall design, construct and install the Building's roof and structural
elements ("Shell"), shall provide
<PAGE>
basis utility access to and an initial HVAC unit for the Premises, and shall
design and construct the common areas of the Premises and Building, as more
specifically outlined in Exhibit B -Base Building Improvements (collectively
"Base Building Improvements").
(d) Tenant Improvements. At execution of the Lease, Landlord shall commence
the building design, construction and installation of agreed-upon Tenant
Improvements requested by Tenant ("Tenant Improvements"). Tenant is responsible
for any costs of Tenant Improvements above $ 97,120 ($ 16.00 per Useable square
feet). Tenant Improvements' shall include all improvements to the Premises, but
exclude the Base Building Improvements.
(e) Substantial Completion of Tenant Improvements. The Premises shall be
deemed complete when Landlord has substantially completed Tenant improvements.
"Substantial Completion" shall mean when (i) installation of Tenant Improvements
has occurred, (ii) Utility services are available to the Premises, (iii)
Landlord's Architect/Contractor shall have issued a Certificate of Substantial
Completion with respect to Premises or that portion of the Building within which
they are contained, whether or not Substantial Completion of the entire Building
itself shall has occurred, and (iv) issuance of a temporary Certificate of
Occupancy. Substantial Completion shall be deemed to have occurred
notwithstanding a requirement to complete "punch-list" work, which shall be
completed within a reasonable time by Landlord. Landlord shall use its best
efforts to advise Tenant of Substantial Completion at least thirty (30) days
prior to such date, but the failure to give such notice shall not constitute a
default hereunder by Landlord.
3. NON-OCCUPANCY OF IMPROVED SPACE.
In the event Tenant does not occupy the Premises and fails to pay Rents as
required in Article 4 of the Lease, all Tenant Improvements become due and
payable upon invoicing by Landlord, subject to reasonable mitigation by Landlord
for use with next tenant. Further, such invoicing by Landlord does not waive
any other rights or remedies Landlord may have against Tenant for failure to
occupy.
4. RENT.
(a) Base Rent. Total Base Rent shall be $ 329,887.50, NNN ($ 9.50 per
Rentable sq. ft. office X 6,945 sq. ft. X 5 years), payable as follows: $
5,498.13 per month payable in advance each month on or before the 1st day of
each month during the duration of the Lease, with the first and last such
monthly rental payments being due upon the execution of the Lease. Any partial
months shall be prorated accordingly. Base Rent under this Article shall be
increased four (4%) percent per year during the Lease Term and during any Option
period (after adjustment to fair market value at beginning of any Option
period). Base Rent during the Term of the Lease or any option period shall never
decrease. All Base Rent and Additional Rent (collectively "Rents") shall be paid
as follows, unless otherwise directed in writing: Draper Land Partnership II;
Attn: Kip Wadsworth; 71 East Wadsworth Park Dr., Draper, UT 84020.
(b) Additional Rent. All obligations payable by Tenant under the Lease
other than Base Rent are called "Additional Rent". Unless otherwise provided,
Additional Rent shall be paid monthly with Base Rent pursuant to the Lease,
otherwise upon invoicing from Landlord.
2
<PAGE>
(c) Interest, Late Charges, Costs and Attorneys' Fees. If Tenant fails to
pay within ten (10) days of the date due any Rents which Tenant is obligated to
pay under the Lease, the unpaid amount shall bear interest at ten (10%) percent
per annum. Tenant acknowledges that any late payments of Rents shall cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under the Lease, including without limitation administrative,
collection and accounting costs, the exact amount of which is difficult to
ascertain. Therefore, in addition to interest, any payments not received by
Landlord within ten (10) days from the date it is due, Tenant shall also pay
Landlord a late charge equal to five (5%) percent of the late Rents. Further, as
Additional Rent, Tenant shall be liable to Landlord for costs and attorneys'
fees incurred as a result of late payments or non-payments. Acceptance of any
interest, late charge, costs or attorneys' fees shall not constitute a waiver of
any default by Tenant nor prevent Landlord from exercising any other rights or
remedies under the Lease or at law.
5. USE.
(a) The Premises shall be used for general office and warehouse, assembly,
equipment, testing and development, distribution purposes, and any other lawful
purpose incidental to Tenant's business, and no other, unless consented to in
writing by Landlord. Tenant shall not do or permit to be done in or about the
Premises or Building anything which is prohibited by or in any way in conflict
with (in the case of hazardous materials, Tenant shall notify Landlord of any
such materials and shall ensure that any such hazardous material is properly
controlled, safeguarded, and disposed of) any and all laws, statutes,
ordinances, rules and regulations now in force or which may hereafter be enacted
or promulgated or which is prohibited by the standard form of fire insurance
policy, or which will increase the existing rate of or affect any fire or other
insurance upon the Premises or Building or any of its contents, or cause a
cancellation of any insurance policy covering the Premises or Building or any
part thereof or any of its contents. Tenant shall not do or permit anything to
be done in or about the Premises or Building which will in any way violate Rules
or Regulations reasonably promulgated by Landlord throughout the Lease, obstruct
or interfere with the rights of other tenants, or injure them, or use or allow
the Premises or Building to be used for any improper, immoral, or unlawful
purpose, nor shall Tenant cause, maintain or permit any nuisance, in, on or
about the Premises or Building or commit or suffer to be committed any waste in,
on or about the Premises or Building.
(b) Tenant shall not use the name of the Building in which the Premises are
located, in connection with any business carried on in said Premises (except as
Tenant's address) without written consent of Landlord.
(c) Tenant shall not manufacture, assemble or store materials inside the
common areas outside of Building.
6. LANDLORD'S SERVICES.
3
<PAGE>
Landlord, at its sole cost and expense, is responsible to maintain only the
roof and structural elements ("Shell") of the Premises and Building. All
Operating Expenses, including but not limited to repairs, maintenance, common
area utilities, common area janitorial, insurance, taxes, and property
management on the Premises, Building, and common areas shall be coordinated by
Landlord, but are the financial responsibility of the Tenant through prorated
billings as more fully outlined in Article 7 herein.
7. OPERATING EXPENSES - REPAIRS, MAINTENANCE, INSURANCE, TAXES AND PROPERTY
MANAGEMENT (Excludes Electric, Gas and Office Janitorial).
Since the Premises is part of a Building or group of buildings, Tenant is
responsible for a prorated share of Operating Expenses, including but not
limited to repairs, maintenance, common area utilities, common area janitorial
(not specific tenant janitorial), sewer and garbage, insurance, taxes, and
property management incurred in the operation and management of the Premises,
Building, and common areas as shall be reasonably determined by the Landlord.
For purposes of the Lease, Operating Expenses specifically exclude electric,
gas, and janitorial expenses for the office space portion (excludes common
areas) of Tenant's Premises which are separately billed to Tenant and which are
the sole responsibility of Tenant. Proration shall be on a square footage basis
with all other tenants and Tenant's proration shall be calculated by multiplying
the Operating Expenses by an equation, the numerator being the Rentable square
feet of the Premises and the denominator being the total Rentable square feet of
the Building. The Operating Expenses shall be prorated to Tenant and be payable
by Tenant as Additional Rent on a monthly basis, and subject to the following
terms and conditions:
(a) Tenant's prorated share of the Operating Expenses shall be computed and
paid in twelve (12) equal monthly estimated payments as determined in the
Landlord's reasonable discretion. Such Additional Rent shall be paid by Tenant
on or before the 1st day of each month with the Base Rent. As soon as is
reasonably possible, but in any event within ninety (90) days following the end
of each calendar year, Landlord shall furnish to Tenant a statement showing the
Premises' and Building's actual Operating Expenses for the preceding calendar
year. In the case of a deficiency, Tenant shall promptly remit its prorated
share of such deficiency to Landlord. In the case of a surplus, Landlord shall
apply said surplus to the next Additional Rent due from Tenant.
(b) Right to Review. Tenant may review at his sole cost and expense any
Operating Expenses prorated to Tenant by Landlord, including assessed Real
Estate Taxes as may be statutorily allowed. Landlord shall make available the
applicable Operating Expenses' invoices and statements. However, any such review
must be requested and completed within sixty (60) days of receipt of the annual
statement.
8. ALTERATIONS.
(a) Tenant will not make or suffer to be made any alterations, additions or
improvements in excess of $1,000, excluding the initial Tenant Improvements,
(collectively
4
<PAGE>
"Alterations") to or upon the Premises, Building, or any part thereof, or attach
any fixtures or equipment thereto, without first obtaining Landlord's written
approval, which shall not be unreasonably withheld or delayed. Any Alterations
to or upon the Premises shall be made by Tenant at Tenant's sole cost and
expense and any contractor selected by Tenant to make the same shall be subject
to Landlord's reasonable prior written approval. All such Alterations permanent
in character, made in or upon the Premises either by Tenant or Landlord, may at
the option of Landlord, become Landlord's property and, at the end of the term
or any extension hereof, shall remain on the Premises without compensation to
Tenant unless Landlord requests that Tenant remove any such Alterations.
Notwithstanding the above, Tenant's work stations and other items of personal
property shall remain Tenant's property.
(b) Any Alterations shall, when completed, be of such a character as not to
lessen the value of the Premises or such improvements as may be then located
thereon. Any Alterations shall be made promptly and in a good workmanlike manner
and in compliance with all applicable permits and authorizations and building
and zoning laws and with all other laws, ordinances, orders, rules, regulations
and requirements of all federal, state and municipal governments, departments,
commissions, boards and offices. The costs of any such Alterations shall be paid
by Tenant, so that the Premises be free of liens for services performed, labor
and material supplied or claimed to have been supplied. Before any Alterations
shall be commenced, Tenant shall pay any increase in premiums on insurance
policies (provided for herein) or ensure adequate coverage is in place for all
risks related to the construction of such Alterations and the increased value of
the Premises.
9. PERSONAL PROPERTY & SIGNAGE.
Placement of signs on a monument, if any, including the type, size and
lighting of the signs, must be approved in writing by Landlord prior to their
installation. Such personal property must be removed at the end of the Lease
Term, any Option period herein, or upon Tenant's failing to have possession of
the Premises.
10. LIENS.
Tenant shall keep the Premises and the Building free from any mechanics'
and/or materialmen's liens or other liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. Tenant shall notify
Landlord in writing at least seventy-two (72) hours before any work or activity
is to commence on the Premises which may give rise to such liens to allow
Landlord to post and keep posted on the Premises any notices which Landlord may
deem to be proper for the protection of Landlord and the Premises from such
liens.
11. DESTRUCTION OR DAMAGE.
(a) If the Premises is partially damaged by fire, earthquake, or other Act
of God, Landlord shall repair the same at Landlord's expense, subject to the
provisions of this Article and provided such repairs can, in Landlord's
reasonable opinion, be made within sixty (60) days.
5
<PAGE>
During such repairs, the Lease shall remain in full force and effect, except
that if there shall be damage to the Premises and such damage is not the result
of the negligence or willful misconduct of Tenant, Tenant's employees, agents,
or invitees, an abatement of Rents shall be allowed Tenant for such portion of
Premises and period of time as the Premises was unusable by Tenant.
(b) If in Landlord's reasonable opinion the partially damaged Premises can
be repaired, but not within sixty (60) days, the Landlord may elect, upon
written notice to Tenant within thirty (30) days of such damages, to repair such
damages over a longer time period and continue the Lease in full force and
effect, but with Rents partially abated as provided in Article 11(a). In the
event such repairs cannot be made within sixty (60) days, Tenant shall have the
option to terminate the Lease provided that written notice is given to Landlord
within thirty (30) days of receipt of Landlord's notice stated in this
paragraph.
(c) If the partially damaged Premises is to be repaired under this Article,
Landlord shall repair such damages to the Premises itself, and to the Tenant
Improvements supplied by Landlord herein. Except in the event of Landlord's
gross negligence or willful misconduct, Tenant shall be responsible for Tenant's
equipment, furniture and fixtures, and other alterations, additions and
improvements made by Tenant to the Premises and Building.
(d) If in Landlord's reasonable opinion, the Premises is totally or
substantially destroyed by fire or other casualty, the Lease shall terminate
upon notice by Landlord.
12. SUBROGATION.
Landlord and Tenant shall each, prior to Tenant's taking possession or
immediately after the execution of the Lease, procure from each of the insurers
under all policies of fire, theft, public liability, workmen's compensation and
other insurance now or hereafter existing during the term and any extension
hereof and purchased by either of them insuring or covering the Premises and/or
Building or any portion thereof or operations therein, a waiver of all rights of
subrogation which the insurer might otherwise, if at all, have against the
other.
13. INDEMNIFICATION.
Tenant and Landlord hereby agree to indemnify and hold the other party
harmless from any damage to any property, including the release of any hazardous
materials, or injury to or death of any person arising from the use of the
Premises, Building, or common areas by Tenant or the ownership, management or
maintenance of the Premises, Building, or common areas by Landlord, except such
as is caused by reason of the negligent or willful act of the other party, its
agents, employees or contractors. The foregoing indemnity obligation of Tenant
and Landlord shall include reasonable fees, investigation costs and all other
reasonable costs and expenses incurred by Landlord or Tenant from the first
notice that any claim or demand is made, except in the event of the other
party's negligence or willful misconduct. The provisions of this Article shall
survive the Lease's termination with respect to any damage, injury or death
occurring prior to such termination.
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<PAGE>
14. COMPLIANCE WITH LEGAL REQUIREMENTS
Tenant shall, at its sole cost and expense, promptly comply with all laws,
statutes, ordinances and governmental rules, regulations or requirements now in
force or which may hereafter by in force, the requirements of any board of fire
underwriters or other similar body now or hereafter constituted, any direction
or occupancy certificate issued pursuant to any law by any public officer or
officers, as well as the provisions of all recorded documents affecting the
Premises, (collectively the "Applicable Laws"), insofar as any thereof relate to
or affect the use or occupancy of the Premises, Building, or common areas,
excluding requirements of structural changes now related to or affected by
improvements made by or for Tenant.
Landlord shall, at its sole cost and expense, promptly comply with all
Applicable Laws, including the American with Disabilities Act ("ADA"), insofar
as any thereof relate to or affect Landlord's obligations under the Lease, or
its ownership of the Premises, Building, or common areas, except for Tenant's
requirements in the immediately preceding paragraph herein.
15. INSURANCE.
(a) Commercial General Liability. Tenant shall maintain a Commercial
General Liability policy including all coverages normally provided therein. Such
policies shall specifically name Landlord as an additional insured, with a
cancellation period of thirty (30) days prior written notice of an cancellation.
A Certificate of Insurance shall be provided to Landlord. All polices of
insurance shall be issued by responsible insurance companies licensed to do
business in the State of Utah.
The minimum limits of coverage acceptable are:
(i) $1,000,000 Each Occurrence Combined Single Limit for
Bodily Injury and Property Damage
and
(ii) $2,000,000 Annual Aggregate
(b) Premises and Building Insurance. Landlord shall insure the Premises and
Building, including Landlord supplied Core and Shell and Tenant Improvements as
deemed necessary in Landlord's reasonable discretion. Tenant shall pay its
prorata share for such insurance as outlined in Article 7 herein, involving
Tenant's prorated share of Operating Expenses. All policies of insurance shall
be issued by responsible insurance companies licensed to do business in the
State of Utah.
(c) Tenant's Additional Insurance. Tenant may, at its sole cost and
expense, cause all equipment, machinery, furniture and fixtures, personal
property, and Tenant Improvements supplied by Tenant from time to time used or
intended to be used in connection with the operation and maintenance of the
Premises, to be insured by Tenant against loss or damage. Except for
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losses caused by Landlord's gross negligence or willful misconduct, Landlord is
in no way liable for any uninsured Tenant's property.
16. ASSIGNMENT AND SUBLETTING.
In the event Tenant should desire to assign the Lease or sublet the
Premises, Tenant shall give Landlord written notice of such desire at least
ninety (90) days in advance of the date on which Tenant desires to make such
assignment or sublease. Landlord shall then have a period of thirty (30) days
following receipt of such notice within which to notify Tenant in writing that
Landlord elects either (i) to terminate the Lease as of the date so specified by
Tenant, in which event Tenant will be relieved of all further obligations
hereunder, or (ii) to permit Tenant to assign or sublet such space, subject to
prior written approval of the proposed assignee by Landlord, such consent not to
be unreasonably withheld or delayed, so long as the use of the Premises by the
proposed assignee would be a permitted use and the proposed assignee is of sound
financial condition as determined by Landlord. If Landlord should fail to notify
Tenant in writing of such election within said thirty (30) day period, Landlord
shall have deemed to have waived option (i) above, but written approval by
Landlord of the proposed assignee shall still be required. Failure by Landlord
to approve a proposed assignee shall not cause a termination of the Lease. Any
rents or other consideration realized by Tenant under any such sublease and
assignment in excess of the Rents hereunder, after amortization of the
reasonable costs of extra tenant improvements for which Tenant has paid and
reasonable subletting and assignment costs, shall be divided and paid ninety
(90%) percent to Landlord and ten (10%) percent to Tenant.
Notwithstanding the above, Tenant shall have the right to sublease or assign
all or any portion of the Premises during the Term or any Option period to any
related entity, subsidiary, or affiliate of Tenant, having at least fifty-one
(51%) percent direct common ownership, without having to receive Landlord's
consent, but still requiring written notice to Landlord on or before such
sublease or assignment. No assignment or subletting by Tenant shall relieve
Tenant of any obligation under the Lease. Any assignment or subletting which
conflicts with the provisions hereof shall be void.
17. RULES.
Tenant shall faithfully observe and comply with all Rules and Regulations
reasonably promulgated by Landlord, in writing and after reasonable notice,
during the Term or any Option period herein. Landlord must apply rules
equitably against all Tenants, but shall not be responsible to Tenant for the
non-performance by other Building tenants, or adjacent buildings' tenants, of
any of said Rules and Regulations.
18. ENTRY BY LANDLORD.
The Landlord may enter the Premises or Building at reasonable hours and upon
24 hours reasonable written notice to Tenant to (a) inspect the same, (b) show
the same to prospective
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purchasers, lenders or tenants, (c) determine whether Tenant is complying with
all of Tenant's obligations hereunder, (d) post notices of non-responsibility or
(e) make repairs required of Landlord under the Lease, repairs to adjoining
space or utility service, or make repairs, alterations or improvements to the
Building, provided that all such work shall be done as promptly as possible and
with as little interference to Tenant as reasonably possible. Tenant hereby
waives any claim for damages for any inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises
occasioned by such entry. Landlord shall at all times have and retain a key to
unlock all doors in, on or about the Premises (excluding Tenant's vaults, safes
and similar areas designated in writing by Tenant). In the event of an
emergency, Landlord shall have the right to use any and all means which Landlord
may deem proper to enter the Premises, without notice, for the limited purpose
of abating as possible said emergency. Such emergency entrance shall not be
construed or deemed to be a forcible or unlawful entry into or a detainer of the
Premises or an eviction, actual or constructive, of Tenant from the Premises, or
any portion thereof.
19. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events ("Events of
Default") shall constitute a breach of the Lease by Tenant: (a) if Tenant fails
to pay Rents when and as the same becomes due and payable and such failure
continues for more than ten (10) days after written notice thereof, or (b) if
Tenant fails to pay any other sum when and as the same becomes due and payable
and such failure continues for more than ten (10) days after written notice
thereof; or (c) if Tenant fails to perform or observe any material term or
condition of the Lease, such failure continues for more than thirty (30) days
after written notice from Landlord, and Tenant does not within such period begin
with due diligence and dispatch the curing of such default, or, having so began,
thereafter fails or neglects to complete with due diligence and dispatch the
curing of such default; or (d) if Tenant shall make a general assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
as they become due or shall file a petition in bankruptcy, or shall be
adjudicated as bankrupt or insolvent, or shall file a petition seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, or
shall file any answer admitting or shall fail timely to contest the material
allegations of a petition filed against it in any such proceeding, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant or any material part of its properties; or (e) if within
sixty (60) days after the commencement of any proceeding against Tenant seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such proceeding shall not have been dismissed, or if, within sixty
(60) days after the appointment without the consent or acquiescence of Tenant,
of any trustee, receiver or liquidator of Tenant or of any material part of its
properties, such appointment shall not have been vacated; or (f) vacation or
abandonment of the Premises for a continuous period in excess of fifteen (15)
days after initial occupancy, or (g) if the Lease or any estate of Tenant
hereunder shall be levied upon under any attachment or execution and such
attachment or execution is not vacated within thirty (30) days of receipt
thereof by Tenant.
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20. TERMINATION UPON TENANT'S DEFAULT.
If an Event of Default shall occur, Landlord at any time thereafter may give
a written termination notice to Tenant, and on the date specified in such notice
(which shall not be less than three (3) days after service) Tenant's right to
possession shall terminate and the Lease shall terminate, unless on or before
such date all Rents, arrearages and other sums due by Tenant under the Lease,
including reasonable costs and attorneys' fees incurred by or on behalf of
Landlord, shall have been paid by Tenant and all other Events of Default by
Tenant shall have been fully cured to the satisfaction of Landlord. Upon such
termination, Landlord may recover from Tenant:
(a) the worth at the time of award of the unpaid Rents which had been
earned at the time of termination; plus
(b) the worth at the time of award of the amount by which the unpaid Rents
which would have been earned after termination until the time of award exceeds
the amount of such Rents loss that Tenant proves could have been reasonably
avoided; plus
(c) the worth at the time of award of the amount by which the unpaid Rents
for the balance of the term of the Lease after the time of award exceeds the
amount of such Rents loss that Tenant proves could be reasonably avoided; and
plus
(d) any other amount reasonably necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under the Lease or which in the ordinary course of things would be likely to
result therefrom; and/or
(e) At Landlord's elections, such other amounts in addition or in lieu of
the foregoing as may be permitted from time to time herein or by applicable law.
The "worth at the time of award" of the amounts referred to in clauses (a)
and (b) above is computed by allowing interest at the rate of 10% per annum. The
"worth at the time of award" of the amount referred to in clause (c) above means
the monthly sum of the Rents under the Lease. Failure of Landlord to declare any
default immediately upon occurrence thereof, or delay in taking any action in
connection therewith, shall not waive such default, but Landlord shall have the
right to declare any such default at any time thereafter.
21. CONTINUATION AFTER DEFAULT.
Even though Tenant has defaulted the Lease and abandoned the Premises, the
Lease shall continue in effect as long as Landlord does not terminate Tenant's
right to possession, and Landlord may enforce all of its rights and remedies
under the Lease, including the right to recover the Rents
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as they become due under the Lease. Acts of maintenance or preservation or
efforts to relet the Premises or the appointment of a receiver upon initiative
of Landlord to protect Landlord's interest under the Lease shall not constitute
a termination of Tenant's right to possession. If any fixture, equipment,
improvement, installation or appurtenance shall be required to be removed from
the Premises and/or Building by Tenant, then Landlord (in addition to all other
rights and remedies) may, at its election by written notice to Tenant, deem that
the same has been abandoned by Tenant to Landlord, or Landlord may remove and
store the same and restore the Premises to its original condition at the
reasonable expense of Tenant, as Additional Rent to be paid within ten (10) days
after written notice to Tenant of such expense.
22. LANDLORD'S DEFAULT.
If Landlord fails to perform or observe any of its material Lease
obligations herein and such failure continues for thirty (30) days after written
notice from Tenant, or such additional time, if any, that is reasonably
necessary to promptly and diligently cure such failure after receiving written
notice, Landlord shall be in breach of the Lease (a "Default"). If Landlord
commits a Default, Tenant may pursue any remedies given in the Lease or under
law.
23. LANDLORD'S RIGHT TO CURE DEFAULTS.
All terms and provisions to be performed by Tenant under the Lease shall be
at Tenant's sole cost and expense and without any abatement of Rents. If Tenant
fails to pay any sum of money, other than Rents, required hereunder or fails to
perform any other act required hereunder and such failure continues for thirty
(30) days after notice by Landlord, Landlord may, but shall not be obligated,
and without waiving or releasing Tenant from any obligations of Tenant, make any
such payment or perform any such act on Tenant's part to be made or performed as
provided in the Lease. All sums paid by Landlord and all incidental costs shall
be deemed Additional Rent hereunder and shall be payable within ten (10) days of
written notice of such sums paid.
24. OTHER RELIEF.
The remedies provided for in the Lease are in addition to any other remedies
available to Landlord at law or in equity by statute or otherwise.
25. ATTORNEYS' FEES.
In the event either party places the enforcement of the Lease, or any part
thereof, or the collection of any Rents, or recovery of the possession of the
Premises, or files suit upon the same, then the prevailing party shall recover
its reasonable attorneys' fees and costs.
26. EMINENT DOMAIN.
If all or any part of the Premises shall be taken or conveyed as a result of
the exercise of the
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power of eminent domain, the Lease shall terminate as to the part so taken as of
the date of taking, and, in the case of a partial taking, either Landlord or
Tenant shall have the right to terminate the Lease as to the balance of the
Premises by written notice to the other within thirty (30) days after such date;
provided, however, that a condition to the exercise by Tenant of such right to
terminate shall be that the portion of the Premises taken or conveyed shall be
of such extent and nature as substantially to handicap, impede or impair
Tenant's use of the balance of the Premises. In the event of any taking,
Landlord shall be entitled to any and all compensation, damages, income, rent
awards or any interest therein whatsoever which may be paid or made in
connection therewith, and Tenant shall have no claim against Landlord for the
value of any unexpired term of the Lease or otherwise, provided that Tenant
shall be entitled to any and all compensation, damages, income, rent or awards
paid for or on account of Tenant's moving expenses, trade fixtures, equipment
and any leasehold improvements in the Premises, the cost of which was borne by
Tenant, to the extent of the then unamortized value of such improvements for the
remaining term of the Lease. In the event of a taking of the Premises which does
not result in a termination of the Lease, the monthly rental herein shall be
apportioned as of the date of such taking so that thereafter the rent to be paid
by Tenant shall be in the ratio that the area of the Premises not so taken bears
to the total area of the Premises prior to such taking.
27. SUBORDINATION, ATTORNMENT & NONDISTURBANCE; AND
ESTOPPEL CERTIFICATE.
At Landlord's request, Tenant agrees to execute, acknowledge, and deliver
within ten (10) days to Landlord a Subordination, Attornment & Nondisturbance
Agreement ("Subordination Agreement"), subject to Landlord's reasonably proposed
form(s). Such Subordination Agreement shall subordinate the Lease to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the Premises, Building or common areas, or any part
thereof, to any and all advances made on the security, and to all renewals,
modification, consolidations, replacements and extensions thereof, whether the
Lease is dated prior or subsequent to the date of said ground lease, mortgage,
deed of trust or other hypothecation or the date of recording thereof. Further,
at Landlord's request, Tenant agrees to execute, acknowledge, and deliver within
ten (10) days to Landlord an Estoppel Certificate, subject to Landlord's
reasonably proposed form(s). Such Subordination Agreement and Estoppel
Certificate may be relied upon by any prospective purchaser, mortgagee, or
beneficiary under any ground lease, mortgage, deed of trust, or any other
hypothecation of the Premises, Building, or common areas, or any part thereof.
Notwithstanding such Subordination Agreement, Tenant's right to quiet possession
of the Premises shall not be disturbed so long as Tenant is not in default under
the Lease, unless the Lease is otherwise terminated pursuant to its terms.
In the event that Tenant fails to execute, acknowledge, and deliver to
Landlord such Subordination Agreement and Estoppel Certificate within ten (10)
days of Landlord's request, the parties herein expressly agree that Tenant shall
be deemed in default of the Lease without further notice. In such event, the
parties herein further expressly agree that the Subordination Agreement and
Estoppel Certificate are deemed to have been executed by Tenant.
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28. NO MERGER.
The voluntary or other surrender of the Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord terminate all or any existing subleases or subtenancies, or may, at the
option of Landlord, operate as an assignment to it of any or all such subleases
or subtenancies.
29. SALE.
In the event the original Landlord hereunder, or any successor owner of the
Premises, Building, and common areas shall sell or convey the Premises,
Building, and common areas, and the purchaser assumes the obligations of
Landlord under the Lease, all liabilities and obligation on the part of the
original Landlord, or such successor owner, under the Lease accruing after such
Sale shall terminate, and thereupon all such liabilities and obligations shall
be binding upon the new owner. Tenant agrees to attorn to such new owner.
30. NO LIGHT OR VIEW EASEMENT.
Any diminution or shutting off of light or view by any structure erected on
lands adjacent to the Building shall in no way affect the Lease or impose any
liability on Landlord.
31. HOLDING OVER.
If, without objection by Landlord, Tenant holds possession of the Premises
after expiration of the Term or any Option period of the Lease, Tenant shall
become a tenant from month to month upon the terms herein specified, but at a
monthly Base Rent equivalent to 125% of the Base Rent at the end of the term or
extension period pursuant to Article 4, payable in advance on or before the 1st
day of each month. All Additional Rent shall also apply. Each party shall give
the other notice at least one month prior to the date of termination of such
monthly tenancy of its intention to terminate such tenancy.
32. ABANDONMENT.
If Tenant shall abandon or surrender the Premises, or be dispossessed by
process of law or otherwise, any personal property belonging to Tenant and left
on the Premises shall be deemed to be abandoned, at the option of Landlord,
except such property as may be mortgaged to Landlord.
33. SECURITY DEPOSIT.
Tenant has deposited with Landlord upon execution of the Lease as security
deposit equal to a month's full rental payment ("Security Deposit"). The
Security Deposit shall be held by
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Landlord as security for the faithful performance by Tenant of all of the
provisions of the Lease to be performed or observed by Tenant. In the event
Tenant fails to perform or observe any of the provisions of the Lease to be
performed or observed by it, then, at the option of the Landlord, Landlord may
(but shall not be obligated to do so) apply the Security Deposit, or so much
thereof as may be necessary to remedy such default or to repair damages to the
Premises caused by Tenant. In the event Landlord applies any portion of the
Security Deposit to remedy any such default or to repair damages to the Premises
caused by Tenant, Tenant shall pay to Landlord, within thirty (30) days after
written demand for such payment by Landlord, all monies necessary to restore the
Security Deposit up to the original amount. Any portions of the Security Deposit
remaining upon termination of the Lease shall be returned.
34. WAIVER.
All waivers by either party herein must be in writing and signed by such
party. The waiver of any term or conditions herein shall not be deemed to be a
waiver of any subsequent breach of the same or any other agreement, condition or
provision herein contained, nor shall any custom or practice which may grow upon
between the parties in the administration of the terms hereof be construed to
waive or to lessen the right of either party to insist upon the performance by
the other party in strict accordance with said terms. The subsequent acceptance
of Rents hereunder by Landlord shall not be deemed to be a waiver of any breach
by Tenant of any term or condition of the Lease, regardless of Landlord's
knowledge of such breach at the time of acceptance of such Rents.
35. NOTICES.
All notices and demands which may or are required to be given by either
party to the other under the Lease shall be in writing and shall be deemed to
have been fully given when deposited in the United States mail, certified or
registered, postage prepaid, and addressed as follows: to Tenant at I-Link,
Inc.; Attn: John Edwards; 65 East Wadsworth Park Drive, Draper, UT 84020, or to
such other place as Tenant may from time to time designate in a notice to
Landlord; to Landlord at Draper Land Partnership II; Attn: Kip Wadsworth; 71
East Wadsworth Park Dr., Draper, UT 84020 or to such other place as Landlord may
from time to time designate in a notice to Tenant, or in the case of Tenant,
delivered to Tenant at the Premises. Tenant hereby appoints as its agent to
receive the service of all dispossessory or distraint proceedings and notices
hereunder the person in charge of or occupying the Premises at the time, and if
no person shall be in charge of or occupying the same, then service may be made
by attaching same on the main entrance of the Premises.
36. COMPLETE AGREEMENT.
There are no oral agreements between Landlord and Tenant affecting the
Lease, and the Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between Landlord
and Tenant with respect to the subject
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matter of the Lease. The Lease may not be altered, changed or amended, except by
an instrument in writing signed by both parties hereto.
37. CORPORATE AUTHORITY.
The person(s) executing the Lease on behalf of the parties herein hereby
covenants and warrants that (a) such party is a duly authorized and validly
existing entity under the laws in which it was formed, (b) such party has and is
qualified to do business in Utah, (c) such entity has full right and authority
to enter into the Lease, and (d) each person executing the Lease on behalf of
such entity is authorized to do so.
38. GUARANTEE OF LEASE.
Tenant guarantees, upon execution of the Lease, to occupy the Premises. Any
failure to occupy the Premises does not release the Tenant from the obligation
of paying Rents or any other terms set forth herein.
39. MISCELLANEOUS.
(a) The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. If there be more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several.
(b) Time is of the essence on the Lease and each and all of its terms and
conditions.
(c) The terms and conditions herein shall apply to and bind the heirs,
executors, administrators, successors and assigns of the parties hereto.
(d) The captions of the Lease are solely to assist the parties and are not
a part of the terms or conditions of the Lease.
(e) The Lease shall be governed by and construed in accordance with the
laws of the State of Utah, and is deemed to be executed within the State of
Utah.
40. SEVERABILITY.
If any term provision of the Lease, or the application thereof to any person
or circumstance, shall to any extent be invalid or unenforceable, the remainder
of the Lease, or the application of such provision to persons or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each provision of the Lease shall be valid and shall be
enforceable to the extent permitted by law.
41. BROKERS.
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Landlord is represented by Prime Commercial, Inc.; Tenant is represented by
Coldwell Banker West Realty. Agreed-upon commissions shall be due and payable by
Landlord; 50% upon execution, and 50% upon Tenant taking possession.
FIRST RIGHT OF OPPORTUNITY
Landlord will provide Tenant with written notice that space is coming
available within the Park. The Tenant shall then have seven (7) calendar days to
commit to leasing the additional space. The terms and condition for the
additional space shall be mutually agreed between the Landlord and Tenant. If
agreement on the terms cannot be made between the parties within the seven (7)
day period, the Landlord may lease the space to another party.
PERFORMANCE DELIVERY
In the event the Landlord does not deliver the premises substantially
complete on or before July 8, 1996, the Landlord will provide the Tenant two (2)
days free base rent for each day of delayed delivery. The Tenant agrees to
cooperate completely with the Landlord and agrees to make all necessary
decisions relating to the space completion promptly.
BUILDING SIGNAGE.
It is understood that Tenant shall have signage rights on the west side of
the building. Signage on the building must also be approved in writing by the
Landlord prior to installation.
IN WITNESS WHEREOF, the parties have executed the Lease dated the day and
year first above written.
TENANT, LANDLORD,
I-LINK, INC. DRAPER LAND PARTNERSHIP II
By: By:
--------------------------- ---------------------------------
Its: Its:
--------------------------- ---------------------------------
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EXHIBIT B
BASE BUILDING IMPROVEMENTS
The Base Building Improvements and systems as described below shall be furnished
by Landlord at Landlord's sole cost and expense. These include:
1. The Building structure will be designed for a minimum floor load of 50 lb.
Live load plus a 20 lb. partition dead load.
2. The Building shell will include a core consisting of: 1 elevator with
equipment room, 2 stairwell enclosures, 1 men's and 1 women's rest-room on
each floor, finished lobbies and exterior perimeter walls and windows and
all building columns.
3. A Concrete floor will be installed with a smoothed trowel finish for
installation of glued-down carpet. The Floor will be poured level and
finished in accordance with current ACI Standard Specifications 117.
4. A Life Safety system will be installed in accordance with the more
stringent of applicable national, state and local codes or the Americans
with Disabilities Act, throughout the Building, including all corridors,
stairwells and rest-rooms (strobes).
5. Electrical distribution will be provided to the main panel boxes in the
electrical closet on each floor. The electrical system shall be sized for
seven (7) watts per usable square foot (120-208-3 Phase) for Tenant's
consumption, over and above base building electrical requirements.
6. The Building will be equipped with a packaged-unit heating, ventilation and
air conditioning system sufficient for Tenant's anticipated occupancy
requirements. The system will be designed to maintain a space temperature
between 70(degrees)-78(degrees) degrees F on a year-round basis, based on a
maximum average occupancy of one (1) person for each 150 square feet of
usable area. The requirements for ventilation shall comply with present
ASHRAE (American Society of Heating, Refrigeration and Air-Conditioning
Engineers) standard 62-1989 as a minimum requirement. Tenant shall be
furnished with a price per ton for package unit if additional air
conditioning is required. All distribution and controls of HVAC, within
tenant space, shall be subject to Tenant Improvement allowance.
7. Telephone service, as provided by the local utility, will be brought to
Tenant's or Building's main telephone room.
8. Common corridor walls and walls between tenant suites will be provided with
the side finished only to the common areas.
9. All roadways necessary for Tenant's access to and egress from the Building
will be completed, along with parking, landscaping and sprinklers for
irrigation.
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Exhibit 10.Z(ii)
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") dated this 22nd day of July,
1996, is entered into by and between DRAPER LAND PARTNERSHIP II, L.C., a Utah
Limited Liability Company ("Landlord"), and I-LINK, a Corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into a Lease dated May 21, 1996,
("Lease") which is incorporated herein by reference;
WHEREAS, the parties hereto desire to amend certain terms and conditions of
the Lease as specifically indicated in this Amendment. However, unless
specifically amended herein, all terms and conditions of the Lease and 1st
Amendment remain in full force and effect;
NOW THEREFORE, in consideration of the mutual promises, representation and
covenants contained herein, the receipt and sufficiency of which is hereby
acknowledged,, the parties hereto agree as follows:
The recitals contained herein are hereby incorporated by reference.
Article 1 (a) shall be replaced in its entirety by the following:
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the term and subject to the terms and conditions hereinafter
set forth, to each and all of which Landlord and Tenant hereby mutually
agree, those certain premises ("Premises"), highlighted on Exhibit A
attached hereto, which include approximately 6,886 Rentable square feet
(5,949 Useable), as determined by final space plan. The location of the
Premises and related Building is commonly known as: 65 East Wadsworth Park
Dr., Bldg. #A, Suite #202, Draper, UT 84020 (the "Building").
Article 4(a) shall be replaced in its entirety by the following:
Base Rent. Total Annual Base Rent (triple net - NNN) shall begin at
$65,417.04, (9.50 per Rentable sq.ft. X 6,886 sq. ft.), payable as follows:
$5,451.42 per month, payable in advance each month on or before the 1st
day of each month during the duration of the Lease, with the first and last
such monthly rental payments being due upon the execution of the Lease.
Any partial months shall be prorated accordingly. Base Rent under this
Article will be increased four (4%) percent annually during the Lease Term,
and during any Option Period (after adjustment to fair market value at
beginning of any Option period. All base Rent and Additional Rent
(collectively "Rents") shall be paid as follows, unless otherwise directed
in writing: Draper Land Partnership II, L.C.; Attn: Kip Wadsworth; 71 East
Wadsworth Dr., Draper, UT 84020.
<PAGE>
EXHIBIT 10(ff)
1997 RECRUITMENT STOCK OPTION PLAN
OF MEDCROSS, INC.
ARTICLE I
---------
ESTABLISHMENT AND PURPOSE
-------------------------
Section 1.1 Medcross, Inc. (the "Company"), a Florida corporation, hereby
establishes a stock option plan to be named the 1997 Recruitment Stock Option
Plan (the "1997 Plan").
Section 1.2 The purpose of this 1997 Plan is to induce persons who are
officers, directors, employees and consultants of the Company or any of its
subsidiaries who are in a position to contribute materially to the Company's
prosperity to remain with the Company, to offer said persons incentives and
rewards in recognition of their contributions to the Company's progress, and to
encourage said persons to continue to promote the best interests of the Company.
This 1997 Plan provides for the grant of options to purchase shares of common
stock of the Company, par value $.007 per share (the "Common Stock") which
qualify as incentive stock options ("Incentive Options") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), to persons who are
employees, as well as options which do not so qualify ("Non-Qualified Options")
to be issued to persons or consultants, including those who are not employees.
This 1997 Plan also provides for grants of stock appreciation rights ("SARs") in
connection with the grant of options under this 1997 Plan. Incentive Options and
Non-Qualified Options may be collectively referred to hereinafter as the
"Options" as the context may require.
Section 1.3 All options and other rights previously granted by the Company
under any other plan previously adopted by the Company shall continue to be
governed by such plan. All Options granted hereunder on or after the date that
this 1997 Plan has been approved and adopted by the Company's board of directors
(the "Board of Directors") shall be governed by the terms and conditions of this
1997 Plan unless the terms of such Option specifically indicate that it is not
to be so governed.
ARTICLE II
----------
ADMINISTRATION
--------------
Section 2.1 All determinations under this 1997 Plan concerning the selection
of persons eligible to receive awards under this 1997 Plan and with respect to
the timing, pricing and amount of an award under this 1997 Plan shall be made by
the administrator (the "Administrator") of this 1997 Plan. The Administrator
shall be either: (a) the Board of Directors or (b) in the discretion of the
Board of Directors by a committee (the "Committee") of the Board of Directors of
two or more members of the Board of Directors, each of whom is a "Non-Employee
Director" as such term is defined by Rule 16b-3 (as such rule may be amended
from time to time, "Rule 16b-3") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). In such case, a majority of the total number of
members of the Committee shall be necessary to constitute a quorum; and (i) the
affirmative act of a majority of the members present at any meeting at which a
quorum is present, or (ii) the approval in writing by a majority of the members
of the Committee shall be necessary to constitute action by the Committee.
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this 1997 Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To
<PAGE>
the extent that any provision of this 1997 Plan or action by the Administrator
fails to so comply, it shall be deemed to be null and void, to the extent
permitted by law and deemed advisable by the Administrator.
Section 2.2 The provisions of this 1997 Plan relating to Incentive Options
are intended to comply in every respect with Section 422 of the Code ("Section
422") and the regulations promulgated thereunder. In the event that any future
statute or regulation shall modify Section 422, this 1997 Plan shall be deemed
to incorporate by reference such modification. Any stock option agreement
relating to the grant of any Incentive Option pursuant to this 1997 Plan, which
option is outstanding and unexercised at the time that any modifying statute or
regulation becomes effective, shall also be deemed to incorporate by reference
such modification, and no notice of such modification need be given to the
Optionee (as hereinafter defined). Any stock option agreement relating to an
Incentive Option shall provide that the Optionee (as hereinafter defined) hold
the stock received upon exercise of such Incentive Option for a minimum of two
years from the date of grant of the Incentive Option and one year from the date
of exercise of such Incentive Option, absent the written approval, consent or
waiver of the Administrator.
Section 2.3 If any provision of this 1997 Plan is determined to disqualify
the shares of Common Stock purchasable upon exercise of an Incentive Option
granted under this 1997 Plan from the special tax treatment provided by Section
422, such provision shall be deemed to incorporate by reference the modification
required to qualify such shares of Common Stock for said tax treatment.
Section 2.4 The Company shall grant Options under this 1997 Plan in
accordance with determinations made by the Administrator pursuant to the
provisions of this 1997 Plan. All Options granted pursuant to this 1997 Plan
shall be clearly identified as Incentive Options or Non-Qualified Options. The
Administrator may from time to time adopt (and thereafter amend or rescind) such
rules and regulations for carrying out this 1997 Plan and take such action in
the administration of this 1997 Plan, not inconsistent with the provisions
hereof, as it shall deem proper. The Board of Directors or, subject to the
supervision of the Board of Directors, the Committee, as the Administrator,
shall have plenary discretion, subject to the express provisions of this 1997
Plan, to determine which officers, directors, employees and consultants shall be
granted Options, the number of shares subject to each Option, the time or times
when an Option may be exercised (whether in whole or in installments), whether
Rights under Section 7.6 hereof shall be granted, the terms and provisions of
the respective option agreements (which need not be identical), including such
terms and provisions which may be amended from time to time as shall be
required, in the judgment of the Administrator, to conform to any change in any
law or regulation applicable hereto, and to make all other determinations deemed
necessary or advisable for the administration of this 1997 Plan. The
interpretation and construction of any provision of this 1997 Plan by the
Administrator (unless otherwise determined by the Board of Directors) shall be
final, conclusive and binding upon all persons.
Section 2.5 No member of the Administrator shall be liable for any action or
determination made in good faith with respect to administration of this 1997
Plan or the Options granted hereunder. A member of the Administrator shall be
indemnified by the Company, pursuant to the Company's bylaws, for any expenses,
judgments or other costs incurred as a result of a lawsuit filed against such
member claiming any rights or remedies arising out of such member's
participation in the administration of this 1997 Plan.
2
<PAGE>
ARTICLE III
-----------
TOTAL NUMBER OF SHARES TO BE OPTIONED
-------------------------------------
Section 3.1 There shall be reserved for issuance or transfer upon exercise of
Options to be granted from time to time under this 1997 Plan an aggregate of
4,400,000 shares of Common Stock of the Company (subject to adjustment as
provided in Article VIII hereof). The shares issued upon exercise of any
Options granted under this 1997 Plan may be shares of Common Stock previously
issued and reacquired by the Company at any time or authorized but unissued
shares of Common Stock, as the Board of Directors from time to time may
determine.
Section 3.2 In the event that any Options outstanding under this 1997 Plan
for any reason expire or are terminated without having been exercised in full or
shares of Common Stock subject to Options are surrendered in whole or in part
pursuant to Rights granted under Section 7.6 hereof (except to the extent that
shares of Common Stock are issued as payment to the holder of the Option upon
such surrender) the unpurchased shares of Common Stock subject to such Option
and any such surrendered shares of Common Stock may again be available for
transfer under this 1997 Plan.
Section 3.3 No Options shall be granted pursuant to this 1997 Plan to any
Optionee after the tenth anniversary of the date that this 1997 Plan is adopted
by the Board of Directors.
ARTICLE IV
----------
ELIGIBILITY
-----------
Section 4.1 Non-Qualified Options may be granted pursuant to this 1997 Plan
to officers, directors, employees and consultants of the Company (or any of its
subsidiaries) selected by the Administrator, and Incentive Options may be
granted pursuant to this 1997 Plan only to employees (including officers and
directors who are also employees) of the Company (or any of its subsidiaries)
selected by the Administrator. Persons granted Options pursuant to this 1997
Plan are referred to herein as "Optionees." For purposes of determining who is
an employee with respect to eligibility for Incentive Options, Section 422 shall
govern. The Administrator may determine (in its sole discretion) that any person
who would otherwise be eligible to be granted Options shall, nonetheless, be
ineligible to receive any award under this 1997 Plan.
Section 4.2 The Administrator will (in its discretion) determine the persons
to be granted Options, the time or times at which Options shall be granted, the
number of shares of Common Stock subject to each Option, the terms of a vesting
or forfeiture schedule, if any, the type of Option issued, the period during
which such Options may be exercised, the manner in which Options may be
exercised and all other terms and conditions of the Options; provided, however,
-------- -------
no Option will be granted which has terms or conditions inconsistent with those
stated in Articles V and VI hereof. Relevant factors in making such
determinations may include the value of the services rendered by the respective
Optionee, his or her present and potential contributions to the Company, and
such other factors which are deemed relevant in accomplishing the purpose of
this 1997 Plan.
ARTICLE V
---------
TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Section 5.1 Each Option granted under this 1997 Plan shall be evidenced by a
stock option certificate and agreement (the "Stock Option Certificate and
Agreement") in a form consistent with this 1997 Plan, provided that the
following terms and conditions shall apply:
3
<PAGE>
(a) The price at which each share of Common Stock covered by an Option may
be purchased shall be set forth in the Stock Option Certificate and Agreement
and shall be determined by the Administrator, provided that the option price for
any Incentive Option shall not be less than the "fair market value" of the
shares of Common Stock at the time of grant determined in accordance with
Section 5.1(b) below. Notwithstanding the foregoing, if an Incentive Option to
purchase shares of Common Stock is granted pursuant to this 1997 Plan to an
Optionee who, on the date of the grant, directly or indirectly owns more than
ten percent (10%) of the voting power of all classes of capital stock of the
Company (or its parent or subsidiary), not including the shares of Common Stock
obtainable upon exercise of the Option, the minimum exercise price of such
Option shall be not less than one hundred ten percent (110%) of the "fair market
value" of the shares of Common Stock on the date of grant determined in
accordance with Section 5.1(b) below.
(b) The "fair market value" shall be determined by the Administrator, which
determination shall be binding upon the Company and its officers, directors,
employees and consultants. The determination of the fair market value shall be
based upon the following: (i) if the shares of Common Stock are not listed and
traded upon a recognized securities exchange and there is no report of stock
prices with respect to the shares of Common Stock published by a recognized
stock quotation service, on the basis of the recent purchases and sales of the
shares of Common Stock in arms-length transactions; or (ii) if the shares of
Common Stock are not then listed and traded upon a recognized securities
exchange or quoted on the NASDAQ Stock Market, and there are reports of stock
prices by a recognized quotation service, upon the basis of the last reported
sale or transaction price of such stock on the date of grant as reported by a
recognized quotation service, or, if there is no last reported sale or
transaction price on that day, then upon the basis of the mean of the last
reported closing bid and closing asked prices for such stock on that day or on
the date nearest preceding that day; or (iii) if the shares of Common Stock
shall then be listed and traded upon a recognized securities exchange or quoted
on the NASDAQ Stock Market, upon the basis of the last reported sale or
transaction price at which shares of Common Stock were traded on such recognized
securities exchange on the date of grant or, if the shares of Common Stock were
not traded on such date, upon the basis of the last reported sale or transaction
price on the date nearest preceding that date. The Administrator shall also
consider such other factors relating to the fair market value of the shares of
Common Stock as it shall deem appropriate.
(c) For the purpose of determining whether an Optionee owns more than ten
percent (10%) of the voting power of all classes of stock of the Company, an
Optionee is considered to own those shares which are owned directly or
indirectly through brothers and sisters (including half-blooded siblings),
spouse, ancestors and lineal descendants; and proportionately as a shareholder
of a corporation, a partner of a partnership, and/or a beneficiary of a trust or
an estate that owns shares of the Company.
(d) Notwithstanding any other provision of this 1997 Plan, in accordance
with the provisions of Section 422(d) of the Code, to the extent that the
aggregate fair market value (determined at the time the Option is granted) of
the shares of Common Stock of the Company with respect to which Incentive
Options (without reference to this provision) are exercisable for the first time
by any individual in any calendar year under any and all stock option plans of
the Company, its subsidiary corporations and its parent (if any) exceeds
$100,000, such Options shall be treated as Non-Qualified Options.
(e) An Optionee may, in the Administrator's discretion, be granted more
than one Incentive Option or Non-Qualified Option during the duration of this
1997 Plan, and may be issued a combination of Non-Qualified Options and
Incentive Options; provided, however, that non-employees are not eligible to
receive Incentive Options.
(f) The duration of any Option and any Right related thereto shall be
within the sole discretion of the Administrator; provided, however, that any
Incentive Option granted to a ten percent (10%) or less stockholder
4
<PAGE>
or any Non-Qualified Option shall, by its terms, be exercised within ten years
after the date the Option is granted and any Incentive Option granted to a
greater than ten percent (10%) stockholder shall, by its terms, be exercised
within five years after the date the Option is granted.
(g) An Option and any Right related thereto shall not be transferable by
the Optionee other than by will, or by the laws of descent and distribution. An
Option may be exercised during the Optionee's lifetime only by the Optionee.
(h) The Administrator may impose such other or further conditions on any
transaction under the 1997 Plan, including without limitation, the grant or
award of any Option or the exercise or other disposition thereof, as it, in its
discretion, may deem necessary or advisable in order to exempt the transaction
from Section 16(b) of the Exchange Act, including without limitation thereto,
the approval or ratification of the transaction by shareholders or a six-month
restriction on disposition of the Option or the Common Stock issuable upon
exercise thereof.
ARTICLE VI
----------
EMPLOYMENT OR SERVICE OF OPTIONEE
---------------------------------
Section 6.1 If the employment or service of an Optionee is terminated for
cause, the option rights of such Optionee, both accrued and future, under any
then outstanding Non-Qualified or Incentive Option shall terminate immediately.
"Cause" shall mean incompetence in the performance of duties, disloyalty,
dishonesty, theft, embezzlement, unauthorized disclosure of patents, processes
or trade secrets of the Company, individually or as an employee, partner,
associate, officer or director of any organization. The determination of the
existence and the proof of "cause" shall be made by the Administrator and,
subject to the review of any determination made by the Administrator, such
determination shall be binding on the Optionee and the Company.
Section 6.2 If the employment or service of the Optionee is terminated by
either the Optionee or the Company for any reason other than for cause, death,
or for disability, as defined in Section 22(e)(3) of the Code, the option rights
of such Optionee under any then outstanding Non-Qualified or Incentive Option
shall, subject to the provisions of Section 5.1(h) hereof, be exercisable by
such Optionee at any time prior to the expiration of the Option or within three
months after the date of such termination, whichever period of time is shorter,
but only to the extent of the accrued right to exercise the Option at the date
of such termination.
Section 6.3 In the case of an Optionee who becomes disabled, as defined by
Section 22(e)(3) of the Code, the option rights of such Optionee under any then
outstanding Non-Qualified or Incentive Option shall, subject to the provisions
of Section 5.1(h) hereof, be exercisable by such Optionee at any time prior to
the expiration of the Option or within one year after the date of termination of
employment or service due to disability, whichever period of time is shorter,
but only to the extent of the accrued right to exercise the Option at the date
of such termination.
Section 6.4 In the event of the death of an Optionee, the option rights of
such Optionee under any then outstanding Non-Qualified or Incentive Option shall
be exercisable by the person or persons to whom these rights pass by will or by
the laws of descent and distribution, at any time prior to the expiration of the
Option or within three years after the date of death, whichever period of time
is shorter, but only to the extent of the accrued right to exercise the Option
at the date of death. If a person or estate acquires the right to exercise a
Non-Qualified or Incentive Option by bequest or inheritance, the Administrator
may require reasonable evidence as to the ownership of such Option, and may
require such consents and releases of taxing authorities as the Administrator
may deem advisable.
5
<PAGE>
Section 6.5 The Administrator may also provide that an employee must be
continuously employed by the Company for such period of time as the
Administrator, in its discretion, deems advisable before the right to exercise
any portion of an Option granted to such employee will accrue, and may also set
such other targets, restrictions or other terms relating to the employment of
the Optionee which targets, restrictions, or terms must be fulfilled or complied
with, as the case may be, prior to the exercise of any portion of an Option
granted to any employee.
Section 6.6 Options granted under this 1997 Plan shall not be affected by any
change of duties or position, so long as the Optionee continues in the service
of the Company.
Section 6.7 Nothing contained in this 1997 Plan, or in any Option granted
pursuant to this 1997 Plan, shall confer upon any Optionee any right with
respect to continuance of employment or service by the Company nor interfere in
any way with the right of the Company to terminate the Optionee's employment or
service or change the Optionee's compensation at any time.
ARTICLE VII
-----------
PURCHASE OF SHARES
------------------
Section 7.1 Except as provided in this Article VII, an Option shall be
exercised by tender to the Company of the full exercise price of the shares of
Common Stock with respect to which the Option is exercised and written notice of
the exercise. The right to purchase shares of Common Stock shall be cumulative
so that, once the right to purchase any shares of Common Stock has accrued, such
shares or any part thereof may be purchased at any time thereafter until the
expiration or termination of the Option. A partial exercise of an Option shall
not affect the right of the Optionee to exercise the Option from time to time,
in accordance with this 1997 Plan, as to the remaining number of shares of
Common Stock subject to the Option. The purchase price of the shares shall be in
United States dollars, payable in cash or by certified bank check.
Notwithstanding the foregoing, in lieu of cash, an Optionee may, with the
approval of the Administrator, exercise his or her Option by tendering to the
Company shares of Common Stock of the Company owned by him or her and having an
aggregate fair market value at least equal to the full exercise price. The fair
market value of any shares of Common Stock so surrendered shall be determined by
the Administrator in accordance with Section 5.1(b) hereof.
Section 7.2 Except as provided in Article VI above, an Option may not be
exercised unless the holder thereof is an officer, director, employee, or
consultant of the Company at the time of exercise.
Section 7.3 No Optionee, or Optionee's executor, administrator, legatee, or
distributee or other permitted transferee, shall be deemed to be a holder of any
shares of Common Stock subject to an Option for any purpose whatsoever unless
and until a stock certificate or certificates for such shares are issued to such
person under the terms of this 1997 Plan. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Article VIII
hereof.
Section 7.4 If: (i) the listing, registration or qualification of the Options
issued hereunder, or of any securities issuable upon exercise of such Options
(the "Subject Securities") upon any securities exchange or quotation system or
under federal or state law is necessary as a condition of or in connection with
the issuance or exercise of the Options, or (ii) the consent or approval of any
governmental regulatory body is necessary as a condition of or in connection
with the issuance or exercise of the Options, the Company shall not be obligated
to deliver the certificates representing the Subject Securities or to accept or
to recognize an Option exercise unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained. The
6
<PAGE>
Company will take reasonable action to so list, register, or qualify the Options
and the Subject Securities, or effect or obtain such consent or approval, so as
to allow for their issuance.
Section 7.5 An Optionee may be required to represent to the Company as a
condition of his or her exercise of Options issued under this 1997 Plan that:
(i) the Subject Securities acquired upon exercise of his or her Option are being
acquired by him or her for investment purposes only and not with a view to
distribution or resale, unless counsel for the Company is then of the view that
such a representation is not necessary and is not required under the Securities
Act of 1933, as amended (the "Securities Act"), or any other applicable statute,
law, regulation or rule; and (ii) that the Optionee shall make no exercise or
disposition of an Option or of the Subject Securities in contravention of the
Securities Act, the Exchange Act or the rules and regulations thereunder.
Optionees may also be required to provide (as a condition precedent to exercise
of an Option) such documentation as may be reasonably requested by the Company
to assure compliance with applicable law and the terms and conditions of this
1997 Plan and the subject Option.
Section 7.6 The Administrator may, in its discretion, grant in connection
with any Option, at any time prior to the exercise thereof, the right
(previously defined as an "SAR" or collectively, the "SARs") to surrender all or
part of the Option to the extent that such Option is exercisable and receive in
exchange an amount (payable in cash, shares of Common Stock valued at the then
fair market value, or a combination thereof as determined by the Administrator)
equal to the difference (the "Spread") between the then fair market value of the
shares of Common Stock issuable upon the exercise of the Option (or portions
thereof surrendered) and the option price payable upon the exercise of the
Option (or portions thereof surrendered). Such SARS may be included in an
Option only under the following conditions: (a) the SARS will expire no later
than the expiration of the underlying Option; (b) the SARS may be for no more
than one hundred percent (100%) of the Spread; (c) the SARS are transferable
only when the underlying Option is transferable and under the same conditions;
(d) the SARS may be exercised only when the underlying Option is eligible to be
exercised; and (e) the SARS may be exercised only when the Spread is positive,
i.e., when the market price of the stock subject to the Option exceeds the
exercise price of the Option.
Section 7.7 An Option may also be exercised by tender to the Company of a
written notice of exercise together with advice of the delivery of an order to a
broker to sell part or all of the shares of Common Stock subject to such
exercise notice and an irrevocable order to such broker to deliver to the
Company (or its transfer agent) sufficient proceeds from the sale of such shares
to pay the exercise price and any withholding taxes. All documentation and
procedures to be followed in connection with such a "cashless exercise" shall be
approved in advance by the Administrator.
ARTICLE VIII
CHANGE IN NUMBER OF OUTSTANDING SHARES OF
-----------------------------------------
STOCK, ADJUSTMENTS, REORGANIZATIONS, ETC.
-----------------------------------------
Section 8.1 In the event that the outstanding shares of Common Stock of the
Company are hereafter increased or decreased or changed into or exchanged for a
different number of shares or kind of shares or other securities of the Company
or of another corporation by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split, combination of shares, or a
dividend payable in capital stock, appropriate adjustment shall be made by the
Administrator in the number and kind of shares for the purchase of which Options
may be granted under this 1997 Plan, including the maximum number that may be
granted to any one person. In addition, the Administrator shall make
appropriate adjustments in the number and kind of shares as to which outstanding
Options, or portions thereof then unexercised, shall be exercisable, to the end
that the Optionee's proportionate interest shall be maintained as before the
occurrence to the unexercised portion of the
7
<PAGE>
Option and with a corresponding adjustment in the option price per share. Any
such adjustment made by the Administrator shall be conclusive.
Section 8.2 The grant of an Option pursuant to this 1997 Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
Section 8.3 Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company as a result of which the
outstanding securities of the class then subject to Options hereunder are
changed into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of substantially all the property of the Company
to an association, person, party, corporation, partnership, or control group as
that term is construed for purposes of the Exchange Act, this 1997 Plan shall
terminate, and all outstanding Options theretofore granted hereunder shall
terminate, unless provision be made in writing in connection with such
transaction for the continuance of this 1997 Plan and/or for the assumption of
Options theretofore granted, or the substitution for such Options of options
covering the stock of a successor employer corporation, or a parent or a
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices, in which event this 1997 Plan and options theretofore granted
shall continue in the manner and under the terms so provided. If this 1997 Plan
and unexercised Options shall terminate pursuant to the foregoing sentence, all
persons owning any unexercised portions of Options then outstanding shall have
the right, at such time prior to the consummation of the transaction causing
such termination as the Company shall designate, to exercise the unexercised
portions of their Options, including the portions thereof which would, but for
this Section 8.3 not yet be exercisable.
ARTICLE IX
DURATION, AMENDMENT AND TERMINATION
-----------------------------------
Section 9.1 The Board of Directors may at any time terminate this 1997 Plan
or make such amendments hereto as it shall deem advisable and in the best
interests of the Company, without action on the part of the shareholders of the
Company unless such approval is required pursuant to Section 422 of the Code or
the regulations thereunder or other federal or state law; provided, however,
-------- -------
that no such termination or amendment shall, without the consent of the
individual to whom any Option shall theretofore have been granted, materially
adversely affect or impair the rights of such individual under such Option.
Pursuant to Section 422(b) of the Code, no Incentive Option may be granted
pursuant to this 1997 Plan after ten years from the date this 1997 Plan is
adopted or the date this 1997 Plan is approved by the shareholders of the
Company, whichever is earlier.
ARTICLE X
RESTRICTIONS
------------
Section 10.1 Any Options and shares of Common Stock issued pursuant to this
1997 Plan shall be subject to such restrictions on transfer and limitations as
shall, in the opinion of the Administrator, be necessary or advisable to assure
compliance with the laws, rules and regulations of the United States government
or any state or jurisdiction thereof. In addition, the Administrator may in
any Stock Option Certificate and Agreement impose such other restrictions upon
the disposition or exercise of an Option or upon the sale or other disposition
of the shares of Common Stock deliverable upon exercise thereof as the
Administrator may, in its sole discretion, determine. By accepting an award
pursuant to this 1997 Plan, each Optionee shall thereby agree to any such
restrictions.
8
<PAGE>
Section 10.2 Any certificate issued to evidence shares of Common Stock issued
pursuant to an Option shall bear such legends and statements as the Committee,
the Board of Directors or counsel to the Company shall deem advisable to assure
compliance with the laws, rules and regulations of the United States government
or any state or jurisdiction thereof. No shares of Common Stock will be
delivered pursuant to exercise of the Options granted under this 1997 Plan until
the Company has obtained such consents or approvals from such regulatory bodies
of the United States government or any state or jurisdiction thereof as the
Committee, the Board of Directors or counsel to the Company deems necessary or
advisable.
ARTICLE XI
FINANCIAL ASSISTANCE
--------------------
Section 11.1 The Company is vested with authority under this 1997 Plan to
assist any employee to whom an Option is granted hereunder (including any
officer or director of the Company or any of its subsidiaries who is also an
employee) in the payment of the purchase price payable on exercise of such
Option, by lending the amount of such purchase price to such employee on such
terms and at such rates of interest and upon such security (or unsecured) as
shall have been authorized by or under authority of the Board of Directors. Any
such assistance shall comply with the requirements of Regulation G promulgated
by the Board of the Federal Reserve System, as amended from time to time, and
any other applicable law, rule or regulation.
ARTICLE XII
APPLICATION OF FUNDS
--------------------
Section 12.1 The proceeds received by the Company from the issuance and sale
of Common Stock upon exercise of Options granted pursuant to this 1997 Plan are
to be added to the general funds of the Company and used for its corporate
purposes as determined by the Board of Directors.
ARTICLE XIII
EFFECTIVENESS OF PLAN
---------------------
Section 13.1 This 1997 Plan shall become effective upon adoption by the Board
of Directors, and approval by the Shareholders and Options may be issued
hereunder from and after that date subject to the provisions of Section 3.3
above. This 1997 Plan must be approved by the Company's shareholders in
accordance with the applicable provisions (relating to the issuance of stock or
options) of the Company's governing documents and state law or, if no such
approval is prescribed therein, by the affirmative vote of the holders of a
majority of the votes cast at a duly held shareholders meeting at which a quorum
representing a majority of all the Company's outstanding voting stock is present
and voting (in person or by proxy) or, without regard to any required time
period for approval, by any other method permitted by Section 422 of the Code
and the regulations thereunder.
9
<PAGE>
IN WITNESS WHEREOF, pursuant to the approval of this 1997 Plan by the Board of
Directors, this 1997 Plan is executed and adopted subject to Shareholder
approval as of the ____ day of _______________, 1997.
ATTEST: MEDCROSS, INC.
By: By:
-------------------------- -------------------------------
Secretary
Its:
------------------------------
[CORPORATE SEAL]
10
<PAGE>
Exhibit 10(gg)
LEASE AGREEMENT
July 1, 1996
LANDLORD:
BROADWAY ASSOCIATES
TENANT:
FTI COMMUNICATIONS
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
7.2 Loss or Damage................................... 8
7.3 Abatement or Reduction or Rent................... 8
7.4 Loss During Last Part of Term.................... 8
SECTION 8 - CONDEMNATION..................................... 8
8.1 Condemnation..................................... 8
8.2 Partial Condemnation............................. 8
SECTION 9 - ASSIGNMENT...................................... 9
9.1 Prohibition Against Voluntary Assignment,
Subletting and Encumbering...................... 9
9.2 Involuntary Assignment.......................... 10
SECTION 10 - DEFAULT......................................... 10
10.1 Tenant's Default................................. 10
10.2 Landlord's Remedies.............................. 11
10.3 Interest......................................... 13
10.4 Late Charge...................................... 13
10.5 Tenant's Right To Cure Landlord's Default........ 13
SECTION 11 - SIGNS; ADVERTISING.............................. 13
11.1 Tenant's Default................................. 13
11.2 Compliance With Laws............................. 14
11.3 Removal of Signs................................. 14
SECTION 12 - LANDLORD'S ENTRY ON PREMISES.................... 14
12.1 ................................................. 14
SECTION 13 - PRIOR TENANT EQUIPMENT.......................... 15
13.1 Prior Tenant Equipment........................... 15
SECTION 14 - SECURITY DEPOSIT................................ 15
14.1 Amount of Deposit................................ 15
SECTION 15 - PARKING......................................... 16
15.1 Parking.......................................... 16
SECTION 16 - GRANT OF SECURITY INTEREST...................... 16
16.1 Grant of Security Interest....................... 16
SECTION 17 - REPRESENTATIONS AND WARRANTIES.................. 16
17.1 Tenant's Representations and Warranties.......... 16
SECTION 18 - ESTOPPEL........................................ 17
18.1 Estoppel Certificate............................. 17
SECTION 19 - MISCELLANEOUS................................... 17
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
19.1 Notice........................................... 17
19.2 Waiver........................................... 18
19.3 Sale or Transfer or Premises..................... 18
19.4 Enforcement...................................... 18
19.5 Surrender of premises............................ 19
19.6 Holding Over..................................... 19
19.7 Time of Essence.................................. 19
19.8 Consent of Parties............................... 19
19.9 Corporate Authority.............................. 19
19.10 Entire Agreement................................. 20
19.11 Successors....................................... 20
19.12 Rent Payable in U.S. Money....................... 20
19.13 Exhibits - Incorporation in Lease............... 20
19.14 Controlling Law.................................. 20
19.15 Use of Definitions............................... 20
19.16 Definitions...................................... 20
19.17 Captions: Table of Contents...................... 22
19.18 Singular and Plural.............................. 23
19.19 Severability..................................... 23
</TABLE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made and entered into as of the 1/st/ day
of July, 1996, by and between BROADWAY ASSOCIATES, a Utah general partnership
(hereinafter referred to as "Landlord"), as landlord, and FTI COMMUNICATIONS, a
________ corporation (hereinafter referred to as "Tenant"), as tenant.
WITNESSETH:
Tenant desires to lease from Landlord the Premises hereinafter described,
and Landlord is willing to lease such Premises to Tenant, all on the terms,
provisions, and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, covenants, and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are acknowledged, Landlord and Tenant hereby enter into
this Lease and as follows:
SECTION 1 - PREMISES
1.1 Existing Building. Landlord leases to Tenant and Tenant leases from
Landlord the real property known as Suite 100, 345 East Broadway, Salt Lake
City, Salt Lake County, Utah, such real property being the first floor of the
building at 345 East Broadway, Salt Lake
<PAGE>
City, Utah, consisting of approximately 5,100 square feet of gross leasable area
(herein referred to as the "Premises"). The real property (herein referred to
as the "Property") of which the Premises is part is more particularly described
in Exhibit A attached hereto.
2.1 Fixed Term. The initial term of this Lease shall be for a period of
five (50) years commencing on the 1/st/ day of July, 1996, and expiring on the
30/th/ day of June, 2001.
2.2 Option to Extend Term. Tenant shall have the right, at Tenant's
option, to extend the term of this Lease for one (1) additional consecutive
period of five (5) years commencing on expiration of the initial term of this
Lease and expiring on the 30th day of minimum monthly rent under Section 3
hereof for said extended term shall be increased in accordance with the
provisions of Section 3.3 hereof. This option shall be exercised, if at all, by
Tenant giving irrevocable written notice of such exercise to Landlord on or
before December 31, 2000. Any attempted exercise of this option at a time when
Tenant is in default or breach of the terms of this Lease shall be null and
void.
3.1 Minimum Monthly Rent. Tenant shall pay to Landlord as a minimum
monthly rent, without deduction, setoff, prior notice, or demand, the sum of
Five Thousand Three Hundred Twelve and 50/100 Dollars ($5,312.50) per month in
advance on the first day of each month, commencing on the date the term
commences, and continuing during the term. Minimum monthly rent shall be
increased during the option period in accordance with the provisions of Section
3.3 hereof. Minimum monthly rent for the first shall be paid commencing with
the execution of this Lease. Minimum monthly rent per day. All rent shall be
paid to Landlord at the address to which notices to Landlord are given.
3.2 First Ten Days Rent Free. Subject to timely payment of the prorated
July 1996 rent, The First ten days of the term of this Lease (from July 1, 1996,
to and including July 10,1996), shall be rent free to Tenant. This will result
in a July 1996, rent payment of Three Thousand Five Hundred Forty- One and
67/100 Dollars ($3,541.67).
3.3 Increase of Minimum Monthly Rent. As of the third anniversary of the
commencement date of the term hereof and every two (2) years (hereinafter the
"Adjustment Date(s)"), including the option term, the amount of the basic rent
under Section 3.1 hereof shall be increased as provided in this Section 3.3.
The base for computing the increase shall be the United States Consumer Price
Index - All Items (for all urban consumers) published by the United States
Department of Labor, Bureau of Labor Statistics (hereinafter the "Index'), which
is published nearest the date on which the term of this Lease commences
(hereinafter the "Base Index"). If the Index published nearest the respective
Adjustment Date (hereinafter the 'Extension Index") has increased over the Base
Index by at least ten percent(10%), then the basic rent under Section 3.1 hereof
for the term of this Lease remaining after the respective Adjustment Date shall
be determined by multiplying the basic rent by a fraction, the numerator of
which is the Extension Index and the denominator of which is the Base Index. If
the Extension Index has not increased over the Base Index by at least ten
percent (10%), then the basic rent for the term of this Lease remaining after
the adjustment Date (until the next
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Adjustment Date) shall be determined by multiplying the basic rent b ten percent
(10%). Promptly following adjustment of the basic rent hereunder, the Landlord
and the Tenant shall execute and amendment to this Lease stating the new basic
rent. If publication of the Index is discontinued, the Landlord and the Tenant
agree to accept comparable statistics on the average cost of living for urban
areas or cities in the United States computed and published by an agency of the
United States or a responsible financial periodical of recognized authority to
be selected by the Landlord and approved by the Tenant, such approval not to be
unreasonably withheld by the Tenant.
3.4 Personal Property Taxes. Tenant shall pay before delinquency all
taxes, assessments, license fees, and other charges ("taxes") that are levied
and assessed against the trade fixtures and personal property of Tenant
installed or located in or on the premises, and that become payable during the
term, On demand by Landlord, Tenant shall furnish Landlord with satisfactory
evidence of these payments.
3.5 Real Property Taxes. Tenant shall pay to Landlord an amount equal to
all increases in real property taxes and general and special assessments (real
property taxes) levied and assessed against the Premises. Such increases shall
be calculated from the base amount of real property taxes for the tax fiscal
year 1996. Each year Landlord shall notify Tenant of the amount of increase in
real property taxes over the tax fiscal year 1996 and promptly upon receipt to
tax bill shall timely furnish Tenant with a copy of the tax bill, whichever is
later. If the tax bill is not submitted to Tenant within ten (10) days of
Tenant's receipt of the tax bill. All notices of taxes and tax bills delivered
to Tenant pursuant to this Section 3.5 shall be sent to Tenant at the address
set forth in Section 1 hereof.
3.6 Proration of Taxes. The increases in real property taxes payable by
Tenant pursuant to Section 3.5, with the respect to tax fiscal years in which
the term of this Lease shall commence and terminate, shall be apportioned at the
commencement date and at the final termination of this Lease, respectively, so
that Tenant shall pay only those portions there of which correspond to the
portions of said tax fiscal years as are within the term of this Lease and any
extensions hereof.
SECTION 4 - USE LIMITATIONS ON USE
4.1 Use. Tenant shall use the Premises for general office purposes and for
no other use without Landlord's prior written consent, which consent will not be
unreasonably withheld.
4.2 Limitations on Use. Tenant's use of the Premises as provided in this
Lease shall be in accordance without Landlord's prior written consent, which
consent will not be unreasonably withheld.
3
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Limitations on Occupancy. At no time during the term of this Lease
shall Tenant permit more than fifteen (15) parking spaces located upon the
Property of which the Premises is part to be use by persons claiming by, through
or under Tenant by authority of this Lease.
Compliance With Laws. Tenant shall comply with all laws concerning
the Premises or Tenant's use of the Premises, including, without limitation, the
obligation at Tenant's use of the Premises, including, without limitation, the
obligation at Tenant's cost to alter, maintain, or restore the Premises in
compliance and conformity with all laws relating to the condition, use, or
occupancy of the Premises during the term.
Waste: Nuisance. Tenant shall not use the Premises in any manner that will
constitute waste, nuisance, or unreasonable annoyance (including, without
limitation, the use of loudspeakers or sound or light apparatus that can be
heard or seen outside the Premises) to owners or occupants of the building in
which the Premises are located or the occupancy of adjacent properties.
Tenant shall not use the Premises for sleeping, preparation of food,
washing clothes, or the preparation, manufacture, or mixing of anything that
might emit any odor or objectionable noises or lights onto adjacent properties.
Hazardous Substances. Tenant shall not bring upon the Premises, or in the
Premises, use on the Premises, or permit to be brought upon, stored, or used
upon the Premises, any wastes, petroleum products, of Hazardous Substances.
Tenant shall hold harmless and indemnify Landlord from any and all damage, loss,
injury, or liability of any nature arising from or associated with Tenant's use,
storage, or bringing upon the Premises of any Hazardous Substances.
For purposes of this Lease, the term "Hazardous Substances" shall mean any
substance; (i) The presence of which requires investigation or remediation under
any federal, state or local statute, regulation, ordinance, order, decree,
judgment, action, policy, or common law; or (ii) which is or becomes defined as
a "hazardous waste" "hazardous substance," pollutant or containment under any
federal, state, or local statute, regulation, rule, or ordinance or amendments
thereto including, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. (S) 6901 et seq.), as amended; and
comparable statutes of the State of Utah; or (iii) which is toxic, explosive,
corrosive, ignitable, reactive, flammable, infectious, radioactive,
carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by
any governmental authority, agency, department, commission, board, agency or
instrumentality of the United States, the State of Utah or any political
subdivision thereof; or (iv) the presence of which on the Premises causes or
threatens to cause a nuisance upon the Premises or to adjacent properties or
poses or threatens to pose a hazard to the health or safety of persons on or
about the Premises; or (v) the presence of which on adjacent properties could
constitute a trespass by the Tenant, the Landlord, or either of them; or (vi)
without limitation which contains gasoline, diesel fuel, or petroleum
hydrocarbons; or (vii)
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<PAGE>
without limitation which contains polychlorinated biphenyls (PCBs), asbestos, or
urea formaldehyde foam insulation; or (viii) without limitation radon gas.
SECTION 5 - MAINTENANCE
5.1 Tenant's Maintenance. During the term of this Lease and all
extensions thereof, Tenant agrees to keep and maintain, in good order,
condition, and repair the interior of the Premises, ordinary wear excepted.
5.2 Landlord's Maintenance and Utilities. Landlord agrees, at
Landlord's sole cost and expense, to furnish to the Premises lighting,
electricity, water (hot and cold), sewer, hear and air conditioning, and light
janitorial services ( which shall consist of emptying waste baskets and light
vacuuming on regular business days). Landlord's sole cost and expense, shall
maintain in good order, condition, and repair all external parts of the property
and the building of which the Premises are a part, and shall maintain in good
order, condition, and repair all plumbing and hearing, air conditioning and
ventilation equipment located upon employees, agents, or invitees. Landlord, at
Landlord's sole cost and expense, shall be responsible for snow and ice removal
from parking areas and walkways which serve the Premises, in a manner consistent
with reasonable practices for this area.
5.3 Increases in Maintenance and Utility Charges. Tenant agrees that if
the cost and expense to Landlord for insuring the Property at any time during
the initial term or any extended term of this Lease shall increase over the
amount of costs and expenses for insurance, maintenance of the Property, and/or
supplying utilities to the Property over the cost and expense of insurance,
maintenance of the Property, and/or providing services or utilities to the
Property in the calendar year 1996 (for insurance costs only) and calendar year
Tenant shall reimburse Landlord for fifty percent (50%) of the amount of such
increase: provided, however, that Tenant's liability for reimbursement to
Landlord for the maintenance of the Property, and/or providing services or
utilities to the property in the calendar year 1996 (for insurance costs only)
and the calendar year 1995 for maintaining the Property and/or providing any
services or utilities to the Property, Tenant shall reimburse Landlord for fifty
percent (50%) of the amount of such increase; provided, however, that Tenant's
liability for reimbursement to Landlord for the maintenance component of such
reimbursement obligation pursuant to this Section 5.3 shall not increase in
any particular year of the initial term or in any year of any extended term
hereof by an amount in excess of five percent (5%) of the above-described costs
and expenses of maintenance of Landlord for the preceding year of the Lease
term. There shall be no cap on tenant's obligation for reimbursement of its
portion of increases in the insurance, services, and utilities components of
such costs and expenses. For the first year of the initial term of this Lease,
the prior years' costs of maintenance for purposes of calculating the five
percent (5%) cap on maintenance increases payable by Tenant shall be determined
using the 1995 portion of increased insurance, maintenance, and utility costs
and expenses to landlord pursuant to this Section 5.3 on an annual basis within
twenty (20) days after receipt from Landlord of a statement and accounting of
the costs and expenses of insurance, maintenance and utilities on the Property
for the preceding year of the term of this Lease.
5
<PAGE>
5.4 Increases in Utility Usage. Tenant agrees that if the cost and
expense for utilities supplied to the Property at any time during the initial
term or any extended term of this Lease increase over the amount of utility
charges for utilities supplied to the Premises in the calendar year 1995, as a
result of increased usage of the electricity or other utilities by tenant, in
addition to the portion of increased utility charges payable pursuant to
Section 5.3 hereof, Tenant shall pay to Landlord the entire amount or increased
utility costs resulting from such increased usage of utilities by Tenant upon
demand by Landlord for payment of such amounts.
5.5 Alterations or Tenant's Improvements. Tenant shall not make any
alterations or Tenant's Improvements to the Premises without Landlord's prior
written consent except those noted in Exhibit B attached hereto. Any
alterations or Tenant's Improvements made shall remain on and be surrendered
with the Premises on expiration or termination of the term and shall be the
property of Landlord, except that Landlord can elect within thirty (300 days
before expiration of the term or within thirty (30) days after termination of
the term and Tenant's surrender of the Premises to require Tenant to remove any
alterations that Tenant has made to the Premises, If Landlord so elects, Tenant
at its cost shall restore the Premises to their condition existing prior to
Tenant's alterations before the last day of the term, or within twenty (20) days
after notice of election is given, whichever is later.
If Tenant makes any alterations to the Premises as provided in this Section
5.5, the alterations or Tenant's Improvements shall not be commenced until ten
(10) days after landlord has received notice from Tenant stating the date the
installation of the alterations is to commence.
5.6 Mechanics' Liens. Tenant shall pay all costs for construction or
alterations or Tenant's Improvements done by it or caused to be done by it on
the Premises as permitted by this Lease. Tenant shall keep the Premises free
and clear of all mechanics' liens resulting from construction done by or for
Tenant. Tenant shall have the right to contest the correctness or the validity
of any such lien if, immediately on demand by Landlord, Tenant procures and
records a lien release bond issued by a corporation authorized to issue surety
bonds in Utah in an amount equal to one and one-half (1-1/2) times the amount of
the claim of lien. The bond shall provide for the payment of any sum that the
claimant may recover on the claim (together with attorney's fees and costs of
suit, if it recovers in the action).
SECTION 6 - INDEMNITY AND EXCULPATION: INSURANCE
6.1 Indemnity of Landlord. Tenant shall hold Landlord harmless from any
and all damages to any person or property occurring in, on or about the
Premises, except for damages caused solely by the negligence or willful acts of
Landlord.
6.2 Public Liability and Property damage Insurance. Tenant at its cost
shall maintain public liability and property damage insurance and products
liability insurance with a single combined liability limit of not less than
$2,000,000, and property damage limits of not less that
6
<PAGE>
$500,000, insuring against all liability of Tenant and authorized
representatives arising out of and in connection with Tenant's use or occupancy
of the Premises.
All public liability insurance, products liability insurance, and property
damage insurance shall insure performance by Tenant of the indemnity provisions
of Section 6.1. Both parties shall be named as insurers and the policy shall
contain cross-liability endorsements.
6.3 Increase in Amount of Public Liability and Property Damage Insurance.
Not more frequently than each two (2) years, if in the opinion of Landlord's
lender or of the insurance broker retain by Landlord, the amount of public
liability and property damage insurance coverage at that time is not adequate,
Tenant shall increase the insurance broker. Such opinion shall be reasonably
taken and arrived at to provide the same relative coverage as was provided
hereunder at time of execution of this Lease.
6.4 Tenant's Fire Insurance. Tenant at its cost shall maintain on all its
personal property, Tenant's improvements, and alterations, in, on, or about the
Premises, a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, to the extent of at least eighty
percent (80%) of their full replacement value. Unless this Lease is terminated
pursuant to the provisions of Sections 7 or 8 hereof, the proceeds from any such
policy shall be used by Tenant for the replacement of personal property or the
restoration of Tenant's improvements or alterations.
6.5 Waiver of Subrogation. The parties release each other, and their
respective authorized representatives, from any claims for damage to any person
or to the Premises and to the fixtures, personal property, Tenant's
improvements, and alterations of either Landlord or Tenant in or on the Premises
that are caused by or result from risks insured against under any insurance
policies carried by the parties in force at the time or any such damage to the
extent that such policies cover the loss or damage.
SECTION 7 - DESTRUCTION
7.1 Destruction by Fire or Other Casualty. If the Premises shall be
damaged by fire, unavoidable accident, or other casualty covered by fire and
exceeded coverage insurance and such damage is not caused by the act, or failure
to act, of Tenant, its employees, agents, licensees, permittees, or invitees.
Landlord shall cause such damage to be repaired. If the Premises shall be
rendered wholly untenantable by reason of such occurrence, Landlord shall cause
such damage to be repaired: provided, however, in the event the Premises cannot
be repaired within one hundred twenty (120) days. Landlord may, at its
election, make within thirty (300 days following the occurrence of such damage
or destruction, elect to terminate this Lease. In the event of such
termination, rent shall be abated from and after such date of the damage or
destruction. In the event Landlord does not terminate this complete a
restoration of the Premises, Landlord shall commence and complete a restoration
of the Premises with a reasonable time after such damage or destruction. Tenant
agrees to give Landlord immediate notice of any damages to the Premises by fire,
the elements, or any other casualty.
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7.2 Loss or Damage. Landlord shall not be liable for:
(a) Any loss or damage to any property damage to any property of
Tenant or of others located on the Premises, by theft or otherwise; or
(b) any injury, or damage to persons or property resulting from fire,
explosion, falling plaster, gas, electricity, water, rain or snow or leaks from
any part of the Property or from the pipes, appliances, or plumbing works or
from the roof, street, or subsurface or from any other place whereby dampness or
by any other cause of whatsoever nature, unless such damage shall be caused by
the willful acts or gross negligence of Landlord, its agents, representatives,
or employees. Except for loss, damage, or injury resulting solely from the
willful acts or negligence of Landlord, its agents, representatives, or
employees, all property of Tenant kept or stored on the Premises shall be so
kept at or stored at the risk of Tenant only. Tenant shall hold Landlord
harmless from any claims arising out of damage to or loss of property and from
any claims for personal injury, for any event occurring on the Premises, unless
such damage shall be caused solely by the willful acts or negligence of
Landlord, its agents, representatives, or employees.
7.3 Abatement or Reduction of Rent. In case of damage or destruction, and
in the event this Lease is not terminated pursuant to Section 7.1 hereof, the
rent shall be abated wholly or proportionately, as the case may be, until the
damage shall be repaired and the Premises restored; provided, however, that in
the event such damage or destruction is caused by Tenant, its agents,
representatives, or employees there shall be no abatement of rent.
7.4 Loss During Last Part of Term. If destruction to the Premises occurs
during the last year of the term or of any extended term, and the cost or
restoration exceeds five percent (5%) of the then replacement value of the
Premises, either Landlord or Tenant can terminate this Lease by filing notice to
the other not more than fifteen (15) days after the destruction, provided,
however, that in the event Tenant has a n unexercised and exercisable option to
extend pursuant to Section 2.2 hereof, and in the further event that Tenant
irrevocably exercises such option to extend within five (5) days after
Landlord's notice to Tenant of termination pursuant to this Section 2.2, then in
such events this Lease shall not be terminated by reason of the destruction
which was the subject of Landlord's notice to Tenant unless permitted pursuant
to section 7.1 hereof.
SECTION 8 - CONDEMNATION
8.1 Condemnation. In the event the whole or any part of the Premises
shall be taken or condemned for a public or quasi-public use or purpose by any
competent authority and as a result thereof the balance of said Premises cannot
be used for the same purpose as before such taking or condemnation, then and in
either or such events, the term of this Lease shall terminate when possession of
the Premises shall be taken by the condemning authorities.
8
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Any award, compensation, or damages (hereinafter sometimes referred to as
the "award") for that portion of the Premises which does not include any
personal property of the Tenant, shall be paid to and be the property of
Landlord. It is understood that in the event of the termination of this Lease
as aforesaid, neither Landlord nor Tenant shall have any claim against the
other of this Lease as aforesaid, neither Landlord nor Tenant shall have
any claim against the other for the value or any unexpired term of this Lease,
and Tenant shall have no right or claim to any part of the award on account
thereof, except as may pertain to any tangible person property of Tenant which
it would be entitled to remove upon any termination of this Lease.
8.2 Partial Condemnation. In the event only a part of the Premises shall
be taken or condemned for a public or quasi - public use or purpose by any
competent authority, and as a result thereof the balance of said Premises can be
used for the same purpose as before such taking or condemnation, this lease
shall not terminate as a result thereof and Landlord, at its sole cost and
expense, but only to the extent of the award for such taking received by
Landlord, shall repair and restore the Premises can be used for the same purpose
shall be made by Tenant, subject to the requirement that such determination is
reasonably made Tenant. Any award paid as a consequence of such taking or
condemnation, shall be paid to Landlord and be applied to the cost of said
repairing and restoration. Any sums remaining after such application shall be
the proportion to the reduction of the Premises as a result of such taking.
SECTION 9 - ASSIGNMENT
9.1 Prohibition Against Voluntary Assignment, Subletting, and
Encumbering. Tenant shall not voluntarily assign or encumber its interest in
this Lease or in the Premises, or sublease all or any part of the Premises, or
allow any other person or entity (except Tenant's authorized representatives) to
occupy or use all or any part of the Premises, without first obtaining
Landlord's consent. Any assignment, encumbrance, or sublease without Landlord's
consent shall be voidable and, at Landlord's election shall constitute a
default. No consent to any assignment, encumbrance, or sublease shall constitute
a further waiver of the provisions of this Section.
Any dissolution, merger, consolidation, or other reorganization of Tenant,
or the sale or other transfer of a controlling percentage of the capital stock
of Tenant, or the sale of at lease fifty-one percent (51%) of the value of the
assets of Tenant, shall be deemed a voluntary assignment. The phrase
"controlling percentage" means the ownership of, and the right to vote, stock
possessing at least fifty-one percent (51%) of the total combined voting power
of all classes of Tenant's capital stock issued, outstanding, and entitled to
vote for the election of directors. This Section shall not apply to
corporations the stock of which is traded through an exchange or over the
counter.
Tenant immediately and irrevocable assigns to Landlord, as security for
Tenant's obligations under this Lease, all rent from any subletting of all or a
part of the Premises as
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permitted by this Lease, and Landlord, as assignee and as attorney-in-fact for
Tenant, or a receiver for tenant appointed on Landlord's application, may
collect such rent and apply it toward Tenant's obligations under this Lease;
except that, until the occurrence of an act of default by Tenant, Tenant shall
have the right to collect such rent.
Any assignment, subletting, or other transfer of Tenant's interest
hereunder, whether pursuant to written consent of Landlord or as permitted
hereunder, shall not release or discharge Tenant or Guarantor from liability
unless such release is expressly granted in writing by Landlord.
If Tenant requests Landlord to consent to a proposed assignment or
subletting, Tenant shall pay to Landlord, whether or not consent is ultimately
given, Landlord's reasonable attorneys fees incurred in connection with each
such request.
9.2 Involuntary Assignment. No interest of Tenant in this Lease shall be
assignable by operation of law (including, without limitation, the transfer of
this Lease by testacy or intestacy). Each of the following acts shall be
considered an involuntary assignment:
(1) If Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or institutes a
proceeding under the Bankruptcy Act in which Tenant is the
bankrupt; or, if Tenant is a partnership or consists of more than
one person or entity, if any partner of the partnership or other
person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors;
(2) If a writ of attachment or execution is levied on this Lease;
(3) If, in any proceeding or action to which Tenant is a party, a
receiver is appointed with authority to take possession of the
Premises.
Any involuntary assignment shall constitute a default by Tenant and
Landlord shall have the right to elect to terminate this Lease, in which case
this Lease shall not be treated as an asset of Tenant.
SECTION 10 --- DEFAULT
10.1 Tenant's Default. The occurrence of any of the following shall
constitute a default by Tenant:
(1) Failure to pay rent or any other sums payable by Tenant hereunder
when due, if the failure continues for five (5) days after the
date when such rent or other amount was due.
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(2) Abandonment and vacation of the Premises (failure to occupy and
operate the Premises for ten (10) consecutive days shall be
deemed an abandonment and vacation).
(3) Failure to perform any other provision of this Lease if the
failure to perform is not cured within fifteen (15) days after
notice has been given to Tenant. If the default cannot reasonably
be cured within fifteen (15) days, Tenant shall not be in default
of this Lease if Tenant commences to cure the default within the
fifteen (15) day period and diligently and in good faith
continues to cure the default.
(4) Any representation or warranty by Tenant was materially false or
inaccurate at the time of the execution of this Lease.
(5) Violation of the occupancy and parking limitations in Section 4.2
hereof more than three times during the term and any extended
term of this Lease shall constitute default and provides Landlord
the right, but not the obligation to exercise Landlord's rights
for default hereunder not withstanding any efforts to cure by
Tenant.
Notices given under Section 10.1(3) shall specify the alleged default and
the applicable lease provisions, and shall demand that Tenant perform the
provisions of this Lease within the applicable period of time, or quit the
Premises. No such notice shall be deemed a forfeiture or a termination of this
Lease unless Landlord so elects in the notice.
10.2 Landlord's Remedies. Landlord shall have the following remedies if
Tenant commits a default and, where applicable, fails to cure within the times
set forth in Section 10.1 hereof. These remedies are not exclusive; they are
cumulative in addition to any remedies now or later allowed by law.
(a) Tenant's Right to Possession Not Terminated. Landlord can
continue this Lease in full force and effect, and the Lease will continue in
effect as long as Landlord does not terminate Tenant's right to possession, and
Landlord shall have the right to collect rent when due. During the period
Tenant is in default, Landlord can enter the Premises and let them, or any part
of them, to third parties for Tenant's account. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the Premises,
including, without limitation, brokers' commissions, expenses of remodeling the
Premises required by the reletting, and like costs. Reletting can be for a
period shorter or longer than the remaining term of this Lease. Tenant shall pay
to Landlord the rent due under this Lease on the dates the rent is due, less the
rent Landlord receives from any reletting. No act by Landlord allowed by this
Section shall terminate this Lease unless Landlord notifies Tenant that Landlord
elects to terminate this Lease. After Tenant's default and for as long as
Landlord does not terminate Tenant's right to possession of the Premises, if
Tenant obtains Landlord's consent Tenant shall have the right to assign or
sublet its interest in this Lease, but Tenant shall not be released from
liability.
If Landlord elects to relet the Premises as provided in this Section, rent
that Landlord receives from reletting shall be applied to the payment of:
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First, any indebtedness from Tenant to Landlord other than rent due
from Tenant;
Second, all costs, including for maintenance, incurred by Landlord in
reletting;
Third, rent due and unpaid under this Lease.
After deducting the payments referred to in this Section, any sum remaining
from the rent Landlord receives from reletting shall be held by Landlord and
applied in payment of future rent as rent becomes due under this Lease. In no
event shall Tenant be entitled to any excess rent received by Landlord. If, on
the date rent is due under this Lease, the rent received from the reletting is
less than the rent due on that date, Tenant shall pay to Landlord, in addition
to the remaining rent due, all costs, including for maintenance, Landlord
incurred in reletting that remain after applying the rent received from the
reletting as provided in this Section.
(b) Termination of Tenant's Right to Possession. Landlord can
terminate Tenant's right to possession or the Premises at any time. No act by
Landlord other than giving notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession or a termination of
this Lease. On termination of this Lease, a Landlord has the right to recover
from Tenant:
a. The worth, at the time of the award, of the unpaid rent that
had been earned at the time of termination of this Lease;
b. The worth, at the time of the award, of the amount by which
the unpaid rent that would have been earned after the date of termination of
this Lease until the time of award exceeds the amount of the loss of rent that
Tenant proves could have been reasonably avoided;
c. The worth, at the time of the award, of the amount by which
the unpaid rent for the balance of term after the time or award exceeds the
amount of the loss of rent that Tenant proves could have been reasonably
avoided; and
d. Any other amount, and court costs, necessary to compensate
Landlord for all detriment proximately caused by Tenant's default.
"The worth, at the time or the award," as used in (a) and (b) or this
Section, is to be computed by allowing interest at the lesser of eighteen
percent (18%) per annum or the maximum rate an individual is permitted by law to
charge. "The worth, at the time of the award," as referred to in (C) of this
Section, is to be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(1%).
(c) No Exercise of Option. Notwithstanding any provision of this
Lease to the contrary, any attempted exercise by Tenant of an option to extend
the term of this Lease, shall be null and void and
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ineffective if such attempted exercise is made at the time when Tenant is in
default under the terms and provision of this Lease.
(d) Landlord's Right to Cure Tenant's Default. Landlord, at any time
after Tenant commits a default and has failed to perform within fifteen (15)
days of notice of such default from Landlord, can cure the default at Tenant's
cost. If Landlord at any time, by reason of Tenant's default, pays any sum or
does any act that requires the payment of any sum, the sum paid by Landlord
shall be due immediately from Tenant to Landlord at the time the sum is paid,
and if paid at a later date shall bear interest at the lesser of eighteen
percent (18%) per annum or the maximum rate an individual is permitted by law to
charge from the date the sum is paid by Landlord until Landlord is reimbursed by
Tenant. The sum, together with interest on it, shall be additional rent.
10.3 Interest. Rent and other amounts payable hereunder by Tenant not paid
when due shall bear interest from the date due until paid at the maximum rate
permitted by law or at the rate of eighteen percent (18%) per annum, whichever
is less.
10.4 Late Charge. Tenant acknowledges that late payment by Tenant to
landlord or rent will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult a a late charge.
The parties agree that this late charge represents a fair and reasonable
estimate of the costs that Landlord will incur by reason of late payment by
Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's
default with respect to the overdue amount, or prevent Landlord from exercising
of any of the other rights and remedies available to Landlord.
10.5 Tenant's Right To Cure Landlord's Default. Landlord shall be
indefault of this Lease if it fails or refuses to perform any provision of this
Lease that it is obligated to perform is the failure to perform is not cured
within thirty (30) days after notice of the default has been given by Tenant to
Landlord. If the default cannot reasonably be cured within thirty (30) days,
Landlord shall not be in default of this Lease if Landlord commences to cure the
default within the 30-day period and diligently and in good faith continues to
cure the default.
SECTION 11 --- SIGNS; ADVERTISING
11.1 Tenant's Restricted Right to Signs. Tenant at its cost shall have the
right to place, construct, and maintain one (1) exterior sign on the building
that is a part of the Premises in the same dimensions, style, and lettering
presently used on the building for the name "Hansen, Barnett & Maxwell,"
advertising its business on the Premises. The location of such sign on the
building shall be subject to Landlord's approval, Tenant shall not have the
right to place, construct, or maintain any other sign, advertisement, awning,
banner, or other exterior decoration without Landlord's prior written consent.
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11.2 Compliance With Laws. Any sign that Tenant has the right to
place, construct, and maintain shall comply with all laws, and Tenant shall
obtain any approval required by such laws. Landlord makes no representation
with respect to Tenant's ability to obtain such approval.
11.3 Removal of Signs. At the termination of this Lease Tenant shall, at
Tenant's sole cost and expense, remove all signs installed or constructed by
Tenant and shall repair and restore the Premises or the building or property of
which the Premises is a part to their condition prior to installation or
construction of such signs.
SECTION 12 ---- LANDLORD'S ENTRY ON PREMISES
12.1 Landlord and its authorized representatives shall have the right to
enter the Premises at all reasonable times for any or the following purposes:
(1) To determine whether the Premises are in good condition and
whether Tenant is complying with its obligations under this Lease;
(2) To do any necessary maintenance and to make any restoration to the
Premises that Landlord has the right or obligation (if any) to perform;
(3) To serve, post, or keep posted any notices required or allowed
under the provisions of this Lease;
(4) To post "for sale" signs at any time during the term, to post "for
rent" or "for lease" signs during the last six (6) months of the term, or during
any period white Tenant is in default'
(5) To show the Premises to prospective brokers, agents, buyers,
tenants, or persons interested in a purchase or an exchange, at any time during
the term;
(6) At Landlord's expense, to shore the foundations, footings, and
walls or the building and other improvements that are a part of the Premises and
to erect scaffolding and protective barricades around and about the Premises,
but not so as to prevent entry to the Premises, and to do any other act or thing
necessary for the safety or preservation of the Premises if any excavation or
other construction is undertaken or is about to be undertaken on any adjacent
property or nearby street. Landlord's right under this provision shall not be
construed to create any obligation for Landlord to maintain or repair the
Premises. Except as set forth in other provisions of this lease.
Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss or business, nuisance, or other damage arising out of
Landlord's entry on the Premises as provided in this Section, except damage
resulting from the wrongful acts or wrongful negligence of Landlord or its
authorized representatives.
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Tenant shall not be entitled to an abatement or reduction of rent if
Landlord exercises any rights reserved in the Section.
Landlord shall conduct its activities on the Premises as allowed in this
Section in a manner that will minimize inconvenience, annoyance, or disturbance
to Tenant.
SECTION 13 ---- PRIOR TENANT EQUIPMENT
13.1 Prior Tenant Equipment. At the time of execution of this Lease,
certain equipment and personal property left by a prior tenant of the Premises
(collectively "Prior Tenant Equipment") is on the Premises. The Prior Tenant
Equipment, although in the custody of Landlord, is not owned by Landlord, and is
the subject of a legal proceeding pending in the Third District Court for the
State of Utah. Landlord cannot give Tenant permission or the right to use that
Equipment. Tenant agrees to indemnify and hold Landlord harmless for any
damages, waste or diminution in value that may occur to the Prior Tenant
Equipment caused by Tenant, its agents, licensees, assigns or successors.
SECTION 14 ---- SECURITY DEPOSIT
14.1 Amount of Deposit. The Tenant, contemporaneously with the execution
of this Lease, shall deposit with the Landlord a security deposit in the sum of
Five Thousand Three Hundred Twelve and 50/100 Dollars ($5,312,50). Such deposit
shall be held by the Landlord, without liability for interest, as security for
the faithful performance by the Tenant of all of the terms, covenants, and
conditions of this Lease on the part of the Tenant to be observed or performed
during the term hereof. If at any time during the term of this Lease any of the
rent herein reserved shall be overdue and unpaid, then the Landlord shall at its
option have the right, but not the obligation, to appropriate and apply any
portion of said deposit to the payment of any such overdue rent or other sum.
If the entire deposit, or any portion thereof, should be appropriated and
applied by the Landlord for the payment of overdue rent or other sums to be paid
hereunder by the Tenant to the Landlord, then the Tenant shall immediately upon
demand remit to the Landlord a sufficient amount in cash to restore said
security deposit to the sum specified above in this Section, and the Tenant's
failure to do so within ten (10) days after receipt of such demand shall
constitute a default under this Lease. If the Tenant complies with all of said
terms, covenants, and conditions and promptly pays all of the rent herein
provided for and all other sums to be paid by the Tenant to the Landlord
hereunder, then the said security deposit shall be returned in full to the
Tenant upon the termination of this Lease. The Landlord's obligations with
respect to the security deposit are those of a debtor, and not of a trustee.
SECTION 15 --- PARKING
15.1 Parking. Landlord agrees to make fifteen (15) parking stalls
available to Tenant o the Property on which the Premises is located, for the
purpose of servicing the needs of occupants of the Premises. Such parking
stalls shall be the fifteen(15) most southerly parking
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stalls along the west property line of the Property on which the Premises is
located; provided, however, that Landlord reserves the right from time to time
to rearrange the configuration of parking stalls located on the Property so long
as Landlord makes available to Tenant fifteen(15) or such parking stalls of
similar location: Tenant agrees that it will not at any time cause or permit
more than fifteen (115) of the parking stalls located on the Premises to be
occupied by Tenant, its employees, agents, licensees, and invitees.
SECTION 16 - GRANT OF SECURITY INTEREST
16.1 Grant of Security Interest. Tenant hereby grants Landlord a Security
interest in all the personal property of Tenant, of whatever nature, which is
brought upon or located at the premises for the purpose of securing of the
performance of Tenant's obligations hereunder. As to the switching equipment
and other items listed on Exhibit C attached hereto, Tenant hereby grants a
security interest in the items listed and represents and warrants that
Landlord's security interest has first priority over any and all other security
interests or liens in such equipment. Tenant agrees that it will not further
encumber the personal property listed in Exhibit C in any way that would
displace or conflict with Landlord's first priority security interest. Upon
request of Landlord, Tenant shall execute and cause to be filed at its own
expense, a UCC-1 Financial Statement for the purpose of perfecting the security
interests granted in this Section 16.
SECTION 17 - REPRESENTATIONS AND WARRANTIES
17.1 Tenant's Representations and Warranties. As a material inducement to
Landlord to execute this lease and in partial consideration therefor, Tenant
hereby makes the following representations and warranties, each of which is
being relied upon by Landlord as a material inducement to enter into this Lease,
and each of which is true and correct as of the date hereof;
(a) All financial statements and other financial information provided
to Landlord by Tenant are true and correct in all material respects, and fully
and accurately present the financial condition of Tenant as or the date and
time of such reports, and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis.
(b) The execution and delivery of this Lease and the performance by
Tenant of its obligations hereunder require no further action or approval in
order to constitute this Lease as a binding and enforceable obligation of
Tenant. Compliance with this Lease does not contravene any provision of law,
nor of any agreement, government order or regulation, undertaking, or other
restriction to which Tenant is a party or by which Tenant is bound.
(c) This Lease been duly executed by Tenant and constitutes a legal,
valid, and binding obligation of Tenant enforceable in accordance with its
terms.
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SECTION 18 - ESTOPPEL
18.1 Estoppel Certificate. Tenant shall, within ten (10) days after
Landlord's request therefor, execute and deliver to Landlord's request therefor,
execute and deliver to Landlord an estoppel certificate in favor of Landlord and
such other persons as Landlord shall request setting forth the following: (a)
ratification of this Lease; (b) the commencement date and termination date
hereof; (c) that this lease is in full force and effect and has not been
assigned, modified, supplemented or amended (except as such writing as shall be
stated); (d) that all conditions under this lease to be performed by landlord
have been satisfied; (e) there are no defenses or offsets against the
enforcement of this Lease by Landlord, or in the alternative, those claimed by
Tenant; (f) the amount of advance rent, if any (or none if such is the), paid
by Tenant; (g) the date to which rent has been paid; (h) the amount of the
security deposit, if any; and (i) such other information as Landlord may
reasonably request. In the event that Tenant fails within ten (10) days after
Landlord has delivered to Tenant an estoppel certificate pursuant to this
Section to properly execute and deliver the same to landlord, Tenant shall be
deemed to have consented to such estoppel certificate as written, provided,
however, that such non-consent shall not relieve Tenant from its
responsibilities for default under this Lease by reason of its failure to return
an estoppel certificate as written, provided, however, that such non-consent
shall not relieve Tenant from its responsibilities for default under this Lease
by reason of its failure to return an estoppel certificate in accordance with
this Section. Mortgage lenders and/or purchasers shall be entitled to rely upon
any estoppel certificate executed by Tenant or which Tenant is deemed to have
consented.
SECTION 19 - MISCELLANEOUS
19.1 Notice. All notices, requests, consents and other communications
required under this Lease shall be in writing and shall be sufficient for all
purposes if personally delivered, or if mailed by certified or registered U.S.
mail, return receipt requested, postage prepaid, or if sent by Federal Express
or other nationally recognized air courier, expenses prepaid, and addressed as
follows:
If to Landlord, to:
Broadway Associates
345 East Broadway, Suite 200
Salt Lake City, Utah 84111
Attn.: Mr. Paul J. Maxwell
With a copy to:
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Ervin r. Holmes, Esq.
Van Cott, Bagley, Cornwall & McCarthy
50 South Main Street, Suite 1600
Salt Lake City, Utah 84144
If to Tenant, to:
FTI Communications
345 East Broadway, Suite 100
Salt Lake City, Utah 84111
Attn.: Mr. Robert Edwards
Either party may change its address by notifying the other party of the
change of address. Notice shall be deemed communicated upon receipt or within 48
hours from the time of mailing if mailed as provided in this Section, whichever
shall first occur.
19.2 Waiver. No delay or omission in the exercise of any right or
remedy of Landlord on any default by Tenant shall impair such a right or remedy
or be construed as a waiver.
The receipt and acceptance by Landlord of delinquent rent shall not
constitute a waiver of any other default; it shall constitute only a waiver of
timely payment for the particular rent payment involved.
No act or conduct of Landlord, including, without limitation, the
acceptance of the keys to the Premises, shall constitute an acceptance of the
surrender of the premises by Tenant before the expiration of the term. Only a
written notice from Landlord to Tenant shall constitute acceptance of the
surrender of the Premises and accomplish a termination of the Lease..
Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord for any default must be in writing and shall not
be a waiver of any other default concerning the same or any other provision of
the lease.
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19.3 Sale or Transfer or Premises. If Landlord sells or transfers all
or any portion or the Premises, Landlord, on consummation of the sale or
transfer, shall be released from any liability thereafter accruing under this
lease if Landlord's successor has assumed in writing, for the benefit of Tenant,
landlord can transfer the security deposit or prepaid rent to Landlord's
successor and on such transfer Landlord shall be discharged from any further
liability in reference to the security deposit or prepaid rent.
19.4 Enforcement. In the event of default under any provision in this
lease, the defaulting party agrees to pay the other party all costs, including
reasonable attorney's fees, incurred by the other party in enforcing its rights
under this Lease whether or not court action is instituted, in addition to all
other amounts due hereunder and damages caused by the default.
19.5 Surrender of Premises. On expiration or termination of the term,
Tenant shall surrender to Landlord the Premises and all tenant's improvements
and alterations in good condition, except for ordinary wear and tear occurring
after the last necessary maintenance made by Tenant and destruction to the
Premises covered by section 7.1 except for alterations that Tenant is obligated
to remove under the provisions of Section 5.5. Tenant shall remove all its
personal property within the above stated time. Tenant shall perform all
restoration made necessary by the removal of any alterations or Tenant's
personal property within the time periods stated in this Section.
Landlord can elect to retain or dispose of in any manner any
alterations or Tenant's personal property that Tenant does not remove from the
Premises on expiration or termination of the term as allowed or required by this
Lease by filing at least ten (10) days' notice to Tenant. Title to any such
alterations or Tenant's personal property that Landlord elects to retain or
dispose of an expiration of the 10-day period shall vest in Landlord. Tenant
waives all claims against Landlord for any damage to Tenant resulting from
Landlord's retention or disposition of any such alterations of Tenant's personal
property Tenant shall be liable to Landlord for Landlord's costs for storing,
removing, and disposing of any alterations or tenant's personal property.
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If Tenant fails to surrender the Premises to Landlord on expiration or
ten (10) days after termination of the term as required by this Section, Tenant
shall hold Landlord harmless from all damages resulting from Tenant's failure to
surrender the Premises, including, without limitation, claims made by a
succeeding tenant resulting from Tenant's failure to surrender the Premises.
19.6 Holding Over. If Tenant, with Landlord's consent, remains in
possession of the Premises after expiration or termination of the term, or after
the date in any notice given by Landlord to Tenant terminating this Lease, such
possession by Tenant shall be deemed to be a month-to-month tenancy terminable
on thirty (30) days' notice given at any time by either party. All provisions of
this Lease, except those pertaining to term shall apply to the month-to-month
tenancy.
19.7 Time of Essence. Time is of the essence of each provision of
this Lease.
19.8 Consent of Parties. Whenever consent or approval of either party
is required, that party shall not unreasonably withhold such consent of
approval.
19.9 Corporate Authority. If either party is a corporation, that
party shall deliver to the other party on execution of this Lease a certified
copy of a resolution of its board of directors (or its executive committee with
appropriate resolutions from its board of directors empowering such executive
committee) authorizing the execution of this Lease and naming the officers that
are authorized to execute this Lease on behalf of the corporation.
19.10 Entire Agreement. This Lease, including the exhibits attached
hereto, constitutes the entire agreement between the parties hereto relative to
the subject matter hereof. Any prior negotiations, correspondence, or
understandings relative to the subject matter hereof shall be deemed to be
merged in this Lease and shall be of no further force or effect. This Lease may
not be amended or modified except in writing executed by both of the parties
hereto.
19.11 Successors. This Lease shall be binding on and inure to the
benefit of the parties and their successors and assigns, except as provided in
Section 9.1.
19.12 Rent Payable in U.S. Money. Rent and all other sums payable
under this Lease must be paid in lawful money of the United States of America.
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Each party shall hold harmless the other party from all damages
resulting from any claims that may be asserted against the other party by any
broker, finder, or other person, with whom the other party has or purportedly
has dealt.
19.13 Exhibits - Incorporation in Lease. All exhibits referred to are
attached to this Lease and incorporated by reference.
19.14 Controlling Law. This Lease shall be construed and interpreted
in accordance with the laws or the State of Utah.
19.15 Use of Definitions. The definitions contained in this Lease
shall be used to interpret this Lease.
19.16 Definitions. As used in this Lease, the following words and
phrases shall have the following meanings.
Alteration - any addition or change to, or modification of, the
Premises made by Tenant including, without limitation, fixtures, but excluding
trade fixtures as defined here, and Tenant's improvements as defined here.
Authorized representative - any officer, agent, employee, or
independent contractor retained or employed by either party, acting within
authority given him by that party.
Damage - injury, deterioration, or loss to a person or property caused
by another person's acts or omissions. Damage includes death.
Damages - a monetary compensation or indemnity that can be recovered in
the courts by any person who has suffered damage to his person, property, or
rights through another's act or omission.
Destruction - any damage, as defined here, to or disfigurement of the
Premises.
Encumbrance - any deed of trust, mortgage, or other written security
device or agreement affecting the Premises, and the note or other obligation
secured by it, that constitutes security for the payment of a debt or
performance of an obligation.
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Expiration - the coming to an end of the time specified in the Lease as
its duration, including any extension of the term resulting from the exercise of
an option to extend.
Good Condition - the good physical condition of the Premises and each
portion of the Premises, including, without limitation, signs, windows, show
windows, appurtenances, and Tenant's personal property as defined here. "In good
condition" means first-class, neat, clean, and broom-clean, and is equivalent to
similar phrases referring to physical adequacy in appearance and for use.
Hazardous substances - any substance or material defined or designated
as hazardous or toxic waste, hazardous or toxic chemical, hazardous or toxic
material, hazardous or toxic substance, or other similar term, by any federal,
state, or local environmental statute, regulation, or ordinance presently in
effect, or in effect at any time during the term, and, as to substances and
materials which are not specifically identified in any such statute, regulation,
or ordinance by name, which are known to be toxic or hazardous under presently
existing and generally accented scientific knowledge.
Hold harmless - to defend and indemnify from all liability, losses,
penalties, damages as defined here, costs, expenses (including, without
limitation, attorneys' fees) causes of action, claims, or judgment arising out
of or related to any damage, as defined here, to any person or property.
Law - any judicial decision, statute, constitution, ordinance,
resolution, regulation, rule, administrative order, or other requirement of any
municipal, county, state, federal, or other government agency or authority
having jurisdiction over the parties or the Premises, or both, in effect either
at the time of executing of the Lease or at any time during the term, including,
without limitation, any regulation or order of a quasi-official entity or body
(e.g., board of fire examiners or public utilities).
Lien - a charge imposed on the Premises by someone other than Landlord,
by which the Premises are made security for the
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performance of an act. Most of the liens referred to in this Lease are
mechanics' liens.
Maintenance - repairs, replacement, repainting, snow and ice removal.
Landscaping care and maintenance, janitorial services provided by Landlord,
servicing of HVAC systems, and cleaning.
Person - one or more human beings, or legal entities or other
artificial persons, including, without limitation, partnerships, corporations,
trusts, estates, associations, and any combination of human beings and legal
entities.
Provision - any term, agreement, covenant, condition, clause,
qualification, restriction, reservation, or other stipulation in the Lease that
defines or otherwise controls, establishes, or limits the performance required
or permitted by either party.
Rent - monthly rent, prepaid rent, security deposit, real property
taxes and assessments, insurance, and other similar charges payable by Tenant to
Landlord.
Restoration - the reconstruction, rebuilding, rehabilitation, and
repairs that are necessary to return destroyed portions of the Premises and
other property to substantially the same physical condition as they were in
immediately before the destruction.
Successor - assignee, transferee, personal representative, heir, or
other person or entity succeeding lawfully, and pursuant to the provisions of
this Lease, to the rights or obligations of either party.
Tenant's improvement - any addition to or modification of the Premises
made by Tenant before, at, or near the commencement of the term, including,
without limitation, fixtures (not including Tenant's trade fixtures, as defined
here).
Tenant's personal property - Tenant's equipment, furniture,
merchandise, and moveable property placed in the Premises by Tenant, including
Tenant's trade fixtures, as defined here.
Tenant's trade fixture - any property installed in or on the Premises
by Tenant for purposes of trade, manufacture, ornament, or related use.
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Term - the period of time during which Tenant has a right to occupy the
Premises.
Termination - the ending of the term for any reason before expiration,
as defined here.
19.17 Captions: Table of Contents. The captions and the table of
contents of this Lease shall have no effect on its interpretation.
19.18 Singular and Plural. When required by the context of this Lease,
the singular shall include the plural.
19.19 Severability. The unenforceability, invalidity, or illegality of
any provision shall not render the other Provisions unenforceable, invalid, or
illegal.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
LANDLORD: TENANT:
BROADWAY ASSOCIATES, STI COMMUNICATIONS,
a Utah a general partnership,
_____________corporation
By By
------------------------------- -------------------------------
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Exhibit 10(HH)
LEASE
BETWEEN
PHOENIX CITY SQUARE PARTNERSHIP
AND
ROBERT W. EDWARDS AND DENISE A EDWARDS,
as husband and wife, jointly and severally
DATE: MARCH 18, 1996
PHOENIX CITY SQUARE
PHOENIX, ARIZONA
This lease shall not be treated as an offer to lease but merely as a Lease for
review purposes. This Lease shall not be valid or binding unless and until
accepted by Lessor in writing and a fully executed copy is delivered to all
parties hereto. This lease is subject to withdrawal or modification by Lessor at
any time. Lessor reserves the right to offer the premises simultaneously to
other third parties, therefore, the premises may be subject to prior leasing.
<PAGE>
PHOENIX CITY SQUARE
LEASE
Table of Contents
<TABLE>
<CAPTION>
Section Page
<C> <S> <C>
1. Premises 1
2. Term and Completion of Improvements 1
3. Rental 1
4. Security Deposit 3
5. Use; Compliance with Laws 3
6. Insurance 3
7. Lessee's Acceptance 5
8. Repairs 5
9. Notice of Damage 5
10. Inspections 5
11. Common Areas 5
12. Default 6
13. Remedies 6
14. Security Interest 7
15. Nonliability 7
16. Liability 8
17. No Estate 8
18. Services 8
19. Assignment and Subletting 9
20. Destruction or Damage 10
21. Condemnation and Eminent Domain 10
22. Alterations and Improvements 10
23. Attorney's Fees 10
24. Entire Agreement 10
25. Time of Essence 11
26. Rules and Regulations 11
27. Surrender of Premises 11
28. Notices 11
29. Broker 12
30. Affirmative Waivers 12
31. Terms 12
32. Controlling Law and Severability 12
33. Submission of Lease 12
34. Relocation of Lessee 12
35. Special Stipulations 13
36. Subordination and Attornment 13
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
37. Estoppel Certificate and Financial Information 13
38. Parking 13
39. Tax Status 14
</TABLE>
Exhibit A--Floor Plan
Exhibit B--Work Schedule Agreement
Exhibit C--Rules and Regulations
Exhibit D--Special Stipulations
Exhibit E--Acceptance of Premises
PHOENIX CITY SQUARE
LEASE
THIS LEASE (this "Lease") , made this 14th day of March, 1996, by and
between PHOENIX CITY SQUARE PARTNERSHIP, a New York general partnership, with
offices at 225 Liberty Street, World Financial Center, South Tower, 12th Floor,
New York, New York 10080-6112 ("Lessor") and ROBERT W. EDWARDS AND DENISE A.
EDWARDS, as husband and wife, jointly and severally, whose principal place of
business is 3800 North Central Avenue, Suite B-1, Phoenix, Arizona ("Lessee").
1. PREMISES: Lessor, for and in consideration of the rents, covenants,
agreements and stipulations herein contained to be paid, kept and performed by
Lessee, has leased and rented, and by these presents does lease and rent, unto
Lessee and Lessee hereby leases, upon the terms and conditions set forth herein,
office suite number B-1 (the "Premises") being located on the ground floor(s) of
that certain office building (the "Building") situated on that certain tract of
land (the "Land") located at 3800 North Central Avenue, Phoenix, Arizona 85012.
The Premises is more particularly shown on the floor plan annexed hereto as
Exhibit "A" and by this reference made a part hereof. The rentable area of the
Premises is deemed to be approximately 3, 598 square feet.
2. TERM AND COMPLETION OF IMPROVEMENTS: (a) The term of this Lease shall be
for four (4) years, two (2) months and eighteen (18) days from and after the
date (the "Commencement Date") which is the earlier of March 14, 1996, or the
date that Lessor tenders possession of the possession of the Premises of Lessee
ready for occupancy in accordance with the requirements of the Work Schedule
Agreement, as set forth in Exhibit "B" attached hereto and made part hereof, and
shall end on May 31, 2000 (the "Expiration Date") unless extended pursuant to
the following paragraph or unless sooner terminated as hereinafter set forth.
(b) Lessor shall proceed with due diligence to complete the initial
improvements to the Premises as set forth in the Work Schedule Agreement and
deliver same Lessee on or before__________________. In the event completion of
the initial improvements shall be delayed due to any act or omission of Lessee
or any of its employees, agents or contractors, the Premises shall be deemed
ready for occupancy on the date when the Premises would have been substantially
completed but for such act or omission. In the event of the Premises are not
completed by____________________, for any other reason, the Expiration Date
shall be extended by the number of days between said date and the date of
completion. Within thirty (30) days after the Commencement Date, Lessee will
execute and deliver to Lessor an Acceptance of the Premises, a form of which is
attached as Exhibit E hereto. Lessee hereby waives any claim for damages due to
Lessor's failure to Lessor's failure to deliver the Premises as of a particular
date.
<PAGE>
(c ) Except for the improvements described in the Work Schedule Agreement,
Lessee hereby agrees to accept the Premises in its "as is" condition and
acknowledges that the Premises are suitable for Lessee's intended use and
occupancy.
3. RENTAL: (a) Lessee shall and hereby agrees to pay to Lessor in
advance, without demand, deduction or set off , an annual rental of See Page 1a
and ___________ Dollars ("Base Rental") payment payable in equal monthly
installments of ________________ and __________Dollars on the first day of each
month commencing on the Commencement Date. If the Commencement Date occurs on a
day other than the first day of a calendar month, Base Rental for such partial
calendar month shall be prorated on a per diem basis (calculated on the basis of
a thirty day month ) and shall be paid on the first day of the first month
following the Commencement Date. Base Rental and
RENTAL SCHEDULE
1. Rental Schedule: Base Rental for the leased Premises shall be made in
monthly installments, plus applicable tax, payable as set forth in Article 3
herein:
Months Monthly Rent
03/14/96 - 05/31/97 $3,598.00
06/01/97 - 05/31/98 $3,897.00
06/01/98 - 05/31/99 $4,197.00
06/01/99 - 05/31/00 $4,497.00
"Additional Rental" (as hereinafter defined) for any other fractional month
shall be prorated in the same manner. Base Rental and Additional Rental are
herein collectively called "Rental".
(b) The Base Rental stated herein shall be increased for the 12 month
period beginning each January 1 by an amount equal to the percentage
increase in the CPI Index. The percentage increases in the CPI Index shall
be determined by subtracting from the CPI Index for the December
immediately proceeding the January in which such increases is to be made,
the CPI Index for the month in which this Lease was executed (the "Base
Year CPI Index") and by dividing the result by the Base CPI Index. The
"CPI Index shall mean the United States Bureau of Labor Statistics,
Revised Consumer Price Index (1997 = 100) - U.S. City Average for all
Urban Consumers, all items. In the event the publication of the CPI Index
is hereafter discontinued or substantially revised, Lessor shall designate
a comparable index to be used in lieu there of. Lessor shall notify Lessee
in writing of the new annual and monthly
<PAGE>
Base Rental amount at least thirty (30) days prior to the date on which the
increase in Base Rental becomes effective. If no event shall the Base
Rental be reduced as a result of changes in the CPI Index. The following is
an example of how the increase in Base Rental should be calculated
A tenant leased 5,000 square feet of space at an initial Base Rental of $20/
square foot ($100,000). Assume a Base Year CPI Index of 324.3 and a CPI Index of
354.4 for December, 1986. The Base Rental effective January 1, 1987 would be
calculated as follows.
$100,000 x [1 / (354.4 324.3)] = $109,281
324.3
(c) Lessee shall pay to Lessor, as "Additional Rental", for each square
foot of rentable area in the Premises, the amount by which Operating Costs (as
hereinafter defined) per square foot for each square foot for the Building
exceeds $_____(the actual Operating Costs for calendar year 1995) per rentable
square foot for the Building (such excess is hereafter referred to as "Excess
Operating Costs"). For purposes of this provision "Operating Costs" shall mean
the aggregate annual calendar year cost per square foot for the Building and the
Land of the following items for each square foot in the Building (i ) through
(ix): (i) maintenance and repair, including without limitation capital
improvements which are primarily for the purpose of reducing operating costs or
which may be required by governmental authority, of the Building, the Land and
all equipment maintained therein, including, without limitation, garbage
receptacles: (ii) janitorial services, supplies and expenses; (iii) utilities;
(iv) garbage and rubbish removal; (v) security services; (vi) insurance; (vii)
real estate taxes; (viii) advertising and promotion fees; and (ix) management
fees. At the beginning of each calendar year during the term of this Lease, or
at such other time or times as Lessor shall require including at the
commencement of term of the Lease (in the event such commencement of the term of
the Lease (in the event such commencement shall be at other than the beginning
of a calendar year) , Lessor shall estimate the amount of Lessee's share of
Excess Operating Costs for such complete or partial calendar year and shall
notify Lessee of such amount. Lessee shall pay to Lessor such estimated share
monthly installments with Lessee's payment of Base Rental. As soon as is
practical after the end of each calendar year, Lessor shall notify Lessee of the
actual Excess Operating Costs for the prior year. Lessee shall pay any
deficiencies due to Lessor within thirty (30) days of such notice. Any surplus
payments shall be credited to payments of estimated operating expenses for the
current year or, upon the expiration of the term of this Lease, shall be
refunded to Lessee.
(d) In addition to the foregoing, Lessee shall also pay, with each
payment of the foregoing sums, as additional rent, any and all sales
or use taxes assessed or levied upon Lessor with respect to the
rentals paid hereunder, as well as all taxes assessed or imposed upon
Lessor's gross receipts or gross income from leasing the Premises to
Lessee, including without limitation the transaction privilege tax,
education exercise tax of Arizona, any tax imposed by the City of
Phoenix, as well as any similar or excise tax imposed by any other
governmental body and any taxes assessed or imposed in lieu of, or in
substitute of, any of the foregoing taxes.
(e) Lessee shall pay promptly when due all license, franchise, and other
fees or charges imposed on the business conducted by Lessee at the Premises
and shall pay all taxes levied or assessed upon Lessee's personal property
located at the Premises or upon improvements (whether personality or
realty) to the Premises made by Lessee or by Lessor at Lessee's request. If
some of the improvements that Lessee is to pay taxes on are jointly
assessed or taxed with Lessor's improvements on the Building, Lessor shall
determine that portion of the taxes attributable to the improvements for
which Lessee is responsible. Following Lessor's determination, Lessor shall
notify Lessee in writing and Lessee shall pay Lessee's portion to Lessor on
or before the date
<PAGE>
specified in Lessor's notice. Within five (5) days of Lessor's request,
Lessee agrees to deliver to Lessor receipted tax bills showing payment of
all required to be paid by Lessee hereunder. If Lessee fails to pay, either
thirty (30) days prior to delinquency, or, if applicable, when specified in
Lessor's notice, any taxes described above that are or may become a lien
against the Premises, Lessor shall have the right, but not the obligation,
to pay such taxes, together with associated fines, penalties and interest,
Lessee agrees to immediately reimburse to Lessor, as Additional Rental, the
amount paid by Lessor, with interest from the date of Lessor's payment of
same rate of 18% per annum.
(f) In the event any payment of Base Rental and /or
Additional Rental is not paid promptly when due as set forth in
Section 3 (a) hereof, there shall be imposed upon Lessee a late
charge in amount equal to five percent (5%) of the amount of Base
Rental and/or Additional Rental then due for each day that such
payment is past due which shall be immediately due and payable.
4. SECURITY DEPOSIT: Upon execution of this Lease, Lessee shall pay
to Lessor the sum of Eleven thousand eight hundred fifty three and 51/100
Dollars ($11,853.51) (the "Security Deposit") as security for Lessee's full
and faithful performance of the terms, payable on the Security Deposit and
it is agreed and acknowledged by Lessee that the Security Deposit is not an
advance payment of rent or a measure of Lessor's damages in the event of a
default by Lessee. Upon the occurrence of an Event of Default, Lessor, in
its sole discretion, may deduct any Rental or other sums due hereunder from
the Security Deposit. Lessee shall restore any portion of the Security
Deposit. Lessee shall restore any portion of the Security Deposit so
applied by Lessor within ten (10) days following notice of such application
from Lessor. Within thirty (30) days following the expiration of the term
of this Lease and surrender of the Premises by Lessee to Lessor, the
balance of the Security Deposit then remaining, if any, shall be returned
to Lessee.
5. USE: COMPLIANCE WITH LAWS: The Premises shall be used as general
office space in connection with the operation of the business of long
distance phone service and for no other purpose whatsoever. Lessee shall,
at its own cost and expense, procure and maintain each and every permit,
license, certificate or other authorization required in connection with the
lawful and proper use of the Premises by Lessee. Lessee, at its sole
expense, shall promptly comply with all laws, orders, ordinances, rules and
regulations of Federal, State, County and Municipal authorities and
departments thereof having or asserting jurisdiction over the Premises or
Lessee's use and occupancy of the Premises.
6. INSURANCE: Lessee covenants and agrees that from and after the
date of delivery of the Premises from Lessor to Lessee, and during the term
of this Lease or any renewal thereof, Lessee will carry and maintain, at
its sole cost and expense, the following types of insurance, in the amounts
specified and in the form hereinafter provided for:
(a) Lessee shall keep in full force and effect
Comprehensive General Liability Insurance including Blanket
Contractual, Personal Injury, Broad From Property Damage,
Products Liability, Completed Operations, Fire Legal Liability,
and Owned, Non-owned and Hired Automobile coverages, naming
Lessor and Lessee, and any designee of limit for property damage
and bodily injury per occurrence for any and all claims for
injury or damage to persons or property or for the loss of life
or of property occurring upon, in or about the Premises and the
Public Portions of the Building used by Lessee, its employees,
agents, contractors, customers, and invitees. Lessee shall
deposit a policy or policies of such insurance, or an approved
certificate thereof issued by
<PAGE>
duly authorized agents of the carriers in question, With Lessor,
at least ten (10) days before the Commencement Date and renewals
of same and at least thirty (30) days prior to the expiration of
any existing policies. All such policies must provide that
Lessor and any additional insurers be provided with thirty (30)
days prior written notice of cancellation, reduction, or
material change by the insurer.
(b) Lessee shall keep in full force and effect All Risk
insurance including sprinkler leakage and flood and earthquake
(if flood and earthquake exposure exists) and vandalism and
malicious mischief on a 100% replacement cost basis covering all
contents, fixtures and improvements and such other portions of
the Premises which Lessor is not responsible for restoring.
Lessee shall deposit a policy or policies of such insurance, or
an approved certificate thereof with Lessor, providing Lessor
with thirty (30) days notice of cancellation, reduction, or
material change by the insurer.
(c) Lessee shall keep in full force and effect Workers'
Compensation insurance as required by law and Employer's
Liability coverage for a minimum of $100,000 per occurrence.
(d) Lessee covenants to comply with any and all rules and
regulations applicable to the Premises issued by the Board of
Fire Underwriter or by any other body hereinafter constituted
exercising similar functions and insurance companies writing
policies covering the Premises. Lessee shall pay all costs,
expenses, claims, fines, penalties and damages imposed because
of failure of Lessee to comply with this Section 6 (d) and
agrees to indemnify Lessor from all liability with reference
thereto. Lessee shall, at its own cost and expense, procure and
maintain each and every permit, license, certificate or other
authorization and any renewals, extensions or continuances of
the same required in connection with lawful and proper use of
the Premises for Lessee's business. Lessee agrees to pay any
increase in the amount of insurance premiums over and above the
rate now in force that may caused by Lessee's use or occupancy
of the Premises. This payment shall be addition to any amounts
due Lessor pursuant to other Sections of this Lease.
(e) Carrying the prescribed insurance will in no way be
construed as either a limitation or satisfaction of the hold
harmless or indemnity agreements contained in this Lease.
(f) Lessor and Lessee shall each have included in all
policies of insurance respectively obtained by them with respect
to the Building and / or the Premises a waiver by the insurer of
all right of subrogation against the other in connection with
any loss or damage thereby insured against. So long as both
Lessor's and Lessee's policies then in force include such mutual
waiver of subrogation, Lessor and Lessee, to the fullest extent
permitted by law, each waive all right of recovery against the
other for and agree to release the other from liability for,
loss or damage to the extent such loss or damage is covered by
valid and collectible insurance in effect at the time of such
loss or damage. If such waiver of subrogation shall not be
obtainable or shall be obtainable only at a premium over that
chargeable without such waiver, the party seeking such waiver
shall notify the other thereof in writing, and the latter shall
ten (10) days in which either (i) to procure on behalf of the
notifying party insurance with such waiver from a company or
companies reasonably satisfactory to the notifying party or (ii)
to agree to pay such additional premium (in Lessee's case, in
the proportion which the rentable area of the Premises bears to
the area covered by the insurance policy of Lessor in question).
<PAGE>
7. LESSEE'S ACCEPTANCE: By taking possession thereof, Lessee
shall be conclusively deemed to have accepted the Premises in their "as is"
condition as of the Commencement Date and as suited for the use intended by
Lessee as set forth in Section 5 hereof.
8. REPAIRS. Lessee, at its expense, shall promptly make such
repairs as shall be required by reason of (a) the installation, use, misuse
or operation of Lessee's property in the Premises, (b) the moving of
Lessee's property in or out of the Building, and (c) the misuse or neglect
of Lessee or any of its subtenants or its or their employees, agents,
licensees or contractors. Lessor shall not be required to make any repairs
or improvements to the Premises or the Building other than the structural
repairs to the Building necessary for safety and tenantability. Lessee at
its expense, shall replace all scratched, damaged, or broken doors and
glass in and about the Premises. Lessees shall also be responsible for all
repairs, maintenance and replacement of all wall and floor coverings,
sanitary and electrical fixtures and equipment in the Premises.
Notwithstanding the foregoing, Lessor shall be responsible for any repairs
which are required by reason of the willful or negligent acts of Lessor,
its employees, agents, licensees or contractors. At the termination, for
any reason, of this Lease and in addition to the obligations imposed by
Section 22 hereof, Lessee will surrender the Premises broom clean, in good
condition and repair, ordinary wear and tear excepted, with all personal
property belonging to Lessee removed.
9. NOTICE OF DAMAGE: Less shall give prompt notice to Lessor of (a)
any fire or other casualty in the Premises, (b) any damage to or defect in
the Premises, including the fissures, equipment and appurtenances thereof,
for the repair of which Lessor might be responsible, or (c) any damage to
or defect in any part of or appurtenance to the Building's sanitary,
electrical, heating, air conditioning, elevator or other systems located in
or passing through the Premises or any part thereof. Lessor shall have no
repair obligations whatsoever absent such notice.
10. INSPECTIONS: Lessor may enter the Premises at reasonable hours to
exhibit same to prospective purchasers or tenants, to inspect the Premises
to see that Lessee is complying with all obligations of Lessee hereunder,
and to make repairs required of Lessor under the terms hereof or repairs or
modifications to any adjoining space, Lessee shall not change the locks on
any entrance to the Premises without Lessor's prior written consent.
11. COMMON AREAS: So long as Lessee is not in default hereunder, Lessee
shall have the nonexclusive right to the use of the Common Areas (as
hereinafter defined) of the Building upon such conditions, rules and
regulations as Lessor shall from time to time make. As used in this Lease,
the term "Common Areas" shall refer to all of the Building's core
corridors, passageways, entrances, elevators and any space adjacent to the
Premises used for shafts, pipes, conduits, electric or other utilities.
12. DEFAULT: The occurrence of any of the following shall constitute an
event of default ("Event of Default"):
(a) Any part of portion of Rental or any sum payable hereunder is not
received by Lessor on the date the same are due hereunder;
(b) An attempt by Lessee to assign this Lease or sublet the Premises in
contravention of the provisions hereof;
(c) The Premises are abandoned or vacated (unless as a result of fire or
other casualty) even though Lessee continues to pay Rental;
(d) Lessee, or any guarantor of Lessee's obligations under this Lease,
makes an assignment for the benefit of creditors, or files a voluntary
petition under any bankruptcy or insolvency law;
<PAGE>
(e) An involuntary petition is filed against Lessee or such guarantor
under any bankruptcy or insolvency law, and such petition is not dismissed
within ninety (90) days after the date of such filing;
(f) Failure of Lessee, whether by action or inaction, to perform any of
its obligations under any other Leas from Lessor or any affiliate thereof
with respect to any other space; or
(g) Failure of Lessee, whether by action or inaction, to perform any of
its obligations hereunder or failure to observe any of the terms and
conditions hereof (other than as set forth in items (a) (f) above) and such
failure is not remedied within fifteen (15) days of written notice from
Lessor specifying the nature of such failure.
13. REMEDIES: Upon the occurrence of an Event of Default, Lessor may
invoke any of the following remedies, in addition to, or in lieu of, any
and all remedies available to Lessor under the laws of the State of
Arizona:
(a) Lessor may terminate this Lease. Upon termination, Lessee shall
immediately surrender the Premises to Lessor. If Lessee fails to do so,
Lessor may, without prejudice to any other remedy Lessor may have either by
law or under this Lease, enter upon the Premises and remove or expel Lessee
and Lessee's personal property with or without force and without being
liable to Lessee in any manner whatsoever for damages therefor. Upon
termination Lessee shall pay to Lessor (but not in lieu of any other
damages to which Lessor may be entitled), the unamortized cost of all work
performed on the Premises by Lessor in preparing the Premises for occupancy
by Lessee.
Lessor may enter the Premises and remove Lessee and its personal property,
by force in necessary, without being liable to Lessee in any manner
whatsoever for such acts, and may relet the Premises as agent of Lessee and
receive such rent therefor. In no event however, shall Lessor be liable in
any way whatsoever for its failure or refusal to relet the Premises or any
paer thereof. Lessee shall remain liable to Lessor for any deficiency
which may arise by reason of such reletting but shall not be entitled to
any surplus so arising, except for any surplus remaining at the end of the
stated term hereof.
If this Lease is terminated by Lessor, Lessee shall pay to Lessor as
additional damages (and not in lieu of any other damages to which Lessor
may be entitled), the unamortized cost of all work performed on the
Premises by Lessor in preparing the Premises for occupancy by Lessee and at
the election of Lessor:
(i) a sum which represents the then excess, if any, of (A) the
aggregate amount of the Rental due and reserved hereunder from the date of
Lessee's default to the expiration date of the fully stated term hereof
over (B) the aggregate rental value of the Premises as determined by Lessor
for the same period as reduced by the estimated cost of reletting the
Premises, including attorneys' fees, commissions, alterations and repair
costs; or
(ii) sums equal to the Rental which would have been payable
by Lessee had this Lease not been so terminated, or had Lessor not so re-
entered the Premises, payable upon the due dates therefor specified herein,
provided, however, that if Lessor shall relet the premises received by
Lessor from such reletting, such net rents to be determined by first
deducting from the gross rents as and when received by Lessor from such
reletting the expenses incurred or paid by Lessor in terminating this Lease
and/or in re-entering the Premises and in securing possession thereof, as
well as the expenses of reletting, including, without limitation, altering
and preparing the Premises for new tenants, brokers' commissions, legal
fees, and all other expenses chargeable against the Premises and the rental
therefrom, it being understood that
<PAGE>
any such reletting may be for a period shorter or longer than the remaining
term of this Lease; but in no event shall Lessee be entitled to a credit
for any net rents from a reletting, except to the extent set forth
hereinabove.
If Lessor shall not be permitted to terminate this Lease as
hereinabove provided because of the provisions of Title 11, of the United
States Code relating to Bankruptcy as amended (the "Bankruptcy Code"), the
Lessee or any trustee for Lessee agrees promptly, within no more than
fifteen (15) days upon request by Lessor to the Bankruptcy Court, to assume
or reject this Lease by Lessor with such Court. In such event, Lessee or
any trustee of Lessee may assume this Lease only if it (I) cures or
provides adequate assurance that the trustee will promptly cure any default
hereunder, and (ii) compensates or provides adequate assurance that Lessee
will promptly compensate Lessor for any actual pecuniary loss to Lessor
resulting from lessee's default.
. SECURITY INTEREST: In addition to any statutory landlord's
lien, Lessor is hereby granted a valid security interest to secure payment
of all Rental becoming due hereunder and any amounts for damages that
Lessor may sustain because of Lessee's default in performance of any
provision of this Lease upon all of Lessee's property which may now or
hereafter be located on or within the Premises and all proceeds thereof.
Lessee shall execute such financing statements or other documents as Lessor
shall require in order to perfect said security interest under the Uniform
Commercial Code of the State of Arizona, Title 47, chapter 9, Ariz. Rev.
State.
15. NONLIABILITY: (a) Neither Lessor nor its employees or agents shall
be liable for any damage to property of Lessee or for the loss of or damage
to any property of Lessee by theft or otherwise, whether or not due to the
negligence of Lessor, its agents or employees. Neither Lessor not its
agents shall be liable for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity,
water, rain or snow or leaks, howsoever caused, from the pipes, appliances,
plumbing works, roof street or sub-surface or from any other place, whether
or not due to the negligence of Lessor, it's agents, or employees; nor
shall Lessor or its employees or agents be liable for any such damage
caused by other persons (including, without limitation, other tenants) in
the Building or caused by construction of any private, public or quasi-
public work.
(a) Lessee agrees, irrespective of whether Lessee shall be at fault,
to indemnify, defend (through counsel of Lessor's choice) and save
harmless, Lessor and its partners, contractors, agents and employees from
and against any and all liability (statutory or otherwise), claims, suits,
demands, damages, judgments, costs, fines, penalties, interest and expenses
(including but not limited to, reasonable counsel fees and disbursements
incurred in any action or proceeding), to which Lessor or any such partner,
contractor, agent or employee may be subject or suffer by reason of any
liability or claim employee may be subject or suffer by reason of any
liability or claim of whatsoever nature arising from or in connection with
(I) the use and occupancy of the Premises, (ii) any work, installation or
thing whatsoever done or omitted in the Premises, (iii) any condition of
the Premises, or (iv) any act, omission or negligence of Lessee or any of
Lessee's agents, contractors, servants, employees, subtenants, licensees,
guests or invitees.
16. LIABILITY: Neither Lessor nor any of its partners shall have any
personal liability with respect to any of the provisions of this Lease, and
if Lessor is in default with respect to its obligations under this Lease,
Lessee agrees to look solely to Lessor's interest in the Building and Land
for satisfaction of Lessee's remedies.
17. NO ESTATE: This Lease shall create the relationship of landlord and
tenant between the parties. No estate shall pass out of Lessor, and Lessee
shall have only a usufruct which is not subject to levy and sale.
18. SERVICES; So long as Lessee is not in default hereunder, Lessor shall
provide the following services to the Premises:
(a) Lessor shall provide routine janitorial services for the Premises;
<PAGE>
(b) Lessor shall furnish electrical service for the lighting of the
Premises to building standard light levels produced by building standard
fluorescent lighting fixtures and lamps provided by Lessor and for usual
and normal small office machines and equipment utilizing 110 volt current;
and
(c) Lessor shall furnish seasonal air conditioning and heating from
8:00 a.m. to 6:00 p.m. Monday through Friday and 9:00 a.m. to 1:00 p.m. on
Saturdays, national holidays excepted. Lessor reserves the right to
prohibit the installation of additional lighting fixtures, heat generating
equipment, data processing machines, ect., unless and until arrangements
acceptable to Lessor to Lessor are made b Lessee to install supplementary
air conditioning equipment on the premises at Lessee's cost and expense.
The costs of maintaining and repairing such additional lighting, equipment,
machines and supplementary air conditioning equipment shall be paid as
Additional Rental by Lessee with the monthly installments of Base Rental
due hereunder at such reasonable rates as are established by Lessor. Should
Lessee desire either heating or air conditioning at times when such
services are not furnished by Lessor under the terms of this Lease, Lessor
may, but shall not be required to, furnish such services as requested by
lessee, at Lessee's expense and at such hourly charge as is from time to
time determined by lessor. Lessor shall not be liable for any damages
directly or indirectly resulting from the interruption or curtailment of
services referred to in this Section 18 the furnishing of such services.
Lessor reserves the right, in addition to lessor's other rights and
remedies hereunder and at law or in equity, to discontinue furnishing said
services upon five (5) days written notice so long as Lessee shall be and
remain in default hereunder.
19. ASSIGNMENT AND SUBLETTING: (a) Lessee shall not sublet the
Premises or any part thereof nor assign, mortgage, pledge or encumber this
Lease or any interest therein, without the prior written consent of Lessor,
which consent Lessor may refuse, withhold, delay and/or condition in its
sole and absolute discretion
(b) Any transfer of effective control of Lessee or any other
transfer of this Lease from Lessee by merger, consolidation, liquidation by
operation of law or otherwise without the prior written consent of Lessor
shall be deemed a violation of this Article 19. Lessee shall not permit any
business to be operated in or from the premises by any concessionaire or
licensee without the prior written consent of Lessor.
(c) Any consent by lessor to any assignment or subletting, or to
the operation by a concessionaire or licensee, shall not constitute a
waiver of the necessity for such consent to any subsequent assignment or
subletting, or operation by a concessionaire or licensee.
20. DESTRUCTION OR DAMAGE: (A) In The event the building is damaged by
fire or other perils covered by Lessor's extended coverage insurance to an
extent not exceeding twenty-five percent (25%) of the full insurable value
thereof and the damages thereto are such that the Building may be repaired,
reconstructed or restored within a period of ninety (90) days from the date
of the happening of such casualty and Lessor receives insurance proceeds
sufficient to cover the cost of such repairs, Lessor shall commence and
proceed diligently wit the work of repair, reconstruction and restoration
of the building (but shall not be responsible for repairing or restoring
any property owned or installed by Lessee) and this Lease shall continue in
full force and effect without any abatement I Rental except as may be
expressly provided below. If such repair, reconstruction and restoration
will require a period longer than ninety (90) days or if such damage
exceeds twenty-five percent (25%) of the full insurable value thereof, or
if said insurance proceeds will be insufficient to cover the cost of such
repairs. Lessor may elect to so repair, reconstruct and restore the
building to the extent it deems advisable and this lease shall continue in
full force and effect without any abatement in Rental except as may be
expressly provided below. Lessor shall give written notice to lessee of its
intention to repair and restore or not repair or restore the Building
within thirty (30) days from the date of any casualty, together with
lessor's reasonable estimate of the period required to effect such repair.
Provided Lessee is to in default hereunder, Lessee shall have the option to
terminate this lease by written notice delivered to lessor within a
three(30 day period from the date of receipt of Lessor's notice that it has
elected to repair the Building, if the estimate period shall constitute
lessee's irrevocable election not to terminate the Lease. In the event
lessor elects no to restore the Building, this lease shall be deemed to
have terminated as of the date of such partial destruction. Upon any
termination of this lease under any of the provisions of this section 20,
the parties shall be released thereby without further obligation
<PAGE>
to the other from the date possession of the Premises is surrendered to
lessor except for items which have theretofore accrued and are then unpaid.
(b) In the event of repair, reconstruction and restoration by Lessor
as herein provided, the base Rental shall be abated to the extent of any
rental abatement insurance proceeds attributable to the premises received
by Lessor during the period of such repair, reconstruction or restoration.
Lessee shall not be entitled to any compensation or damages for loss in the
use of the whole or any part of the Premises and/or for any inconvenience
or annoyance occasioned by such damage, repair, reconstruction or
restoration.
(c) Notwithstanding anything to the contrary contained in this
Section 20, lessor shall not be obligated to repair, reconstruct or restore
the Premises when the damage resulting from any casualty covered under this
Section 20 occurs during the last twelve (12) months of the term of this
Lease or any extension hereof.
21. CONDEMNATION AND EMINENT DOMAIN: In the event the whole or any
part of the premises shall be taken or condemned by any competent authority
for any public or quasi-public use or purpose, or acquired by private
purchase in lieu of condemnation, this Lease shall terminate from the date
when the possession of the part so taken shall be required for such use of
purpose, and the entire amount of the condemnation award attributable to
such taking or condemnation shall be paid to lessor. Lessee shall have no
right in and to such award or any portion thereof; such right, if any being
hereby expressly waived by Lessee.
22. ALTERATIONS AND IMPROVEMENTS: (a0 Lessee shall make no
alterations, additions or improvements to any part of the Premises without
Lessor's prior written consent, which may be given or withheld in lessor's
absolute discretion. Lessor may impose those conditions to its consent that
Lessor deems appropriate, including, without limitation, a requirement that
a contractor or workman of Lessor's choice perform all work required in
connection with such alteration, addition, or improvement and that, prior
to the commencement of any work, Lessee pay all anticipated costs to Lessor
for alter disbursement to said contractor. All alterations, additions, or
improvements (or any part of them ), whether temporary or permanent in
nature (except only movable office furniture0 shall, at the option of
Lessor, become the property of lessor without compensation to Lessee and be
surrendered with the Premises at the expiration or termination of this
Lease. Notwithstanding any of the foregoing, Lessor may require Lessee to
remove such alterations, additions or improvements (or any part of them) at
the termination of this Lease. Lessee agrees to indemnify and hold Lessor
and the Premises free from any liability, claim, lien, encumbrance or
judgement created or suffered in connection with any labor services, or
materials relating to such alterations, additions or improvements. Lessee
shall require all contractors, subcontractors, materials suppliers
rendering services or materials to waiver and release of all liens and
privileges that may exist or arise for work done, all labor performed, and
all materials furnished under any contract. In the event that any such
waiver and release is not furnished as required, Lessor shall have the
right to order the immediate cessation of any work being performed in the
Premises, by such contractors or materials suppliers.
(b) Lessee shall neither cut, drill into, disfigure, deface or injure
any part of the Building, nor obstruct or permit any obstruction,
alteration, addition, improvement, or installation in the Premises or the
Building with first obtaining the written consent of the lessor.
23. ATTORNEY'S FEES; lessee agrees to pay all reasonable attorney's
fees and expenses lessor incurs in enforcing any of the obligations of
Lessee under this Lease, or in any litigation or negotiation in which
lessor shall, without its fault, become involved through or on account of
this lease. These provisions shall survive the termination of this Lease.
24. ENTIRE AGREEMENT: This Lease contains the entire agreement of the
parties and no representations or agreements, oral or otherwise, between
the parties not embodied hereinshall be of any force or effect. No failure
of Lessor to exercise any power given Lessor hereunder, or to insist upon
strict compliance by Lessee of any obligation hereunder, and no custom or
practice of the parties at variance with the terms hereof shall constitute
a waiver of Lessor's right to demand exact compliance with the terms
hereof.
25. TIME OF ESSENCE: Time is of the essence of Lessee's obligations
under this Lease.
26. RULES AND REGULATIONS: The rules and regulations attached hereto
as Exhibit "C" shall be and are hereby made a part of this Lease. Lessee,
its officers, partners employees and
<PAGE>
agents, will perform and abide by said rules and regulations, and any
amendments, modifications, additions or substitution to said rules and
regulations as may be made from time to time by Lessor.
27. SURRENDER OF PREMISES: Upon termination of this Lease for any
reason whatsoever, Lessee shall surrender the Premises and keys thereof to
Lessor broom clean and in the same condition as on the Commencement Date,
natural wear and tear only excepted, with all personal property of Lessee
removed therefrom, subject to the provisions of Section 22. If Lessee fails
to remove any personality from the Premises upon the termination of this
Lease, Lessor may dispose of or store the same at its election without
liability to Lessee for loss thereof and Lessee shall be liable to Lessor
for the expense of such removal, disposal and/or storage. Should Lessee
refuse of rail to surrender the Premises upon the expiration of the lease
term or earlier termination thereof, Lessee shall be a tenant at sufferance
and shall pay to Lessor on demand each month a sum equal to double the Base
and Additional Rental due hereunder during such holdover period; provided,
however, that there shall be no renewal of this Lease by operation of law.
28. NOTICES: Any notice, demand, consent, authorization or other
communication (collectively, a "Notice") which either party is required or
may desire to give to or make upon the other party pursuant to this Lease
shall be effective and valid only if in writing, signed by the party giving
such Notice, and hand delivered (upon an officer, general partner or
officer of a general partner of the other party if such party is not an
individual) to the other party or sent by registered or certified mail of
the United States Postal service, return receipt requested, addressed to
the other party as follows (or to such other address or person as either
party or person entitled to Notice may by Notice to the other specify):
To Lessee:
ROBERT W. EDWARDS AND
DENISE A. EDWARDS
3800 North Central Avenue
Suite B-1
Phoenix, Arizona 85012
To Lessor:
PHOENIX CITY SQUARE PARTNERSHIP
c/o MLH INCOME REALTY PERTNERSHIP V
225 Liberty Street
World Financial Center
South Tower, 12th Floor
New York, New York 10080-6112
Attention: Senior Vice President
Portfolio Management
With a copy sent concurrently to:
PHOENIX CITY SQUARE PARTNERSHIP
c/o MLH INCOME REALTY PERTNERSHIP V
225 Liberty Street
World Financial Center
South Tower, 12th Floor
New York, New York 10080-6112
Attention: Senior Vice President
Legal Department
PM REALTY GROUP
100 West Clarendon Avenue, Suite 1710
<PAGE>
Phoenix, Arizona 85013
ATTN: Property Management
Unless otherwise specified, all notices shall be deemed given
when received, but if delivery is not accepted, on the earlier of the date
delivery is refused or the third day after the same is deposited with the United
States Postal Service.
29. BROKER: Lessee covenants, warrants and represents that no broker
except Heiple Real Estate Services, Inc. ("Broker") was instrumental in
consummating this Lease and that Lessee has had no conversations or negotiations
with any broker except Broker concerning the leasing of the Premises. Lessee
agrees to indemnify and hold Lessor harmless against and from any claims for any
brokerage commissions and all costs, expenses and liabilities, including,
without limitation, attorneys' fees and expenses, arising out of any
conversations or negotiations had by Lessee with any broker other than Broker.
30. AFFIRMATIVE WAIVERS: Lessor and lessee hereby waive trial by jury in
any action, proceeding or counterclaim brought by either against the other or
any matter whatsoever arising out of or in any way connected with this lease,
the relationship of Lessor and Lessee, Lessee's use of occupancy of the
Premises, including any claim of injury or damage, and any emergency and other
statutory remedy with respect thereto. Lessee shall not interpose any
counterclaim in any action or proceeding for nonpayment of Base Rental and/or
Additional Rental, other that a compulsory counterclaim.
31. TERMS: "Lessor" as used in this Lease shall include Lessor its
representatives, assigns and successors in title to the Premises. "Lessee"
shall include Lessee, its representatives, and if this Lease shall be validly
assigned or sublet, shall also include Lessee's assignees or sub-lessees, as to
the Premises covered by such assignment or sublease. "Lessor" and "Lessee"
include male and female, singular and plural, corporation, partnership or
individual, as may fit the particular parties, and any other necessary
grammatical changes required to express singular, plural, male female or neuter
as applicable shall be assumed in each case to be fully expressed. The use of
the terms "hereof" , hereunder", "hereinabove" and "herein" shall refer to this
Lease as a whole, inclusive of the Exhibits, except when specifically noted
otherwise..
32. CONTROLLING LAW AND SEVERABILITY: The laws of the State of Arizona
shall govern the interpretation, validity, performance and enforcement of this
Lease. Should any term, covenant, or provision of this Lease or the application
thereof be to any extent invalid or unenforceable, the remainder of this Lease
or the application of such provision to circumstances other than those to which
it is held invalid or unenforceable shall not be affected.
33. SUBMISSION OF LEASE: The submission of this Lease to Lessee for
examination does not constitute an offer to lease, and this Else shall be
effective only upon its complete execution by both Lessor and Lessee. Execution
of this Lease by Lessee and delivery of this Lease Lessor for its execution
shall constitute an offer to lease to Lessor.
34. RELOCATION OF LESSEE: In the event the Premises now or hereafter is
comprised of less than 5,000 square feet of area, Lessor shall have the right,
upon not less than thirty (30) days written notice, to transfer and remove
Lessee from the Premises to any other space of substantially equivalent size and
area in the Building or any other buildings known as Phoenix City Square located
in Phoenix, Arizona. Lessor shall bear the expense of removal as well as the
expense of any renovation and alteration, necessary to make the new premises
conform in arrangement with the premises covered by this Lease.
35. SPECIAL STIPULATIONS: Insofar as the special stipulations attached
hereto as Exhibit "D" and by this reference made a part hereof conflict with any
of the foregoing provisions, the special stipulations shall control.
36. SUBORDINATION AND ATTORNMENT: This Lease, and all rights of Lessee
hereunder, are and shall be subject and subordinate to all leases of the entire
Building and/or the Land now or hereafter existing and to all security deeds
which may now or hereafter affect the Land and/or the Building and to all
renewals, modifications. replacements and extensions of such leases and such
security deeds. While this Section 36 is self-operative and no further
instrument of subordination is necessary, Lessee shall at any time or times,
execute acknowledge or deliver to Lessor or any successor to the title or
interest of lessor any and all instruments requested by either of them to
evidence such subordination at the request of Lessor any successor to the title
or interest of lessor, Lessee shall promptly execute, acknowledge and deliver
any and all instruments necessary to evidence such attornment.
<PAGE>
37. ESTOPPEL CERTIFICATE AND FINANCIAL INFORMATION: Lessee agrees within
fifteen (15) days following request by Lessor:
(a) to execute and deliver to Lessor any documents (including an estoppel
certificate) certifying (I) that this Lease is unmodified and in full force and
effect, or, if modified, stating the nature of such modification (s) and that
this Lease, as so modified, is in full force and effect and the date to which
the rent and other charges are paid in advance, if any, (ii) whether any renewal
or expansion options contained in the Special Stipulations have been exercised,
(iii) the amount of any Security Deposit held by Lessor, (iv) that there are
not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder
(or specifying such defaults if they are claimed) and (v) such other mattress as
may be reasonable requested by Lessor evidencing the status of this Lease;
(b) to deliver to Lessor current financial statements of Lessee including
a balance sheet and a profit and loss statement for at 'least two (2) years, all
prepared in accordance with generally accepted accounting principles
consistently applied, together with an principles consistently applied, together
with an opinion of a certified public accountant, if requested; and
(c) to execute and deliver to Lessor Lessee's written consent to any assignment
by Lessor of this Lease. Lessee's failure to deliver an estoppel certificate
within such time shall be conclusive upon Lessee that (I) this Lease is in full
force and effect without modification except as may be represented by Lessor,
(ii0 to lessee's knowledge, there are not uncured defaults in Lessor's
performance and (iii) no rent has been paid in advance except as set forth in
this Lease.
38.PARKING: (a) Lessee shall have the non-exclusive privilege, in common
with other occupants of the Building, to park vehicles in the parking facility
provided by Lessor, for use by Lessee, its employees, agents, invitees and
licensees, subject, however, to the rights given to other tenants of the
Building, and subject to the rules and regulations propounded by lessor from
time to time. Lessor shall, however, have the right to change the size,
location, elevation and/or nature of the parking area upon 60 days prior
written notice
(b) Lessor reserves the right, at any time and from time to time, to close
temporality all or any portions of the parking area when in Lessor's reasonable
judgment any such closing is necessary or desirable 9a) to make repairs or
changes or to effect construction, (b) to prevent the acquisition of public
rights in such area, (C) to discourage unauthorized parking, or (d) to protect
or preserve natural persons or property. Lessor may remove, at Lessee's expense,
any vehicles which are parked or abandoned in violation of the rules and
regulations propounded by Lessor from time to time.
39. Tax Status: Tenant represents that it is not a tax-exempt organization
as defined under Sec. 401 or Sec. 501 of the Internal Revenue Code of 1986 or a
foreign entity not subject to United States taxation.
IN WITNESS WHEREOF, the parties herein have hereunto set their respective
hands, the day and year first above written.
LESSOR:
PHOENIX CITY SQUARE PARTNERSHIP
By: MLH Property Managers Inc.
Managing General Partner
By: __________________________________
Authorized Representative
LESEE:
ROBERT W. EDWARDS AND DENISE A. EDWARDS,
as husband and wife, jointly and severally
By: _________________________________
Name: ______________________________
(print)
By: _________________________________
(print)
<PAGE>
Exhibit 10(ii)
MCI Telecommunications
Corporation
205 North Michigan Avenue
Chicago, IL 60601
312-856-2121
CARRIER AGREEMENT
T E R M S A N D C O N D I T I O N S
This Carrier Agreement (the "Agreement"), is between MCI
TELECOMMUNICATIONS CORPORATION ("MCI") and FTI, INC. ("Customer""), a resale
common carrier subject to the Communications Act of 1934, as amended by the
Telecommunnications Act of 1996.
1. Scope of Agreement.
(A) MCI shall provide to Customer certain specified domestic interstate
service(s). For domestic interstate and international services, this
Agreement incorporates by reference the terms of MCI Tariff FCC No. 1
("Tariff"), which is on file with the Federal Communications Commission
and which may be modified from time to time by MCI in accordance with law
and thereby affect the service(s) furnished Customer, except that the
following terms and conditions shall supplement or, to the extent
inconsistent, supersede Tariff terms and conditions and shall remain in
effect throughout the Service Term (as defined in Paragraph 8). For
intrastate services, this Agreement incorporates by reference each
applicable state tariff filed by MCI, which may be modified by MCI from
time to time, and thereby affect the service(s) furnished Customer. This
Agreement is entered pursuant to Section 211(a) of the Communications Act
of 1934.
(B) Capitalized terms not otherwise defined in this Agreement shall
have the meanings assigned to them in the Tariff.
2. Monthly Commitment.
(A) Customer's "Monthly Usage" (as defined in this Paragraph 2(a))
shall equal or exceed amounts set forth below ("Monthly Commitment"):
<TABLE>
<CAPTION>
Ramp Period Months Commitment Level
<S> <C> <C>
0 through 3 $0.00
4 through 6 $ 400,000
7 through 9 $ 650,000
10 through 12 $1,000,000
13 through 36 $1,500,000
</TABLE>
During the twelve month ramp-up period ("Ramp Period") Customer shall
receive the $2,000,000 and above Monthly Usage level rates set forth in
Attachment 1. After a twelve (12) month Ramp Period during each monthly
period of the Service Term, Customer's Monthly Usage shall mean
Customer's domestic interstate usage of the MCI services in Attachment 1
(hereinafter "Interstate Services") calculated at the rates set forth in
Attachment 1, but not including any applicable taxes (and gross receipts
taxes) and tax-related surcharges on Interstate Services. Monthly Usage
also includes intrastate usage of the MCI services in Attachment 1 at
standard tariff rates (hereinafter "Intrastate Services"). In addition,
Monthly usage shall be calculated after application of the MCI PRISM I
Service Credit and MCI Toll Free DAL Services Credit in Paragraph 2.(a)2)
and 2.(b)2) in Attachment 1. Interstate Services, International Services
and Intrastate Services are collectively hereinafter "MCI Services". The
rates for all other MCI products and services not explicitly contained
within this Agreement shall be governed by the applicable MCI Tariff or
applicable state tariff.
(B) During each month of the Service Term, if Customer's use of Mci
Services is less than the Monthly Commitment in a month, for that month,
Customer will pay the amount billed plus the difference between the
amount billed and the Monthly ommitment.
<PAGE>
3. Rates and Additional Terms.
Customer shall pay the rates and charges for MCI Services set forth in
the Attachment(s) and Exhibit(s) to this Agreement and agrees to the
additional terms and conditions set forth in such Attachment(s) and
Exhibit(s).
4. Security.
Consistent with Section B-7.04 of MCI Tariff FCC No. 1 and in specific
implementation of such Tariff provision, Customer may be required, as a
condition precedent to receipt of MCI service(s) hereunder, to provide
unconditional letter of credit in a form and from a bank acceptable to
MCI in an amount equal to two (2) month's estimated billing (excluding
charges for TDS 1.5 Service and TDS-45 Service paid in advance). Any
executed letter of credit shall be attached hereto and incorporated by
reference. Customer shall continuously renew any letter of credit as
necessary to keep it in effect during the service term and for a period
of ninety (90) days following the end of the Service Term. In addition,
at MCI's request, Customer shall obtain for MCI an unconditional
guarantee of payment in a form acceptable to MCI from a parent or
affiliated company or a commercial surety, which is acceptable in the
sole discretion of MCI. Nothing contained herein shall limit or be
interpreted to limit MCI's right, as provided for in Section B-7.04 of
MCI Tariff FCC No. 1, to require, in MCI's sole discretion, alternative
or additional security from Customer, and Customer's failure or refusal
to provide such alternative or additional security upon MCI's reasonable
request therefore may result in the cancellation of this Agreement and
Customer's service for cause pursuant to Section B-11.01 of the Tariff.
The security arrangements provided for hereunder shall survive the
expiration of the Service Term, as defined herein, and shall remian in
effect so long as Customer remains a user or has any outstanding balance
due for use of MCI Service(s).
5. Payment.
(A) Customer shall pay MCI for all MCI Service(s) within thirty (30)
days from the date of MCI's invoice therefor. Customer's failure to pay
the invoiced amount in full within said thirty (30) day period may result
in termination of services as provided in Tariff Section B-11.01 and in
the exercise by MCI of its rights under the security provisions contained
in Paragraph 4, immediately above, or in such Paragraph as it may be
amended during the Service Term.
(B) If Customer fails to pay Mci invoiced amounts as required and MCI
notifies Customer that Customer's CNS service will be terminated for non-
payment, Customer agrees to notify, jointly with MCI, endusers of
Customer who received resold MCI Carrier Network Services from Customer,
of the potential disruption of service, by the mailing of a letter,
signed by Customer, to endusers of Customer described above, containing
the following language:
Dear Customer Enduser:
Customer's provision of long distance service to you and our other
customers will terminate within two (2) weeks of the date of this letter.
This letter is being sent to you as a courtesy so that you can make the
necessary arrangements so that you do not experience a disruption of your
communications services. You have a choice of long distance carriers. If
you have any questions, please contact Customer (representative and
telephone number) or your local telephone company.
Sincerely,
Customer
Notwighstanding notice of termination, Customer further agrees that it
will remain responsible for all charges incurred during the period
following transmission of the above-referenced notification and prior to
the actual termination of the service by MCI. In addition, Customer
agrees to maintain customer service for at least a two week period
following transmission of the above-referenced notification.
6. Dispute Resolution.
<PAGE>
Except as otherwise provided herein, any claims arising out of or related
to this Agreement, shall be made within one hundred and twenty (120) days
of their occurrence. If such claims cannot be resolved by negotiation,
they shall be settled by binding arbitration in accordance with the rules
contained in MCI Tariff FCC No. 1 ("Arbitration Rules"). Neither party
may seek injunctive relief of any kind prior to the confirmation of an
arbitration award, except that MCI may seek injunctive relief against
Customer for violation of Paragraphs 19(a)1),2),3) and 4), herein. Any
claims made after one hundred and twenty (120) days of the occurrence
giving rise to such claims shall be barred.
7. Termination for Insolvency.
In the event Customer becomes or is declared insolvent or bankrupt, is
the subject of any proceedings related to its liquidation, insolvency or
for the appointment of a receiver or similar officer for it, makes an
assignment for the benefit of all or substantially all of its creditors,
or enters into an agreement for the composition, extension, or
readjustment of all or substantially all of its obligations, MCI may, by
giving seven (7) business days written notice thereof to Customer,
terminate this Agreement without liability of obligation, in whole or in
part, as of a date specified in such notice of termination.
8. Term.
The Service Term ("Service Term") shall begin on the first day of the
first full month following execution of this Agreement by both parties
("Effective Date") and will continue for a period of thirty six (36)
months therefrom. The first twelve (12) months of the Service Term shall
be the Ramp Period.
9. Expiration of Term.
Upon expiration of the Service Term, Customer shall be fully
subject to all the terms and conditions, including standard tariff rates,
set forth in the Tariff and respective state tariffs for MCI Service(s)
received by Customer after such expiration.
10. Termination Liability.
If Customer terminates this Agreement before expiration of the
Service Term, or MCI terminates this Agreement before expiration of the
Service Term for Customer's breach, Customer will pay MCI within thirty
(30) days of the effective date of such termination an amount equal to
fifteen percent (15%) of the aggregare of Customer's remaining Monthly
Commitment for each month remaining in the Service Term after termination
(and a pro rata portion thereof for any partial month) and will repay MCI
the credits received pursuant to the Attachment(s) and Exhibit(s) of this
Agreement, including but not limited to Paragraph 3 of Attachment 1.
11. Nondisclosure.
Customer shall not disclose to any third party during this
Agreement, or during the three (3) year period thereafter, any of the
terms and conditions set forth in this Agreement unless such disclosure
is lawfully required by any federal governmental agency or is otherwise
required to be disclosed by law or is necessary in any proceeding
establishing rights and obligations under this Agreement. MCI reserves
the right to terminate this Agreement immediately upon delivering written
notice to Customer of any unpermitted third party disclosure hereunder.
12. Notices.
All notices, reports and other communications pursuant to or in
connection with this Agreement shall be given by personal delivery,
registered or certified mail (return receipt requested), or courier
service. All such communications shall be adressed to the respective
party at its address shown below:
If to MCI: If to Customer:
MCI Telecommunications Corporation _________________________
05 N. Michigan, Suite 3000 _________________________
Chicago, IL 60601 _________________________
ATTN: Business Markets, ATTN: _________________________
Legal Affairs
<PAGE>
cc: MCI Account Team
_________________________________
_________________________________
_________________________________
ATTN: ___________________________
13. Letter of Agency.
Customer shall appoint MCI as its agent in the Letter of Agency attached
hereto and incorporated herein as Attachment 3 to this Agreement.
14. Surcharge Exemption.
When applicable, Customer shall certify that any special access
lines used in connection with services under this Agreement terminate in
a device not capable of interconnecting MCI's service with the local
exchange network and are surcharge exempt from the special access
surcharge.
15. Tax Exemption.
When applicable, Customer shall certify that it is exempt from federal,
state, and/or local taxes.
16. Governing Law.
This Agreement, including all matters relating to the validity,
construction, performance and enforcement thereof, shall be governed by
the laws of the State of New York without giving reference to its
principles of conflicts of law, except to the extent the Communications
Act of 1934, as amended, and as interpreted and applied by the Federal
Communications Commission, applies.
17. Assignment.
This Agreement shall be binding on Customer and its respective
successors and assigns. Customer may not assign this Agreement, whether
by operation of law or otherwise, without the prior written consent of
MCI, such consent shall not be unreasonably withheld, and any unpermitted
attempted assignment shall be void. MCI may terminate this Agreement
without liability on ten (10) business days written notice in the event
that Customer undergoes a merger involving a change of control, or
divests itself of all or a substantial portion of its telecommunications
business or undergoes a change of more than fifty percent (50%) of its
ownership or management, or leverage or sale occurs involving more than
fifty percent (50%) of Customer's assets or Customer's base.
18. No Waiver.
No waiver of any of the provisions of this Agreement shall be
binding unless it is in writing and signed by both parties. The failure
of either party to insist on the strict enforcement of any provision of
this Agreement shall not constitute a waiver of any provision and all
terms shall remain in full force and effect.
19. Carrier Network Service.
(A) In order to be eligible to purchase MCI Carrier Network Services
(hereinafter "CNS"):
(1) Except in areas where service origination is not available
from access providers via a Carrier Identification Code ("CIC"), Customer
must originate all CNS switched outbound traffic and all CNS operator
services traffic via ANI's PICed to Customer's own CIC. Ustomer shall pay
all charges associated with the installation and routing of Customer's
CIC in all Local Exchange Carrier ("LEC") end offices. MCI requires at
least sixty (60) days prior written notice to deactivate or change the
translation for sub CIC rout8ing at any end office and/or tandem. MCI
must handle all Authorized Service Requests (ASRs) submitted to the
appropriate LEC(s) for MCI's CNS. In
<PAGE>
addition, Customer shall be financially responsible for payment of all
fees charged by the local exchange carrier related to the ASRs submitted
to modify the sub-CIC routing and migrate traffic to or from MCI's
network.
(2) Customer shall comply with Section 64.1100 of the FCC's Rules and
Regulations, as well as other applicable laws or regulations pertaining
to the sale and delivery of telecommunications service(s) to Customer's
customers. MCI shall not be liable to Customer's customers for any claim,
liability or expense asserted by those customers in connection with
Customer's sale or delivery of such service(s), including the
unauthorized conversion of a customer's Primary Interexchange Carrier
("PIC") designation to Customer's CIC. In the event Customer violates any
FCC or other applicable law or regulation pertaining to the sale or
delivery of Customer's service(s), MCI may terminate this Agreement on
not less than five (5) days written notice. In addition, Customer shall
indemnify and hold MCI harmless from any actions, claims, suits or
damages arising out of Customer's violation or alleged violation of any
FCC or other applicable law or state regulation, and Customer shall pay
all attorney fees and costs incurred by MCI in connection with such
actions, claims, suits or damages.
(3) Customer agrees that it will obtain and maintain any and all
approvals to resell MCI Carrier Network Service hereunder from the FCC,
including requirements imposed by Section 214 of the Communications Act
of 1934, as amended, and state regulatory bodies. In the event Customer
fails to obtain or maintain the appropriate approvals, Mci shall not be
liable for any delay or failure to provide CNS.
(4) Customer agrees to sell and bill MCI Carrier Network Service under
its own name, identity or mark, and Customer further agrees not to
reference MCI's name or marks in any context involving its furnishing of
service(s) to the public. If any violation occurs during the Service Term
of this Agreement, MCI may invoke the termination provisions of Paragraph
19(b). In reselling MCI Services under this Agreement, Customer will
observe the highest standard of integrity and fair dealing with members
of the public. Furthermore, Customer agrees to indemnify MCI for any
actions, claims, suits or damages arising out of any allegation that if
proved would cause Customer to be in breach of this provision and
Customer shall also pay all attorney's fees and costs incurred by MCI due
to any actions, claims, suits or damages arising out of such allegation.
(5) Except as set forth in Paragraph 5 herein, Customer shall have sole
responsibility for interacting with its customers in all matters
pertaining to service, including the placing and handling of service
orders, service installation, PIC provisioning, operation and collection
matters. MCI shall incur no obligation, nor shall it be deemed to have
any obligation, to interact with Customer's customers necessary to
address and resolve service-related issues and problems and shall impose
upon its customers an obligation to cooperate, with Customer in
addressing and resolving service-related issues and problems.
(b) Without limitation, if Customer fails to abide by the
requirements in Paragraph 19(a) above, such failure shall be
regarded as a material breach of this Agreement and MCI may
terminate this Agreement of five (5) business day swritten notice.
(c) Customer agrees that MCI may use an appropriate internal MCI
database to determine Working Telephone Number ("WTN") historical
data regarding MCI and non-MCI PICs and Customer understands that
such systems are not error free. MCI will not be liable to Customer
for errors made in determining WTN in reliance on information
contained in the internal MCI system.
(d) Customer understands and accepts that, as part of MCI's
normal business policy and practices and its obligations under law,
MCI will engage in extensive marketing efforts in attempt to sell
its services to the public and that such efforts will result in
active competition with Customer for the business of users who are
Customer's customers or prospects. Accordingly, Customer further
understands and accepts that such competition by MCI is in all
respects fair and proper and that Customer shall not complain, nor
be heard to complain, of business lost to MCI. Under no
circumstance shall any interference be derived that MCI's entry
into this Agreement with Customer means that MCI will restrict its
efforts to compete against Customer in any way.
(e) Customer understands and accepts that no fiduciary
relationship arises by virtue of this Agreement and that,
accordingly, MCI incurs none of the obligations that arise in such
relationship as an incident of its fulfilling its obligations under
this Agreement. Further, Customer understands and accepts and MCI
is not an insurer of profits fur Customer, nor does MCI guarantee
the success of Customer's business as a result of Customer's
receipt of service(s) under this Agreement.
<PAGE>
(f) Customer agrees that if its enduser makes a call using 10XXX or 1+
access utilizing Customer's CIC, from an ANI which Customer did not
provide to MCI to enter into MCI's Billing and Order Entry systems, MCI
will bill the call through the LEC at MCI Tariff or applicable state
tariff rates, and MCI's name will appear as the service provider on the
LEC invoice. Furthermore, Customer agrees its sales and marketing
channels will only market 10XXX access as a dialing option from ANIs that
the enduser had PIC's to the Customer's CIC, in areas where the Customer
CIC is pointed to MCI for termination.
(g) Customer shall receive Call Traffic Records pursuant to Exhibit B
of this Agreement.
20. ANI Reporting Responsibilities.
On or before the thirtieth (30th) day after the close of the
billing cycle, MCI will provide Customer with a list of ANIs, including
traffic minutes and number of calls associated with ANIs associated with
Customer's CNS Account ("MCI Active ANI List"). If Customer has not
received the MCI Active ANI List within thirty (30) days after the close
of the billing cycle, Customer must immediately notify MCI. Within thirty
(30) days after Customer's receipt of the MCI Active ANI List, Customer
shall provide to MCI, in writing, with a report ("Customer ANI Report")
of all ANIs in the billing cycle covered by the MCI Active ANI List that
were either: (1) ordered by Customer to be added by MCI to the Customer's
account, but which were not added to Customer's CNS Acount; or (2) on the
MCI Active ANI List but which Customer had requested be deleted; or (3)
experienced zero (0) or significantly reduced usage, but which were
suspected to have no reductions in usage. Customer shall provide MCI with
documentation establishing the ordering and deletion of each ANI
contained in the Customer NAI Report. For any ANI not timely included by
Customer in the Vustomer ANI Report: (1) Customer shall be liable to MCI
for charges associated with said ANI; and (2) MCI shall not be liable to
Customer for any costs, claims or damages resulting from failure to
implement Customer's directions with respect to said ANI.
21. Detention Facilities.
In order to be eligible for use of MCI Carrier Network Services in
conjunction with the providion of communications services to any
detention facility, including, but not limited to, any local, state or
federal prison:
(a) Customer shall provide MCI provide MCI prior written notice
on each occasion that Customer subscribes to CNS at a detention facility.
Notice to MCI shall be provided at:
MCI Telecommunications Corporation
MCI Carrier Finance Manager
Six Concourse Parkway
Atlanta, GA 30328
(b) Customer agrees after the Effective Date of this Agreement,
but not more than once semi-annually, MCI may request, and Customer shall
promptly provide to MCI in writing or in a machine readable format as
specified by MCI, Customer's records, data and invoices pertaining to
Customer's total long distance telecommunications usage for each Customer
detention facility end-user for the most recent six (6) month period
preceding the request.
(c) MCI in its sole discretion and consistent with Section B-7.04
of MCI Tariff FCC No. 1 and in specific implementation of such Tariff
provision, may require Customer, as a condition precedent to receipt of
MCI Carrier Network Service to detention facilities as defined above, to
provide within ten (10) days of executing this Agreement, or any time
thereafter, a cash deposit or letter of credit in a form acceptable to
MCI in an amount equal to up to three (3) month's estimated billing. Any
executed letter of credit shall be attached hereto and incorporated by
reference. Customer shall continuously renew any letter of dcredit as
necessary to keep it in effect during the service term.
(d) Notwithstanding any other provisions of the Tariff, Customer
shall remain responsible for payment of all charges for services
furnished to Customer, which responsibility is not changed by virtue of
any use, misuse, or abuse of Customer's service or Customer-provided
systems, equipment, facilities or
<PAGE>
service interconnected to Customer's service, which use, misuse or abuse
may be occasioned by third parties including without limitation,
Customer's employees or other members of the public.
(e) Customer will comply with applicable federal, state and local
laws and regulations, including without limitation, laws and regulations
relating to operator service as they pertain to detention facilities
during the term of this Agreement.
22. Entire Agreement; Amendments.
This Agreement shall be valid only if signed by Customer y July 31,
1996. Any and all, prior or contemporaneous offers, agreements,
reprsentations and understandings made to Customer, whether written or
oral, are hereby superseded. Exclusive of any Tariff or state tariff
modifications initiated by MCI, once this Agreement has been executed,
any amendments hereto must be made in writing and signed by both parties.
IN WITNESS WHEREOF, the parties hereto each acting with proper authority
have executed this Agreement.
MCI TELECOMMUNICATIONS CORPORATION
By: ________________________________________
Print Name:__________________________________
Title: _______________________________________
Date: _______________________________________
FTI INC.
By: ________________________________________
Print Name:__________________________________
Title: _______________________________________
Date: _______________________________________
<PAGE>
EXHIBIT 10(JJ)
I-LINK WORLDWIDE INC.
WEALTHNET INCORPORATED
STRATEGIC MEMBER RESELLER AGREEMENT
THIS STRATEGIC MEMBER RESELLER AGREEMENT is made and entered into this 31st
day of January, 1997, to be effective as of the 1st day of January, by and
between I-LINK WORLDWIDE INC. ("I-Link"), a Utah corporation located at 65 East
Wadsworth Park Drive, Draper, UT 84020, and WEALTHNET INCORPORATED
("WealthNet"), a Utah corporation located at 4710 East Falcon Drive, Suite 117,
Mesa, Arizona 85215.
WHEREAS, I-Link is a provider of telecommunications services (the
"Services") and products (the "Products"); and
WHEREAS, WealthNet is an organization that seeks to provide various
services and products to people who join its organization as members (the
"Members"); and
WHEREAS, WealthNet desires to secure the right to market and sell to its
Members I-Link's Services and Products; and
WHEREAS, I-Link is willing to appoint WealthNet a Strategic Member Reseller
for such purpose upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. LICENSE AND APPOINTMENT. Subject to the terms and conditions herein set
forth, I-Link hereby grants WealthNet the non-exclusive right and license
to market and sell, as an authorized Strategic Member Reseller the I-Link
Services and Products.
2. DIVISION OF RESPONSIBILITIES. WealthNet shall provide all data entry
services and shall timely provide the same to I-Link. I-Link shall provide
all provisioning, tariffing, negotiating and securing LEC agreements,
billing and collection services, status tracking, accounting and reporting,
and, at the expense of WealthNet as set forth below, customer service and
support. I-Link shall dedicate and train a team of its employees to
uniquely work with WealthNet and its Members on all issues of provisioning,
customer service, billing and collecting (the "I-Link WealthCom Team"). To
cover these services, I-Link shall be entitled to receive the sum of $2.00
per month per provisioned Member (the "MRC Fee") from the monthly recurring
charge that will be billed to each Member on behalf of WealthNet. The
staffing, performance and quality of the I-Link WealthCom Team shall be
reviewed on a monthly basis by the parties. As the number of Members
grows, additional I-Link personnel and resources shall be added to the I-
Link WealthCom Team as reasonably required to adequately perform the
WealthCom services. WealthNet shall, at its expense, designate one of its
employees as a supervisor to work with the I-Link WealthCom Team, and I-
Link shall make office facilities
<PAGE>
available to such supervisor. In order to facilitate "real-time"
communication between the I-Link WealthCom Team and WealthNet, I-Link
shall, at WealthNet's expense and subject to WealthNet's approval, install
and maintain a high-speed telecommunications line linking I-Link and
WealthNet. The parties shall agree upon mutually acceptable policies and
procedures relating to billing adjustments.
3. TERMS AND CONDITIONS OF SALE. It is agreed that I-Link shall sell the
Services and Products to WealthNet solely upon the following terms and
conditions:
3.1 SERVICE RATES/PRODUCT PRICES. I-Link shall sell to WealthNet its
Services and Products at the rates and prices set forth on Exhibit 3.1
attached hereto and made a part of this Agreement. In the event I-Link
deems it necessary to increase the rates and/or prices set forth on
Exhibit 3.1, I-Link shall provide WealthNet written notice of such
intended price increase. During the ninety (90) day period following
such written notice, I-Link and WealthNet shall negotiate new rates
and/or pricing. In the event the parties shall be unable to reach
agreement on the new rates and/or pricing at the end of such ninety
(90) day period, each party shall have the right to terminate this
Agreement.
3.2 RESALE OF SERVICES AND PRODUCTS. WealthNet shall be free to determine
the price, terms, and conditions of sale surrounding the resale of the
Services and Products to WealthNet's Members, provided that WealthNet
shall not undertake any activities that would result in harmful
pricing practices to the market.
3.3 APPLICATIONS FOR SERVICES AND PRODUCTS. WealthNet shall submit
Applications for Services and/or Products ("Applications") to I-Link
for the Services and Products needed for WealthNet's Members. All
Applications for Services and Products shall be sent by electronic
transmission, fax or mail directly to I-Link, and shall include all
relevant information necessary to process the Application and
provision the Member. Applications shall be subject to acceptance by
I-Link and shall not be binding on I-Link until so accepted. I-Link
shall have the right to reject the provision of Services and/or
Products to any Member that fails to meet I-Link's established written
creditworthiness requirements provided to WealthNet. Notwithstanding
the exclusivity provisions contained in Section 5 below, WealthNet
shall be permitted to provision any Member whose Application is
rejected by I-Link with another long-distance carrier. In the event
of a conflict between the terms of this Agreement and any Application
submitted to I-Link, the terms of this Agreement shall govern.
3.4 SHIPMENT OF PRODUCTS. All Products shall be sold to WealthNet F.O.B. I
Link's facility and shall be shipped directly to WealthNet's Members,
as designated in the purchase orders. Upon the placement of the
Products with a common carrier,
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<PAGE>
the title and all risk shall pass to WealthNet. WealthNet acknowledges
that it is the Members' responsibility to pay to I-Link all and any
tariffs, taxes, duties, levies, and any other fee or charge associated
with the transportation of the Products. Although the Members shall
pay to I-Link for all costs associated with the transportation and
insurance of the Products, I-Link shall arrange for such
transportation and insurance of the Products. I-Link shall, at the
Members' expense, take such steps as may be required to satisfy any
laws or requirements with respect to declaring, filing, recording, or
otherwise rendering this Agreement valid.
3.5 INVOICING AND COLLECTION. WealthNet shall require each of the Members
to secure payment for Services and Products by means of a credit card
authorization, automatic bank account withdrawal authorization, and/or
a cash deposit in an amount to be determined by the parties. I-Link
shall invoice and collect payment from the Members purchasing the
Services and Products. All invoices sent by I-Link to the Members for
Services and Products shall be due net twenty (20) days from the date
of invoice. Unpaid invoices over twenty (20) days may be assessed a
late fee equal to 1.5% per month (18% APR). Invoices unpaid after
thirty (30) days may be submitted for collection seven (7) days after
notice to the Member, and I-Link may terminate a Member's subscription
in accordance with the provisions governing termination in the Member
subscription agreement. Members shall be responsible for any costs
incurred by I-Link in collecting any amount payable, including costs
of court and reasonable attorneys' fees. Notwithstanding the
exclusivity provisions contained in Section 5 below, WealthNet shall
be permitted to provision any Member terminated by I-Link with another
long-distance carrier.
3.6 ALLOCATION OF MEMBER REVENUES. All revenues collected from the Members
arising from the Services and Products shall be paid into a lock-box
account maintained by a third-party financial institution acceptable
by both parties (the "Bank"). The parties shall jointly instruct and
authorize the Bank to make disbursements from the lock-box account as
often as practicable based upon billing cycles and collections
received. All such disbursements shall be made according to the
following allocation:
(a) to I-Link in the amount of all amounts payable for taxes to
local, state and federal authorities arising from the collected
Member revenues, and any PIC fees arising under Section 4 below,
(b) the balance according to the Schedules set forth in Exhibit
3.6(b) attached hereto and made a part of this Agreement.
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<PAGE>
In the event I-Link is required either (i) as a result of non-payment
by Members of accounts receivable in a timely manner, or (ii) by an
independent third-party provider (such as, but not limited to, MCI) to
direct the collection and disbursement of Member revenues through a
factoring provider or other collection facilitator (a "Collector"), I-
Link shall cause such Collector to distribute directly to WealthNet,
at such times as funds are distributable from the Collector to I-Link,
the portions payable to WealthNet set forth above, subject to the
percentage discount payable to such Collector on a pro-rata basis.
3.7 CHANGES OR DISCONTINUANCE. I-Link reserves the right during the term
of this Agreement either to vary or to discontinue the production,
sale, or distribution of any of its Services or Products upon ninety
(90) days prior written notice to WealthNet. During such ninety (90)
day notice period, WealthNet shall be entitled to terminate the
Agreement if the variance or discontinuation of the production, sale
or distribution of the Service or Product constitutes a material
alteration of the Services and/or Products. I-Link shall incur no
liability to WealthNet or the Members by reason of any such change
and/or termination.
3.8 LONG-DISTANCE CARRIER. I-Link shall be entitled to provide its
Services to the Members by means of whichever long-distance carrier or
carriers as it shall determine are best suited for the provision of
its Services; provided, however, that I-Link shall comply with all
applicable federal and state regulations governing the establishment
or switching of long-distance carrier service when and where required.
3.9 MEMBER COMMUNICATIONS. Because of WealthNet's status as a member
organization, and because of I-Link's designation as the Members'
long-distance carrier, both WealthNet and I-Link shall be entitled to
make use of all lists of Members and to communicate with Members with
respect to the Services and Products, both during the term of this
Agreement and thereafter; however, it is agreed that during the
duration of this Agreement all primary communications with the Members
shall be either through the I-Link WealthCom Team or WealthNet and any
communication with the Members by I-Link during the term of this
Agreement shall be limited to the fulfillment of I-Link's
responsibilities under this Agreement.
4. PROVISIONING. I-Link shall use all diligence to provision the Members in a
timely manner. I-Link shall provide WealthNet real-time access to all
provisioning status information. Attached to this Agreement as Exhibit 4
is a listing of the geographic areas the parties agree I-Link (through FTI
Communications, Inc.) is currently unable to adequately provision Members.
Until such time as I-Link is able to provision within a given Exhibit 4
geographic area, WealthNet shall be permitted to provision Members
4
<PAGE>
within such non-provisionable Exhibit 4 geographic area with other long-
distance carriers. At such time as I-Link is able to adequately provision
Members within a given Exhibit 4 geographic area, WealthNet shall no longer
provision new Members with other carriers within such area, and shall cause
all Members provisioned with other carriers within such area to be re-
provisioned to I-Link or its designated long-distance carrier. At such time
as I-Link's proprietary telecommunications network (the "I-Link Network")
is operational, the Members shall bear the cost and be invoiced for any PIC
fees required to be paid in switching the Members from the then current
long-distance carrier to the I-Link Network.
5. EXCLUSIVITY. Other than as provided in Section 4 above, for a period of
one (1) year from the date of this Agreement WealthNet shall cause all of
its Members utilizing a long-distance carrier through WealthNet/WealthCom
to be provisioned with I-Link or its designated long-distance carrier. If,
during this one-year exclusivity period, I-Link is unable to provision any
Member within four (4) weeks from the date of initial submission to I-Link
of the Member Application, WealthNet shall be entitled to provision such
Member with another long-distance carrier, regardless of the geographic
area. Except as provided above, during the exclusivity period, WealthNet
shall not cause any of the Members to be diverted to another long-distance
carrier.
6. MARKETING AND PROMOTION. During the 1-year exclusivity period, WealthNet
shall use reasonable and good faith efforts to promote and market the
Services to its Members and solicit Members as subscribers for the Services
and Products. WealthNet shall at all times identify I-Link (or its
designated long-distance carrier) as the service provider with respect to
the Members utilizing the Services. WealthNet shall use only I-Link
approved subscription agreements and forms, and enrollment or activation
procedures in soliciting Member Applications. WealthNet shall offer the
Services and Products only to those Members who meet I-Link written
creditworthiness requirements. WealthNet shall take all reasonable steps to
confirm the accuracy of information obtained from Members pursuant to such
forms and procedures. WealthNet shall have no right, power, or authority
to make any representations or warranties regarding the Services and
Products except as expressly approved by I-Link.
7. BUSINESS CONDUCT. In all dealings related to this Agreement and the
providing, marketing and sale to the Members of the Services and Products,
the parties and their principals, employees and Members shall be governed
by the highest standards of honesty, integrity, fair dealing, and ethical
conduct. The parties and their principals, employees and Members shall not
engage in any form of business practice or advertising that is unethical or
inconsistent with high community standards or that would reflect negatively
upon the other party or the Services and Products. Conduct amounting to a
breach hereof includes, but is not limited to: (i) business practices,
promotions, and advertising which may be injurious to the business goodwill
of the other party, (ii)
5
<PAGE>
falsification of any business records, or (iii) misrepresentations to the
other party or to any actual or potential subscriber. Each party shall be
fully responsible for all acts and omissions of its principals, employees
and Members, and shall require that such persons comply with all terms of
this Agreement. A breach by any of either party's principals or employees
of any of the terms of this Agreement shall be considered a breach by that
party and shall entitle the other party to pursue all such rights and
remedies it may have under the Agreement or under the law. A breach by any
Member of the terms of this Agreement such that the damage to I-Link
resulting from such breach cannot adequately be remedied within a sixty
(60) day cure period shall be considered a breach by WealthNet and shall
entitle I-Link to pursue all such rights and remedies it may have under
Section 12 of the Agreement. I-Link shall have the right to terminate the
subscription of any Member who materially breaches any term of this
Agreement. Each party shall promptly report to the other party in writing
all violations of the Agreement by any of its principals, employees or
Members.
8. CONFIDENTIALITY. As used in this Agreement, "Confidential Information"
means all information, not generally known to the public, that relates to
the business, technology, subscribers, finances, plans, proposals, or
practices of I-Link or WealthNet, respectively, and it includes, without
limitation, the identities of all subscribers and prospects, all business
plans and proposals, all marketing plans and proposals, all technical plans
and proposals, all research and development, all budgets and projections,
all non-public financial information, and all information I-Link or
WealthNet designates as "confidential." All Confidential Information will
be considered trade secrets of I-Link and WealthNet, respectively, and
shall be entitled to all protections given by law to trade secrets.
"Confidential Information" shall apply to every form in which information
shall exist, whether written, film, tape, computer disk, or other form of
media. The parties covenant and agree that, both during the term of this
Agreement and at all times thereafter, each of them and their principals
and employees and any successor entity, shall not use or disclose to any
person, firm, corporation or other business entity any Confidential
Information of the other, shall not in any other way publicly or privately
disseminate any Confidential Information of the other, and shall not help
anyone else to do any of these things. Upon termination of this Agreement,
all Confidential Information of the other party in the possession of a
party, its principals or employees or any successor entity (originals and
all copies) shall be promptly returned to the other party. Each party shall
be responsible for ensuring compliance with this paragraph by its
principals, employees and agents.
9. RECORDS. Both parties agree to maintain at their principal place of
business, for four years or for the period legally required from the date
of their preparation, whichever is longer, complete and accurate records of
their business conducted pursuant to this Agreement. Upon reasonable
notice, I-Link shall be entitled to full access to all records
6
<PAGE>
of WealthNet, and WealthNet shall be entitled to full access to all records
of I-Link pertaining to the Services and Products provided to the Members.
10. SERVICE MARKS, TRADEMARKS AND TRADENAMES. I-Link shall immediately cause
FTI Communications, Inc. ("FTI") to amend all federal and state tariff and
long-distance carrier applications and filings it has made to change the
name "WealthCom" to another name not incorporating the word "Wealth." Upon
completion and effectiveness of these amendments, I-Link shall cause FTI to
assign to WealthNet all d/b/a filings of the name "WealthCom", together
with all state and/or federal trademark/tradename/service name applications
and registrations. It is the intent of the parties that once the name
"WealthCom" becomes disassociated with FTI by virtue of the amendment of
federal and state tariff and long-distance applications and filings, the
name and mark "WealthCom" shall be wholly owned and controlled by
WealthNet. Subject to the foregoing, the parties understand and
acknowledge that the rights to use all service marks, trademarks and trade
names of each party (collectively, the "Marks") are the property of that
party, and the other party shall not use any of the other party's Marks
without the other party's specific prior written approval. Each party
shall comply with all rules and procedures pertaining to use of the other
party's Marks. Any unauthorized use of the Marks of one party, by the
other party or its principals or employees, shall constitute infringement
of the first party's rights and shall constitute a material breach of this
Agreement. Each party acknowledges that it has no rights in or to the
Marks of the other party except as provided herein and shall not acquire
any rights in the other party's Marks or expectancy to their use as a
result of any use of the Marks. Following the termination of this
Agreement, each party shall immediately discontinue use of any of the other
party's Marks.
11. DEFAULT. The following events and occurrences shall constitute "defaults"
of this Agreement:
(a) Any material breach by either party of this Agreement which is not
fully cured within sixty (60) days after written notice of default is
sent by the other party.
(b) The conviction or a plea of guilty or nolo contendere to any felony
offense or to any misdemeanor offense involving dishonesty,
embezzlement or theft by either party or their respective executive
officers; or
(c) Subject to a ninety (90) day cure period, the insolvency of either
party, either party becoming the subject of a petition in bankruptcy,
the appointment of a receiver for either party's business, or the
entry by either party into any arrangement with or assignment for the
benefit of creditors.
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<PAGE>
12. TERM AND TERMINATION. Subject to the termination of the exclusivity
obligation as provided in Section 5 above, this Agreement shall remain in
force for a three (3) year term commencing as of the date stated on the
first page of this Agreement, unless sooner terminated under the terms
herein. The Agreement shall automatically renew for additional one-year
terms unless either party gives the other party written notice of its
intent not to renew at least One Hundred Twenty (120) days prior to the
termination of the then current term. In the event of a default (as
defined in Section 11 above) by a party, this Agreement may be immediately
terminated by the non-defaulting party upon the sending of a written notice
of termination. In the event I-Link's acquisition of FTI is either not
ultimately consummated or rescinded, I-Link shall have the right to
identify another long-distance carrier to provision the Members and
renegotiate new pricing of the Services with WealthNet. In the event the
parties are unable to agree on new pricing within ninety (90) days, either
party shall be able to terminate this Agreement without liability to the
other party, other than for collected Member revenues to be allocated as
provided in Exhibit 3.6; provided, however, that no such termination shall
relieve I-Link and/or FTI from their obligations under Section 10 with
respect to the "WealthCom" name, so long as WealthNet shall take no action
to hinder the collection by I-Link and/or FTI of any bona-fide accounts
receivable owed by the Members.
13. CROSS INDEMNIFICATION. In the event any willful misconduct or negligent
act or omission of either party or its principals employees, agents or
authorized representatives causes or results in (a) loss, damage to, or
destruction of property of the other party or third parties, and/or (b)
death or injury to persons including, but not limited to, employees or
invitees of either party, then such party shall indemnify, defend, and hold
the other party harmless from and against any and all claims, actions,
damages, demands, liabilities, costs, and expenses, including reasonable
attorney's fees and expenses, resulting therefrom. The indemnifying party
shall pay or reimburse the other party promptly for all such loss, damage,
destruction, or injury.
14. LIMITATION ON LIABILITY.
14.1 IN NO EVENT, WHETHER BASED IN CONTRACT OR TORT (INCLUDING NEGLIGENCE)
SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INCIDENTAL,
CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND OR
FOR LOSS OF REVENUE OR PROFITS, LOSS OF DATA, LOSS OF BUSINESS OR
OTHER FINANCIAL LOSS OR COSTS ARISING OUT OF OR IN CONNECTION WITH THE
SALE, INSTALLATION, USE, PERFORMANCE, FAILURE OR INTERRUPTION OF THE
PRODUCTS AND/OR SERVICES PURCHASED AND PROVIDED PURSUANT TO THIS
AGREEMENT.
8
<PAGE>
14.2 I-Link's liability to any person whatsoever, other than WealthNet, its
principals, employees, agents or authorized representatives, arising
out of or in connection with any sale, use or other employment of any
Products or Services provided to WealthNet and/or its Member
hereunder, whether such liability arises from any claim based upon any
contract, warranty, tort or otherwise, shall in no case exceed the
actual amount paid to I-Link for Services and Products delivered
pursuant to this Agreement.
15. NOTICES. All notices given pursuant to this Agreement shall be in writing
and addressed as set forth below. Addresses may be modified at any time by
written notification to the other party. Any such notice or other
communication shall be deemed given and effective when delivered personally
or by fax or three (3) days after the postmark dated if mailed by certified
or registered mail, postage prepaid, return receipt requested.
If to WealthNet If to I-LINK
4710 East Falcon Drive 13751 S. Wadsworth Park Dr.
Suite 117 Suite 200
Mesa, AZ 85215 Draper, UT 84020
Attention: Terry L. Lambert Attention: Karl S. Ryser, Jr., CFO
Fax: (602) 641-2628 Fax: (801) 576-4295
16. INDEPENDENT CONTRACTOR STATUS. This Agreement is intended to secure the
marketing and promotional activities of WealthNet as an independent
contractor. This Agreement shall in no way be construed as, nor is it
intended to appoint WealthNet as a legal representative of I-Link or to
create a partnership, joint venture, or other joint interest between
WealthNet and I-Link. Except as expressly provided herein, neither party
has any right or authority to act for or on behalf of the other, or to
assume or to create any obligation or responsibility, express or implied,
on behalf of or in the name of the other in any manner whatsoever without
the express written approval of the other.
17. FORCE MAJEURE. Any delay in or failure of performance by either party
under this Agreement (other than payment obligations) shall not be
considered a breach of this Agreement and shall be excused if and to the
extent it is caused by any occurrence beyond the reasonable control of the
party affected, including, but not limited to: acts of God or the public
enemy; fire; flood; embargoes; governmental restrictions; strikes or labor
difficulties; riots; wars or other military action; civil disorders;
shortages of labor, fuel, power, materials, supplies or transportation; or
delays in deliveries by suppliers. The affected party shall use reasonable
commercial efforts to mitigate or eliminate the cause of such delay or its
effects. The affected party shall notify the other
9
<PAGE>
in writing promptly of any failure or delay in, and the effect on, its
performance under this Agreement.
18. ADMINISTRATIVE PROVISIONS.
18.1 AMENDMENTS. The provisions of this Agreement may not be amended,
altered, or waived, in whole or in part, except by the written consent
of both parties.
18.2 ASSIGNMENT; SUCCESSORS AND ASSIGNS. It is hereby agreed that this
Agreement is personal to each party and that neither party shall
assign, sell, license, or otherwise transfer to any person or entity,
any of the obligations, responsibilities, rights, privileges, and
interests which are set forth and established by this Agreement
without obtaining the prior written consent of the other party, which
consent shall not be unreasonably withheld. In the event of a
permitted assignment hereunder, this Agreement shall be binding on,
and shall inure to the benefit of, the parties to it and their
respective successors, and assigns.
18.3 WAIVER. The failure of either party at any time to require performance
by the other party of any provision hereof, shall in no way affect the
full right to require such performance at any time thereafter. Nor
shall the waiver by either party of a breach of any provision hereof
be taken or held to be a waiver of any succeeding breach of such
provision or as a waiver of such provision itself.
18.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah.
18.5 ARBITRATION OF DISPUTES. Should the parties hereto be unable to
amicably resolve between themselves any disagreements relating to or
arising from any one or more of the provisions of this Agreement,
neither party shall seek redress against the other in any country or
tribunal in any part of the world, but instead both parties shall
submit such disagreement to binding arbitration in accordance with the
rules of and under the auspices of the American Arbitration
Association. Neither party shall have the right to further appeal or
redress in any other court or tribunal except solely for the purpose
of obtaining execution of the judgment rendered by such arbitration.
The prevailing party shall be entitled to all costs incurred in
obtaining such award, including reasonable attorneys' fees, together
with all costs incurred in the collection process including attorneys'
fees relating thereto.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
I-LINK WORLDWIDE INC. WEALTHNET INCORPORATED
By: ________________________ By: _________________________________
Print Name: ________________ Print Name:__________________________
Title: _____________________ Title:_______________________________
Date: ______________________ Date:________________________________
ACKNOWLEDGED AND AGREED TO:
FAMILY TELECOMMUNICATIONS INCORPORATED
By: _______________________
Print Name: _______________
Title: ____________________
Date: _____________________
11
<PAGE>
EXHIBIT 10(KK)
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is made and entered into this 29th day of
January, 1997, by and between WEALTHNET INCORPORATED ("WealthNet"), a Utah
corporation located at 4710 East Falcon Drive, Suite 117, Mesa, Arizona 85215,
FAMILY TELECOMMUNICATIONS INCORPORATED ("FTI"), a Utah corporation located at
3800 N. Central, #B-1, Phoenix, Arizona 85012, and I-LINK WORLDWIDE INC., a Utah
corporation, and its parent MEDCROSS, INC., a Florida corporation (collectively
"I-Link"), whose principal offices are located at 65 East Wadsworth Park Drive,
Draper, UT 84020.
In consideration of the mutual covenants and promises contained herein the
parties agree as follows:
1. Upon the execution of this Settlement Agreement, FTI shall pay to
WealthNet the cash sum of $200,000.00. WealthNet agrees that it shall pay to I-
Link the sum of $11,620.00 each month for three consecutive months commencing
February 1997 as payment for telecommunications services provided by FTI and
utilized by WealthNet prior to December 31, 1996.
2. WealthNet and FTI agree that all contracts, agreements and
understandings between them shall be deemed to have been terminated and
cancelled effective December 31, 1996, including, without limitation, that
certain Letter of Intent dated August 19, 1996. WealthNet hereby assigns and
transfers to FTI any and all interest it may have in all accounts receivable
from the members of the WealthNet/WealthCom organization (the "Members") arising
from the Members' use of telecommunications services provided by FTI through
December 31, 1996 (the "Services"). FTI and/or I-Link shall make every effort
to promptly resolve issues of Member billings so as to collect only actual and
correct amounts payable by the Members for the Services. WealthNet agrees to
assist FTI and/or I-Link, as reasonably requested by FTI and/or I-Link, at no
additional out-of-pocket expense to WealthNet, in their efforts to resolve
issues of Member billings and to collect all actual and correct accounts
receivable from the Members arising from the Services.
3. The parties agree that the business relationship between them shall be
established and governed by the Strategic Member Reseller Agreement (the "I-
Link/WealthNet Agreement") entered into by I-Link and WealthNet simultaneous
with the execution of this Settlement Agreement, and that the I-Link/WealthNet
Agreement shall be deemed to be effective as of January 1, 1997 and shall govern
billings to the Members for telecommunications services provided through FTI\I-
Link for January 1997 and thereafter. The parties agree and acknowledge that
the termination of contracts, agreements and understandings and the mutual
releases provided for in this Settlement Agreement shall not affect the I-
Link/WealthNet Agreement and the parties' duties, rights and obligations
thereunder. The parties further agree that any subsequent termination of the I-
Link/WealthNet Agreement pursuant to its terms shall not affect the termination
of contracts, agreements and understandings and the mutual releases provided for
in this Settlement Agreement.
<PAGE>
4. FTI and I-Link, for themselves and on behalf of their affiliates,
principals, employees and agents (collectively "FTI/I-Link"), hereby release
WealthNet and its affiliates, principals, employees and agents (collectively
"WealthNet"), from all claims, liabilities, demands and damages, whether known
or unknown, that FTI/I-Link may have as against WealthNet resulting from any and
all contracts, agreements and understandings between the parties, and from any
and all acts of or omissions to act by WealthNet, existing or occurring at any
time prior to the execution of this Settlement Agreement. FTI/I-Link
specifically do not release the Members from their payment obligations arising
from the Services.
5. WealthNet, for itself and on behalf of its affiliates, principals,
employees, agents and, to the extent it is legally authorized to do so, the
Members (collectively "WealthNet/WealthCom"), hereby release FTI/I-Link from all
claims, liabilities, demands and damages, whether known or unknown, that
WealthNet/WealthCom may have as against FTI/I-Link resulting from any and all
contracts, agreements and understandings between the parties, and from any and
all acts of or omissions to act by FTI\I-Link, existing or occurring at any time
prior to the execution of this Settlement Agreement. FTI and I-Link agree that
the Members shall not be deemed to have waived any rights they may have as
against FTI for inaccuracies in billings to the Members for the Services.
6. This Settlement Agreement may be executed in multiple counterparts,
provided that effectiveness shall occur only upon execution by all parties of a
counterpart.
7. The persons executing this Settlement Agreement represent and warrant
that they do so having all requisite power and authority to sign on behalf of
the entities indicated.
IN WITNESS WHEREOF, the parties have executed this Settlement Agreement as
of the date first above written.
WEALTHNET INCORPORATED FAMILY TELECOMMUNICATIONS
INCORPORATED
By: ______________________________ By: __________________________________
Rod Smith, President Robert Edwards, President
By: __________________________________
Jerald Nelson, Vice President
I-LINK WORLDWIDE INC. MEDCROSS, INC.
By: ______________________________ By: __________________________________
John Edwards, President John Edwards, President
2
<PAGE>
Exhibit 10(LL)
AGREEMENT REGARDING CERTIFICATE OF DEPOSIT
This Agreement Regarding Certificate of Deposit ("Agreement") is entered
into by and between Draper Land Partnership II, a Utah limited partnership
("Landlord"), and I-Link Worldwide, Inc., a Utah corporation ("Tenant").
I. RECITALS.
A. Tenant and Landlord are parties to a Commercial Lease dated the 11TH
day of September, 1996 (the "Lease"), pursuant to which Tenant will lease
certain real property located in Draper, Utah (the "Property") from Landlord for
office use.
B. The Lease requires Tenant to make a Security Deposit to ensure the
faithful performance by Tenant of all of the provisions of the Lease.
C. In view of the fact that Tenant is a newly formed business enterprise
with no performance history, Landlord and Landlord's lender ("Lender") desire a
substantial Security deposit with provision for future reduction in amount
consistent with the terms and conditions hereof.
II. AGREEMENT.
1. Tenant will obtain and deliver to Landlord as the Security Deposit
required under the Lease four separate Certificates of Deposit each in the same
amount and totaling in the aggregate Two Hundred Fifteen Thousand Dollars
($215,000.00) (the "CDs"), which Landlord shall be entitled to redeem for cash
pursuant to the terms of the Lease and this Agreement.
2. Notwithstanding anything to the contrary Tenant shall be entitled to
all interest earned on the CDs.
3. The CDs are held by Landlord as the Security Deposit securing the
faithful performance by Tenant of all of the provisions of the Lease to be
performed or observed by Tenant, including, without limitation, the payment of
any and all payments owing of any kind by Tenant under the Lease. In the event
Tenant fails to perform or observe any of the provisions of the Lease to be
performed or observed by it, then, at the option of the Landlord, Landlord may
(but shall not be obligated to do so) apply the Security Deposit, or so much
thereof as may be necessary to remedy such default or to repair damages to the
Premises caused by Tenant. In the event Landlord applies any portion of the
security Deposit to remedy any such default or to repair damages to the Premises
caused by Tenant, Tenant shall pay to Landlord, within thirty (30) days after
written demand for such payment by Landlord, all monies necessary to restore the
Security Deposit up to the original amount. Any portions of the Security Deposit
remaining upon termination of the Lease shall be returned.
<PAGE>
4. After the second anniversary of this Agreement, and provided that
Tenant is in good standing and not in default under the terms and conditions of
the Lease, and provided further that Tenant has achieved a level of performance
that satisfies Lender, the CDs may be returned to the Tenant at the rate of one
per year over the next four years, provided further that at the beginning of the
sixth year Tenant then deposits with Landlord the final month's base rent
($11,362 plus the applicable 4% annual increases calculated in accordance with
paragraph 4 of the Lease) to be held by Landlord as the Security Deposit for the
remainder of the Lease Term.
5. Landlord may without the further permission of Tenant deliver the CDs
over to Lender who shall hold the same for the benefit of Landlord hereunder
such that Landlord's security interest therein shall be deemed perfected by
possession under (S)70A-9-304 of the Utah Code Annotated (1953), as amended,
provided only that Lender shall hold the CDs under the terms and conditions of
this Agreement.
6. Should Landlord or Lender request that Tenant execute a UCC-1 form for
filing consistent with the terms and conditions of this Agreement, or any other
document necessary to carry out the intent of the parties hereunder, Tenant
agrees to execute the same.
7. This Agreement contains the entire agreement between the parties
relating to the transactions contemplated hereby, and all prior or
contemporaneous agreements, understandings, representations and statements, oral
or written, are merged herein. Notwithstanding the foregoing, the Lease shall
remain in full force and effect except to the extent it is inconsistent with
this Agreement, which shall govern in the event of a conflict between the two
instruments.
8. No modification, waiver, amendment, discharge or change of this
Agreement shall be valid unless the same is in writing and signed by the party
against which the enforcement or such modification, waiver, amendment, discharge
or change is or may be sought.
9. This Agreement may be executed in counterparts, all of which when taken
together shall be deemed fully executed originals.
10. In the event either party commences litigation for the judicial
interpretation, enforcement, termination, cancellation or rescission hereof, or
for damages for the breach hereof, then, in addition to any or all other relief
awarded in such litigation, the prevailing party therein shall be entitled to a
judgment against the other for an amount equal to reasonable attorneys' fees and
court and other costs incurred.
2
<PAGE>
11. Tenant or Landlord shall not, by virtue of this Agreement, in any way
or for any reason be deemed to have become a partner of the other in the conduct
of business or otherwise, or a joint venturer.
12. This Agreement shall be construed and enforced in accordance with the
laws of the State of Utah.
13. In the event any term, covenant, condition, provision or agreement
herein contained is held to be invalid, void or otherwise unenforceable by any
court of competent jurisdiction, the fact that such term, covenant, condition,
provision or agreement is invalid, void or otherwise unenforceable shall in no
way affect the validity or enforceability of any other term, covenant,
condition, provision or agreement herein contained.
14. All terms of the Agreement shall be binding upon, inure to the benefit
of, and be enforceable by the parties hereto and their respective legal
representatives, successors and assigns.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date and year first written above.
TENANT, LANDLORD,
I-Link Worldwide, Inc. Draper Land Partnership II
By: By:
----------------------------- -----------------------------
Its: Its:
---------------------------- ----------------------------
3
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME AND STATE OF INCORPORATION
- -------------------------------
AND ORGANIZATION TRADE NAME
- ---------------- ----------
Waters Edge Scanning Associates, Inc., Waters Edge Scanning Associates
a Florida corporation Tampa MRI
Medcross Imaging, Ltd., Medcross Imaging
a Florida corporation
Medcross Asia, Ltd., __________
a Hong Kong corporation
Shenyang Medcross Huamei Medical __________
Equipment Co., Ltd., a Peoples
Republic of China corporation
I-Ling Worldwide Inc., I-Link
a Utah corporation
Family Telecommunications Incorporated, __________
a Utah corporation
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Medcross, Inc. and Subsidiaries on Form S-8 (File Nos. 33-85054, 33-81646,
33-63749, 33-63751, 33-81652, 333-01525, 333-8477 and 333-8483) of our report
dated April 11, 1997, on our audits of the financial statements of Medcross,
Inc. and Subsidiaries as of December 31, 1996, and for each of the two years in
the period ended December 31, 1996, which report is included in this Annual
Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Salt Lake City, Utah
April 15, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN
THIS COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,500,227
<SECURITIES> 0
<RECEIVABLES> 1,432,926
<ALLOWANCES> 652,019
<INVENTORY> 557,036
<CURRENT-ASSETS> 267,383
<PP&E> 5,474,888
<DEPRECIATION> 2,618,252
<TOTAL-ASSETS> 11,433,830
<CURRENT-LIABILITIES> 4,526,052
<BONDS> 0
0
2,475,000
<COMMON> 74,253
<OTHER-SE> 3,749,364
<TOTAL-LIABILITY-AND-EQUITY> 11,433,830
<SALES> 2,383,076
<TOTAL-REVENUES> 2,383,076
<CGS> 0
<TOTAL-COSTS> 22,575,590
<OTHER-EXPENSES> 680,097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,191,629
<INCOME-PRETAX> (23,064,240)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,064,240)
<EPS-PRIMARY> (6.53)
<EPS-DILUTED> (6.53)
</TABLE>
