<PAGE> 1
ANNUAL REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
Commission File Number: 33-30677-NY
AMERICAN HEALTHCHOICE, INC.
---------------------------
(Name of small business issuer in its charter)
NEW YORK 11-2931252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 W. WALNUT HILL LANE, SUITE 275
IRVING, TEXAS 75038
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (972) 751-1900
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
NONE NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
---------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES X*
----
NO ___
* This Form 10-KSB was required to be filed pursuant to Rule 12b-25 on January
14, 1997.
Page 1 of __; the index to exhibits is located on page ___.
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not 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. [ ]
State issuer's revenues for its most recent fiscal year. $10,187,000.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days. (See definition of affiliate in Rule 12b-2 of the
Exchange Act).
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes____ No____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. ____________________________
As of January 27, 1997, the Registrant had issued and outstanding
7,278,865 shares of the Registrant's Common Stock. The aggregate market value
of the voting stock held by non-affiliates of the Registrant as of January 27,
1997, was $20,781,183.75.*
* Based on the last reported price of an actual transaction in
Registrant's common stock on January 27, 1997, and reports of
beneficial ownership filed by directors and executive officers of
Registrant and by beneficial owners of more than 5% of the outstanding
shares of Common Stock of Registrant; however, such determination of
shares owned by affiliates does not constitute an admission of
affiliate status or beneficial interest in shares of Registrant's
Common Stock.
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AMERICAN HEALTHCHOICE, INC.
FORM 10-KSB
____________________
TABLE OF CONTENTS
____________________
<TABLE>
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PAGE
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<S> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Management's Discussion and Analysis of Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . 35
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act . . 36
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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PART I
ITEM 1. BUSINESS
THE COMPANY
HISTORY
American HealthChoice, Inc., a New York corporation formerly known as
Paudan, Inc. (together with its subsidiaries, the "Company"), was incorporated
on September 14, 1988 and was initially formed with the intent of acquiring a
suitable business that management determined had potential for future growth.
Until March 1995 the Company had no operations. On March 31, 1995, the
Company underwent a comprehensive reorganization by acquiring American
HealthChoice, Inc., a Delaware corporation ("American HealthChoice (DE)"),
formed in 1993 to organize and acquire multi-disciplinary primary care medical
clinics and to provide, on an ongoing basis, comprehensive management services.
At the time of this transaction American HealthChoice (DE) operated six clinics
which provided medical, chiropractic and physical therapy services in Texas and
Louisiana. The Company acquired American HealthChoice (DE) in a reverse
acquisition in exchange for 4,962,000 shares of the Company's $0.001 par value
common stock. In connection with the reorganization, the stockholders of
American HealthChoice (DE) acquired 91.6 % of the voting shares of the Company.
The Company changed its name from Paudan, Inc. to American HealthChoice, Inc.
during fiscal year 1995.
GENERAL
The Company is a medical management organization that acquires,
organizes and manages primary care medical clinics and other physician groups.
The Company currently owns and provides broad-based management and marketing
services to 22 clinics located in Texas, Louisiana and Georgia. The Company
has primary care clinics in the San Antonio, Texas and Atlanta, Georgia
metropolitan areas as well as the Rio Grande Valley area of South Texas. The
Company plans to expand its existing clinics and add new clinics through the
addition of new start-up clinics or the acquisition of existing primary care
clinics that meet the Company's strategy for network development. The Company
will continue to explore expansion of its markets particularly in and around
Atlanta and the major markets in Texas, such as Dallas/Ft. Worth, Houston,
Austin, San Antonio and the Rio Grande Valley. See "Management's Discussion
and Analysis of Results of Operations."
Concerns over the accelerating cost of health care have resulted in
the increasing prominence of managed care. Managed care involves a third party
assuming responsibility for ensuring that health care is provided in a high
quality, cost effective manner. The focus on cost-containment has placed
small to mid-sized groups and sole medical practices at a significant
disadvantage because they typically have higher operating costs and little
purchasing power with suppliers, and must spread overhead costs over a
relatively small revenue base. In addition, these practices often lack both
the capital to purchase new technologies that can improve quality and reduce
costs and the accounting and quality management systems necessary to allow
these physicians to enter into sophisticated managed care risk-sharing contacts
with payors. Additionally, small to mid-sized groups and sole medical
practices often do not have formal ties with other medical providers nor the
ability to offer coordinated care across a variety of specialties, thus
reducing their competitive position relative to larger provider organizations.
As a result of these changes in the marketplace, physicians are
increasingly abandoning traditional private practice in favor of affiliations
with larger organizations, such as the Company, which offer skilled
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management, information systems, managed care contracting, and the integration
of ancillary medical services. Many payors and their intermediaries, including
governmental entities, health maintenance organizations ("HMOs") and preferred
provider organizations ("PPOs"), are increasingly looking to outside primary
care providers of physician services to develop and maintain quality management
programs and patient care data. In addition, such payors and intermediaries
look to share the risk of providing services through arrangements which provide
for fixed payments (capitation) for patient care over a specified period of
time.
As the Company develops its primary care network of providers in each
of its markets, it plans to provide a variety of services to primary care
physicians' practices, insurance carriers, hospitals, health care alliances and
other health care providers for the purposes of maximizing revenues and
services to the health care markets. Management believes that being able to
supply more services in a given market provides the Company with a strong
competitive edge when bidding on a contract basis. The Company focuses on
providing improved health care at reduced costs, and ensuring that each patient
receives appropriate and necessary quality care.
In fiscal year 1996 the Company sustained a significant operating loss
of approximately $2.7 million. Consequently the Company is evaluating its
current business strategy. The Company has made acquisitions that have not
been profitable and is considering a new strategy and business plan that will
focus more on the managed care issues that face medicine today. See
"Management's Discussion and Analysis of Results of Operations."
The Company's future business strategy is to: (i) become a
significant provider of primary medical care in each of its market areas by
increasing its penetration of HMOs, PPOs, government-sponsored programs,
commercial employer groups and individuals; (ii) expand into new geographic
markets through a combination of development projects and acquisition efforts,
thus providing a cluster of clinics and related services that provide a single
network of primary care; (iii) continue its expansion and development of its
primary care physician base thereby creating an integrated provider network
with primary care physicians as the centerpiece; (iv) continue vertical
integration of primary care medical services and multi-specialty
practices to deliver an increasing proportion of covered benefits; and (v)
emphasize the use of primary care physicians and Company-owned clinics as
critical determinants in providing improved access to cost-effective, quality
health care services in its market areas.
The Company believes that primary care physician clinics provide the
most economies of scale in delivering quality care at the lowest price. A
network of 5 to 6 of these types of clinics in a defined geographical area has
a substantial advantage over the single autonomous clinic. Such a network of
clinics ("NETWORK") would be well positioned to accept full risk contracts from
various HMOs in the geographical area.
The NETWORK should be organized to contract with HMOs and other
managed care plans (collectively, "Health Plans") to provide a wide range of
medical services to members who enroll in programs offered by the Health Plans.
Future contracts that the Company may obtain would generally be capitation
contracts, which provide for the NETWORK to receive a negotiated fixed fee per
Health Plan member to cover all costs of covered services to members assigned
to the NETWORK, regardless of the amount or level of services rendered. The
NETWORK plans to contract with Health Plans to provide care for members covered
under a Medicare Risk Contract, as well as for commercial (under 65 years of
age) members. In addition to the capitation revenue, the NETWORK will usually
share in surpluses or deficits for other services not covered under the
capitation payment (primarily hospital fund results). The budgets
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for hospital and other non-capitated services will be negotiated by the Company
on behalf of the NETWORK with Health Plans.
In order to service the Health Plan contracts, the NETWORK plans to
enter into agreements with physicians and other health care providers
(collectively, "Providers") to provide medical services to assigned members.
These future contracts will generally call for reimbursement to the Provider on
a capitated or discounted fee-for-service basis.
MEDICARE RISK CONTRACTS
The federal government, through the Health Care Financing
Administration ("HCFA"), allows federally qualified HMOs to enter into
agreements to provide all covered Medicare services to Medicare beneficiaries
who choose to enroll with the Health Plan. Health Plans receive a capitation
equal to ninety-five percent (95%) of the average per member costs to HCFA of
providing services to Medicare beneficiaries in the same county. This amount
is adjusted to reflect differences in the demographic mix of the population
enrolled with the HMO compared to the average mix for the county.
The Health Plan is responsible for providing all Medicare covered
services to beneficiaries who enroll with the HMO. Generally, the Health Plan
is able to control medical expenses through Provider contracts, utilization
review and other means to allow for payment of all medical expenses,
administration and marketing expenses. Frequently, the Health Plan, by
contract, will delegate many functions to organized groups of health care
providers. The Company expects to perform most of these functions for the
NETWORK.
In addition, sufficient savings may be generated to allow the HMO to
reduce or eliminate Medicare co-payments and deductibles and to provide
additional services in excess of those covered by Medicare. These benefit
enhancements provide incentives to beneficiaries to join the HMO, as they
reduce out-of-pocket expenses normally incurred under standard Medicare
programs.
COMMERCIAL PLANS
Health Plans traditionally market health benefit coverage to employer
groups who provide such benefits to their employees. Premium per member is
typically one-half to one-third of the premium for a Medicare Risk Contract
enrollee. This is because nearly all commercial enrollees are under age 65,
and the average health care costs for these members are much lower than for
Medicare beneficiaries. Generally, there are more competing Health Plans
offering commercial coverage than Medicare coverage.
Typically in the case of large employers, employees can choose among
one or more HMO plans as well as a traditional indemnity plan. Employees can
usually enroll their spouses and dependents as well. Employers usually pay for
all or nearly all of the cost of covering the employee. Some employers will
pay for all of the cost of dependent coverage, while others require the
employee to pay for some or all of dependent coverage.
Employees may enroll in or change Health Plans at the time they become
employed, or during an annual "open enrollment" period. At the time an
employee chooses a Health Plan, the employee will choose a primary care
physician for him or herself and his or her dependents. The primary care
physician is responsible for coordinating all the health care needs of members
who select such Provider, including referrals to specialists and
hospitalization. The Health Plan is responsible to provide a full range of
health
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care services to members who choose its plan. The Health Plan controls medical
expenses using the same techniques as for Medicare members.
The Company's future success will depend on the NETWORK'S
profitability, which, in turn, will depend, in large part, on the Company's
ability to maximize the NETWORK'S revenues and manage the NETWORK expenses.
The Company is developing several strategies that will enable it to achieve
these goals.
The NETWORK'S major source of future revenue will be capitation
payments from Health Plans. Capitation amounts are subject to negotiation with
the Health Plans, and revenues can be enhanced by aggressive marketing of the
NETWORK to Health Plans that have significant enrollment in the geographic area
served by the NETWORK.
Another significant source of future revenue for the NETWORK will be a
share of any surplus that the Health Plan generates in certain non-capitated
services, such as hospital fund savings. In this area, revenue can be directly
enhanced by active utilization management.
Finally, the NETWORK is planning to generate investment income, the
amount of which can be enhanced by cash management strategies developed by the
Company.
The Company is planning a number of strategies to minimize the
NETWORK'S expenses. These future strategies include capitating specialists to
the extent feasible, close management of claims processing, monitoring
performance and referral patterns of primary care physicians and utilization
review which requires prior approval for referral to non-capitated specialists
and for procedures that are not covered by capitation payments. The ultimate
thrust of all of these future strategies is to minimize the NETWORK'S
obligations for referral costs, which can create significant uncertainties and
expense for the NETWORK'S if not closely managed.
One of the Company's most significant future strategies to contain
NETWORK expenses is to capitate not only primary care physicians but also a
large number of specialists, who, historically have been compensated on a
fee-for-service basis. While a few specialties might resist capitation, most
specialists can be capitated, which enables the management of an NETWORK to
budget effectively. In addition, the Company plans to have provider contracts
that will include financial incentives designed to encourage providers to
deliver medically appropriate services in a cost-effective manner. These
future incentives may be in the form of capitation or bonuses, or a portion of
the allowed reimbursement may be withheld and repaid only if total NETWORK
medical expenses stay within budgeted guidelines. Most providers will also
share in surpluses generated by the NETWORK. The Company believes that making
providers aware of costs and encouraging them to keep costs low significantly
reduces NETWORK expenses.
The address of the Company's principal office is 1300 West Walnut Hill
Lane, Suite 275, Irving, Texas 75038. The Company's telephone number is (972)
751-1900 and its telecopy number is (972) 751-1901.
RECENT DEVELOPMENTS
The Company opened four clinics in the fourth quarter of fiscal year
1996. Three were medical clinics, in Weslaco, Bryan College Station, and
McAllen, Texas. One chiropractic clinic was opened in
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Corpus Christi, Texas. In January 1997, however, the Company closed each of
these clinics other than the clinic located in McAllen, Texas.
The Company has a current liquidity problem and is having difficulty
paying its obligations on a current basis. For fiscal year 1996, the Company
sustained a net loss of approximately $2.7 million. See "Management's
Discussion and Analysis of Results of Operations." The Company is evaluating
its current business strategy in light of this loss. The Company has made
acquisitions that have not been profitable and is focusing on a new strategy
and business plan. The Board of Directors has asked management to present
within the next 90 days a new strategic business plan for the Company.
Consequently, to return the Company to a profitable operation, management is
currently evaluating all of its operations and is making adjustments where
appropriate to reduce costs.
In November and December 1996, the Company conducted a $2.2 million
private placement of notes and Common Stock (the "Note Private Placement"). The
notes bear interest at 10% per annum, which, together with the principal, is
due and payable in November 1997 and is secured by the accounts receivable and
other assets of the Company. Also in December 1996, the Company obtained a $1.5
million revolving line of credit from DVI Business Credit Corporation secured by
the accounts receivable of the Company. The Company has drawn $600,000 on this
line of credit. Amounts drawn under this line of credit bear interest at the
prime lending rate plus 3%. The Board of Directors has approved the raising of
additional equity capital in connection with the Company's current capital needs
and the anticipated requirements of the Company's new strategic plan.
PENDING ACQUISITIONS
The Company is not currently pursing acquisitions until its new
strategic business plan is approved by the Board of Directors. It is intended
that such business plan will include a strategy for future acquisitions.
HEALTH CARE INDUSTRY
The HCFA estimated that national health care spending in 1994 was
approximately $1 trillion, with approximately $200 billion directly
attributable to physician services and another $612 billion under physician
direction. Health care in the United States historically has been delivered
through a fragmented system of health care providers, including individual or
small groups of primary care physicians and specialists. According to the
American Medical Association ("AMA"), approximately 565,000 physicians are
actively involved in patient care in the United States. A 1993 AMA study
estimated there are over 86,000 physicians practicing in 3,600 multi-specialty
group practices (three or more physicians) and over 82,000 physicians
practicing in 12,700 single specialty group practices in the United States.
In recent years, there have been significant changes in the health
care industry affecting both primary care and specialty practices. The
traditional fee-for-service payment model has provided few incentives for the
efficient utilization of resources and has contributed to increases in health
care costs at rates significantly higher than inflation. Concerns over the
accelerating cost of health care have resulted in the increasing prominence of
managed care. Managed care involves a third party assuming responsibility for
ensuring that health care is provided in a high quality, cost effective manner.
The focus on cost-containment has placed small to mid-sized groups and sole
medical
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practices at a significant disadvantage because they typically have higher
operating costs and little purchasing power with suppliers, and must spread
overhead costs over a relatively small revenue base. In addition, these
practices often lack both the capital to purchase new technologies that can
improve quality and reduce costs and the information and management systems
necessary to allow these physicians to enter into sophisticated managed care
risk-sharing contacts with payors. Additionally, small to mid-sized groups and
sole medical practices often do not have formal ties with other medical
providers nor the ability to offer coordinated care across a variety of
specialties, thus reducing their competitive position relative to larger
provider organizations.
As a result of these changes in the marketplace, physicians are
increasingly abandoning traditional private practice in favor of affiliations
with larger organizations, such as the Company, which offer skilled management,
information systems and managed care contracting. Many payors and their
intermediaries, including governmental entities, HMOs and PPOs, are
increasingly looking to outside primary care providers of physician services to
develop and maintain quality management programs and patient care data. In
addition, such payors and intermediaries look to share the risk of providing
services through arrangements which provide for fixed payments (capitation)
for patient care over a specified period of time.
BUSINESS STRATEGY
The Company's business strategy is as follows:
Continued Growth. The Company's goal is to become a significant
provider of primary medicalcare in each of its market areas by increasing its
penetration of HMOs, PPOs, government-sponsored programs (Medicare Risk,
Medicaid Risk), commercial employer groups and individuals. In addition, the
Company intends to expand into new geographic markets through a combination of
development projects and acquisition efforts, thus providing a cluster of
clinics and related services that provide a single network of primary care for
such market areas.
Increase Integration of Services. The Company intends to continue its
expansion and development of its physician base thereby creating an integrated
provider network with a specialty in primary care. In addition, the Company
will continue to vertically integrate medical services and through acquisitions
or by contracting with providers to deliver an increasing proportion of covered
benefits.
Emphasize Primary Care Physicians. The Company believes that the use
of primary care physicians and Company-owned clinics are critical determinants
in providing improved access to cost-effective, quality health care services in
its market area. The Company's strategy is to affiliate with primary care
physicians which the Company believes are increasingly the principal
determinants of the location of patient care. As a result, the Company
believes that in the managed care environment primary care physicians are in
the best position to coordinate and control the cost of a patient's overall
care.
MANAGEMENT AND MARKETING SERVICES
The management and marketing services offered by the Company are
designed to assist primary care physicians and clinics in managing, promoting
and containing the costs of practices. The Company provides advice and
assistance regarding office design, equipment acquisition, marketing and
advertising, office management, assistance training, accounting and billing
procedures, standardized correspondence and signage.
The Company believes that the importance of marketing, finance, office
administration and other non-medical activities to the successful primary care
practice of medicine has greatly increased in recent years. As a result, the
Company believes primary care physician provider clinics have the best
economies of scale in delivering quality care at the lowest price. A NETWORK
has a substantial advantage over the
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single autonomous clinic and would have strong potential to accept full risk
contracts from various HMO's in the geographical area.
The Company provides a wide range of services to the primary care
clinics which it owns. These services include providing professional
equipment, computer hardware and software to help effectively manage the
clinics, advertising, marketing, the coordination and integration of ancillary
medical services (such as mammography and ultrasound), managed care
contracting, and equipment-lease brokerage services.
GOVERNMENT REGULATION
As a participant in the health care industry, the Company's operations
are subject to extensive and increasing regulation by a number of governmental
entities at the federal, state and local levels. The Company is also subject
to laws and regulations relating to business corporations in general. The
Company believes its operations are in material compliance with applicable
laws. Nevertheless, because of the uniqueness of the structure of the
Company's relationship with physicians and clinics, many aspects of the
Company's business operations have not been the subject of state or federal
regulatory interpretation and there can be no assurance that the health care
regulatory environment will not change so as to restrict or otherwise adversely
affect the Company's or the affiliated physician's existing operations or
possible expansion.
The laws of many states prohibit business corporations such as the
Company from practicing medicine and employing physicians to practice medicine.
The Company performs only non-medical administrative services, does not
represent to the public or its clients that it offers medical services, and
does not exercise influence or control over the practice of medicine by the
physicians with whom it contracts. Accordingly, the Company believes that it
is not in violation of applicable state laws relating to the practice of
medicine. The laws in most states regarding the corporate practice of medicine
have been subjected to limited judicial and regulatory interpretation and,
therefore, no assurance can be given that the Company's activities will be
found to be in compliance, if challenged.
In addition to prohibiting the practice of medicine, numerous states
prohibit entities like the Company from engaging in certain health care related
activities such as fee-splitting with physicians. For example, Florida enacted
its Patient Self-Referral Act in April 1992 that severely restricts patient
referrals for certain services, prohibits mark-ups of certain procedures,
requires disclosure of ownership in businesses to which patients are referred
and places other regulations on health care providers. The Company believes it
is likely that other states will adopt similar legislation. Accordingly,
expansion of the Company's operations into Florida and other states could lead
to structural and organizational modifications of the Company's form of
relationships with physician groups. Such changes, if any, could have an
adverse effect on the Company.
Certain provisions of the Social Security Act, commonly referred to as
the "Anti-Kickback Statute," prohibit the offer, payment, solicitation, or
receipt of any form of remuneration in return for the referral of Medicare
state health program patients or patient care opportunities, or in return for
the recommendation, arrangement, purchase, lease or order of items or services
that are covered by Medicare or state health programs. The Anti-Kickback
Statute is broad in scope and has been broadly interpreted by courts in many
jurisdictions. Read literally, the statute places at risk many legitimate
business arrangements, potentially subjecting such arrangements to lengthy,
expensive investigations and prosecutions initiated by federal and state
governmental officials. Many states have adopted similar prohibitions against
payments intended to induce referrals of Medicaid and other third party payor
patients.
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The Company believes that it is not in a position to make or influence the
referral of patients of services reimbursed under government programs to the
physician groups and, therefore, believes its operations do not violate the
Anti-Kickback Statute. The Company also is not a separate provider of Medicare
or state health program reimbursed services. To the extent the Company is
deemed to be either a referral source or a separate provider and to receive
referrals from physicians, the financial arrangements under these agreements
could be subject to scrutiny and prosecution under the Anti-Kickback Statute.
A violation of the Anti-Kickback Statute is a felony, punishable by fines up to
$25,000 per violation and imprisonment for up to five years. In addition, the
federal Department of Health and Human Services may impose civil penalties
excluding violators from participation in Medicare or state health programs.
In July 1991, in part to address concerns regarding the Anti-Kickback
Statute, the federal government published regulations that provide exceptions,
or "safe harbors," for transactions that will be deemed not to violate the
Anti-Kickback Statute. Among the safe harbors included in the regulations were
provisions relating to the sale of practitioner practices, management and
personal services agreements, and employee relationships. Additional safe
harbors were published in September 1993 offering new protections under the
Anti-Kickback Statute to eight activities, including referrals within group
practices consisting of active investors. Proposed amendments to clarify these
safe harbors were published in July 1994 which, if adopted, would cause
substantive retroactive changes to the 1991 regulations. Although the Company
believes that it is not in violation of the Anti-Kickback Statute, its
operations do not fit within any of the existing or proposed safe harbors.
Significant prohibitions against physician referrals were enacted by
Congress in the Omnibus Budget Reconciliation Act of 1993. These prohibitions,
commonly know as "Stark II," amended prior physician self-referral legislation
know as "Stark I" by dramatically enlarging the field of physician owned or
physician interested entities to which the referral prohibitions apply.
Effective January 1, 1995, Stark II prohibits, subject to certain exemptions, a
physician or a member of his immediate family from referring Medicare or
Medicaid patients to an entity providing "designated health services" in which
the physician has an ownership or investment interest, or with which the
physician has entered into a compensation arrangement including the physician's
own group practice. The designated health services include radiology and other
diagnostic services, radiation therapy services: physical and occupational
therapy services, durable medical equipment, parenteral and enteral nutrients,
equipment, and supplies, prosthetics, orthotics, outpatient prescription drugs,
home health services, and inpatient and outpatient hospital services. The
penalties for violating Stark II including a prohibition on payment by these
government programs and civil penalties of as much as $15,000 for each
violative referral and $100,000 for participation in a "circumvention scheme."
The Company believes that its activities are not in violation of Stark I or
Stark II. However, the Stark legislation is broad and ambiguous.
Interpretative regulations clarifying the provisions of Stark II have not been
issued. While the Company believes it is in compliance with the Stark
legislation, future regulations could require the Company to modify the form of
its relationships with physicians and clinics. Moreover, the violation of
Stark I or II by the Company's affiliated physician groups could result in
significant fines and loss of reimbursement which would adversely affect the
Company.
There are also state and federal civil and criminal statutes imposing
substantial penalties, including civil and criminal fines and imprisonment, on
health care providers which fraudulently or wrongfully bill governmental or
other third party payors for health care services. The federal law prohibiting
false billings allows a private person to bring a civil action in the name of
the United States government for violations of its provision. The Company
believes it is in material compliance with such laws, but there is no assurance
that the Company's activities will not be challenged or scrutinized by
governmental authorities. Moreover, technical Medicare and other reimbursement
rules affect the structure of physician
Page 11 of __
<PAGE> 12
billing arrangements. The Company believes it is in material compliance with
such regulations, although regulatory authorities may differ and in such event
the Company may have to modify its relationship with physicians and clinics.
Noncompliance with such regulations may adversely affect the operation of the
Company and subject it to penalties and additional costs.
Laws in all states regulate the business of insurance and the
operation of HMOs. Many states also regulate the establishment and operation
of networks of health care providers. While these laws do not generally apply
to the hiring and contracting of physicians by other health care providers or
to companies which participate in capitated arrangements, there can be no
assurance that regulatory authorities of the states in which the Company
operates would not apply these laws to require licensure of the Company's
operations as an insurer, as an HMO or as a provider network. The Company
believes that it is in compliance with these laws in the states in which it
does business, but there can be no assurance that future interpretations of
insurance laws and health care network laws by the regulatory authorities in
these states or in the states into which the Company may expand will not
require licensure or a restructuring of some or all of the Company's
operations.
Although the Company cannot predict whether other reductions in the
Medicare or Medicaid programs will be enacted, the enactment of such proposals
could have a material adverse impact on the Company's business.
COMPETITION
The provision of health care services and physician management
services are both highly competitive businesses in which the Company competes
with numerous entities in the health care industry. The Company also competes
with traditional providers and managers of health care services for the
recruitment of employed or managed physicians. In addition, the Company, in
pursuing its growth strategy, faces competitive pressures for the acquisition
of the assets of, and the provision of management services to, additional
primary care practices.
Several companies, both publicly and privately held, that have longer
operating histories and greater resources than the Company are pursuing the
acquisition of the assets of primary care and specialist physician practices
and the management of such practices. A recent trend in health care is the
acquisition of existing medical practices with the purpose of securing HMO and
PPO contracts for such acquired medical practices. Companies, such as PhyCor,
Inc., Med-Partners and Pacific Physician Services, have shown revenue growth of
30% or more per year through such acquisitions. In 1995, several
physician-practice companies, including FPA Medical Management and InPhyNet,
became publicly traded.
The experience of these companies cannot be taken as any assurance of
success by the Company. The Company's strategic focus differs from a
traditional managed care company. The Company seeks to reduce costs through
integration and coordination of primary care services with ancillary medical
services, while leaving the physicians generally in control of their individual
practices. Managed care companies have sought to achieve certain economics of
scale through overall control of physicians' practices. Although the Company
believes that its strategic focus and the services and benefits it offers to
physicians make the Company an attractive purchaser of such physicians'
practices, there can be no assurance that the Company will be able to compete
effectively with such competitors, that additional competitors will not enter
the market, or that such competition will not make it more difficult to acquire
the assets of, and provide management services to, physician practices on terms
beneficial to the Company.
Page 12 of __
<PAGE> 13
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 3,500 square feet in an office
building in Irving, Texas at a monthly rent $3,600 for use as its principal
headquarters. In addition, the Company leases approximately 1,000 square feet
in an office building in Roswell, Georgia at a monthly rent of $760 for use
as the corporate offices of AHC Physicians Corporation, a subsidiary of the
Company which operates five clinics in Georgia. The Company currently owns a
parcel of land in San Antonio, Texas, on which the Company's Southcross clinic
is located. The Company anticipates that it may purchase real property
incident to the acquisition of clinics in the future.
As a result of its acquisition of medical clinics, the Company also
leases, subleases or occupies such clinic facility for its affiliated
physicians. The leases have varying terms ranging from month to month to five
years with monthly rents from $1,100 to $25,000. The Company believes that as
affiliated practices grow and add services, expanded facilities may be
required.
The Company leases facilities for its chiropractic services. The
leases have varying terms ranging from month to month to five (5) years with
monthly rents from $2,000 to $3,000. The Company believes that as the
chiropractic clinics grow and add services, expanded facilities may be
required.
The Company's monthly rental liability is approximately $89,000 per
month.
ITEM 3. LEGAL PROCEEDINGS
Approximately $600,000 in Medicaid accounts receivable of the Company
were not filed timely with the state of Texas and have been rejected for
payment. The Company has submitted such claims for payment and has been
granted an administrative hearing scheduled in February 1997. The Company is
not involved in any other material litigation nor is management aware of any
pending litigation that would substantially impact the Company's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Price of Common Stock. As of January 27, 1997, there were
7,278,865 shares of Common Stock outstanding, held by approximately 141 holders
of record. The Company is obligated to issue approximately 189,000 shares of
Common Stock in connection with the Note Private Placement, which shares had
not been issued as of January 27, 1997.
Prior to February 1, 1996, the Common Stock was quoted in the National
Quotation Bureau's interdealer system through the NASDAQ "Bulletin Board" under
the symbol [AHIC]. From February 1, 1996, the Common Stock has been listed on
the NASDAQ SmallCap Market under the symbol AHIC. According to the National
Quotation Bureau, Inc., there are no published quotations for the Common Stock
in 1994 and the first quarter of 1995. The following table shows the high and
low quotations for Common Stock for each quarter for the period June 30, 1995
through September 30, 1996 based upon information received from the National
Quotation Bureau or the Nasdaq Stock Market. Such quotations may represent
prices between dealers and may not necessarily include retail markups,
markdowns or commissions, and do not represent actual transactions.
Page 13 of __
<PAGE> 14
<TABLE>
<CAPTION>
BID PRICE BID PRICE
QUARTER ENDED HIGH LOW
- -------------------------------------------------------------------------------------
<S> <C> <C>
June 30, 1995 $ 2 $1 3/4
September 30, 1995 $ 3 1/2 $3 1/4
December 31, 1995 $ 3 1/2 $3 1/8
March 31, 1996 $10 5/8 $5 5/8
June 30, 1996 $11 1/4 $9 3/8
September 30, 1996 $10 5/8 $8 3/8
</TABLE>
DIVIDENDS. The Company has paid no cash dividends since its inception
and it is unlikely that any cash dividend will be paid in the future. The
declaration in the future of any cash or stock dividends will be at the
discretion of the Board depending upon the earnings, capital requirements and
financial position of the Company, general economic conditions and other
pertinent factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
GENERAL
The Company has acquired at fair market value the furniture,
fixtures, equipment and other assets of various medical practices. The Company
acquired seven clinics in fiscal year 1996, of which five are located in Georgia
and two in Texas. Also, the Company formed five start-up clinics in fiscal year
1996 in Weslaco, College Station, Brownsville, Corpus Christi, and San Antonio,
Texas.
As of September 30, 1996, the Company owned 25 clinics in
three states: Texas, Louisiana, and Georgia. The following chart details the
clinics, location, metropolitan areas served, services provided and date
acquired or commenced operation by the Company.
<TABLE>
<CAPTION>
Metropolitan Area
Clinic Location Served Services Provided Date Acquired
- ---------------------------- ---------------- ----------------- -------------------- -------------
<S> <C> <C> <C> <C>
North East MediClinic San Antonio, TX San Antonio primary medical care 12/95
Nationwide Sports & Injury Katy, TX Houston physical therapy 10/94
United Health Services Katy, TX Houston chiropractic 10/94
Nationwide Sports & Injury San Antonio, TX San Antonio physical therapy 7/94
United Health Services San Antonio, TX San Antonio chiropractic 7/94
Nationwide Sports & Injury San Antonio, TX San Antonio physical therapy 10/94
United Health Services San Antonio, TX San Antonio chiropractic 10/94
Nationwide Sports & Injury San Antonio, TX San Antonio physical therapy 10/94
United Health Services San Antonio, TX San Antonio chiropractic 10/94
</TABLE>
Page 14 of __
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
Peachtree Corners Norcross, GA Atlanta primary medical care, 9/95
Medical Center urgent care
San Pedro MediClinic San Antonio, TX San Antonio primary medical care 10/94
South Bexar MediClinic San Antonio, TX San Antonio primary medical care, 1/95
urgent care
South Cross MediClinic San Antonio, TX San Antonio urgent care, primary 12/95
medical care
United Chiropractic New New Orleans, LA New Orleans chiropractic 7/94
Orleans East
United Chiropractic Uptown New Orleans, LA New Orleans chiropractic 7/94
Peachtree Medical Center Atlanta, GA Atlanta internal medicine 2/96
of Northside
Peachtree Medical Center Marietta, GA Atlanta internal medicine 2/96
of Windy Hill **
Peachtree Medical Center Conyers, GA Atlanta primary medical care 2/96
of Conyers
Peachtree Medical Center McDonough, GA Atlanta primary medical care 2/96
of McDonough
Valley Family Health McAllen, TX McAllen chiropractic 1/96
Center
Valley Family Health Weslaco, TX Weslaco primary medical care 7/96
Center *
University MediClinic * College Station, TX College Station primary medical care 7/96
ACME Brownsville Brownsville, TX Rio Grande Valley chiropractic 7/96
Chiropractic
Corpus Christi Medical * Corpus Christi, TX Rio Grand Valley primary medical care 8/96
SouthMost Medical Clinic Brownsville, TX Rio Grand Valley primary medical care 9/96
</TABLE>
- ----------------
* Clinics closed in January 1997.
** It is anticipated that Peachtree Medical Center of Windy Hill will be
closed in February 1997.
RESULTS OF OPERATIONS
The following summary of earnings and related discussion of the
results of operations should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
document.
Page 15 of __
<PAGE> 16
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1996 1995
---------- ---------
<S> <C> <C>
NET PATIENT REVENUES $10,187,000 6,168,000
OPERATING EXPENSES
Compensation and benefits 7,489,000 2,567,000
Advertising and promotion 946,000 233,000
Depreciation and amortization 371,000 81,000
Other expense 4,562,000 1,008,000
Goodwill impairment 1,055,000 --
---------- ---------
TOTAL OPERATING EXPENSES 14,423,000 3,889,000
---------- ---------
Income/(loss) before income taxes (1) (4,236,000) 2,279,000
---------- ---------
Income tax benefit/(expense) (1) 1,589,000 855,000
---------- ---------
Net income/(loss) (1) $(2,647,000) 1,424,000
========== =========
Net income/(loss) per share (1) ($0.41) $0.25
========== =========
</TABLE>
(1) Proforma income taxes were provided in fiscal years 1995 and 1996 to
present certain entities that were non-taxable during parts of 1995 and 1996 as
if they had been taxable for such years. For presentation purposes, actual
and proforma income taxes (benefit) have been combined.
NET PATIENT REVENUES
For the twelve months ended September 30, 1996, net revenues were
$10,187,000 compared to $6,168,000 for the same period in 1995. For 1995 and
prior years, the Company's revenues were all chiropractic and related revenues.
During September 1995 and the first half of fiscal year 1996, the Company
acquired five primary care medical clinics in Atlanta, Georgia and one in San
Antonio, Texas. The Company also formed five start-up medical clinics in south
Texas. Also, during fiscal year 1996 the Company acquired one chiropractic
clinic and opened one new clinic in south Texas. The increase in net revenues
from the acquired and new clinics for 1966 were as follows:
<TABLE>
<S> <C>
Georgia medical clinics $4,500,000
Texas medical clinics 1,200,000
Chiropractic clinics 400,000
----------
$6,100,000
==========
</TABLE>
This increase of almost doubling net patient revenues over 1995 was
moderated by the Company's need to make year end adjustments to increase its
provision for contractual adjustments and bad debts by approximately
$2,400,000. During the spring of 1996, the Company's corporate office
experienced a computer crash and had to reconstruct over the following months
its computerized accounting and financial records. Additionally, the Company
experienced billing problems with its claims to Medicaid. The reconstruction of
the Company's books and records from source documents and other data was not
completed until January 1997. These circumstances affected management's ability
to make timely and informed decisions regarding its financial results for the
last six months of its fiscal year. This became particularly noticeable in the
area of setting appropriate provisions for contractual adjustments and bad debts
for the Company's accounts receivable for the newly acquired medical clinics and
certain of the older chiropractic receivables. The Company's historical
provision had been 25 to 28% of revenues. After analysis at year end, it was
determined that the provision needed for 1996 was approximately 37% of revenues.
The increased provision reflects poorer than anticipated collection on
chiropractic accounts receivable and the potential for uncollectible Medicaid
claims on which billing problems have occurred.
Page 16 of __
<PAGE> 17
COMPENSATION AND BENEFITS
For 1996, compensation and benefits were $7,489,000 compared to
$2,567,000 for 1995 or an increase of $4,922,000. Of such increase,
approximately $4,300,000 relates to the primary care medical clinics that were
acquired in 1996 and the new start-up medical clinics. The balance of the
increase related principally to the addition of the two chiropractic clinics in
south Texas plus normal cost of living increases for existing employees.
At September 30, 1996 the Company had a total of 193 employees. Of
this number 125 were employed by the Company's medical clinics, 57 by the
chiropractic clinics and 11 at the Company's corporate office. At September
30, 1995, the Company employed 125 people of which 110 were employed by the
chiropractic clinics and 15 by the corporate office.
ADVERTISING AND PROMOTION
For fiscal year 1996, advertising and promotion expense amounted to
$946,000 as compared to $233,000 for 1995, representing an increase of
$713,000. This increase was attributable to advertising and promotion of the
chiropractic clinics, primarily for telemarketing services.
DEPRECIATION AND AMORTIZATION
For fiscal year 1996, depreciation was $371,000 compared to $81,000
for 1995 or an increase of $290,000. This increase is attributable to the
purchase of furniture, fixtures and equipment through clinic acquisitions and
new start-up formations in 1996. Also included is approximately $60,000 of
goodwill amortization for 1996.
OTHER EXPENSE
For fiscal year 1996, other expense was $4,562,000 as compared to
fiscal year 1995 of $1,008,000, for an increase of $3,554,000. Approximately
$2,500,000 relates to the acquired and newly formed clinics. The difference
relates to expense of the new chiropractic clinics acquired and general cost
increases. The other expense category includes such cost as: rental expense,
medical supplies, insurance, telephone, utilities, legal, travel and
acquisition expenses.
GOODWILL IMPAIRMENT
Several of the Company's acquisitions and start-up clinics were
unprofitable in 1996 and required significant cash to operate.
During 1996, new members were added to the Company's management team.
Based on their review of the Company's operations, particularly its recent
acquisitions and newly formed clinics, it was apparent that certain of the
acquisitions were overpriced based on their future potential and certain of the
new clinics should be closed. In connection with its acquisitions, the Company
had recorded goodwill
Page 17 of __
<PAGE> 18
of $1,700,000. Based on current management's assessment, the Company believes
it necessary to write down the goodwill by approximately $1,055,000.
OPERATING UNITS OF BUSINESS
The Company has three primary operating units or cost centers, primary
care medical clinics, chiropractic clinics and corporate office. The pre-tax
losses of these individual units for 1996 are as follows:
<TABLE>
<S> <C>
Primary medical $2,410,000
Chiropractic 206,000
Corporate office 1,800,000
---------
Total pre-tax loss $4,416,000
==========
</TABLE>
Given the Company's fiscal 1996 financial results, a major challenge
for the Company in fiscal 1997 is to turn around its clinical operations and
reduce the corporate overhead to a level where the Company's consolidated
operations are profitable.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996 the Company had working capital of
approximately $4,200,000. However, for fiscal year 1996, the Company required
cash for operations of approximately $3,100,000. This negative cash flow
occurred as a result of negative cash flow at the clinics and an increase in
cash requirements of the corporate office in fiscal 1996. The Company
currently has a liquidity problem because of the operational cash short-fall in
fiscal year 1996. In addition, the Company has been inadequately capitalized
from inception to meet its current operational requirements and to fund its
acquisition strategy.
As of September 30, 1996, the Company had trade payables outstanding
of approximately $885,000. As of December 30, 1996, the trade payables
increased to approximately $1,000,000. Of such amount approximately $300,000
was 90 days or more past due.
The Company is addressing its cash flow and liquidity problems as follows:
. In November and December 1996, the Company completed the Note
Private Placement.
. In December 1996, the Company completed a $1.5 million
revolving credit facility with a financial institution. Such
facility is secured by the Company's accounts receivable.
. In December 1996 and January of 1997, the Company received
$200,000 from two shareholders, one of which is a director of
the Company. These amounts are due in less than one year.
. In January 1997, the Company's Board of Directors asked
management to prepare, within the next 90 days, a strategic
business plan to reposition the Company and right size the
operations, which will permit the Company to return to a level
of profitability. In the short term, the Board of Directors
authorized the Company's management to raise a minimum of $3
million of equity capital to alleviate the current cash flow
and liquidity
Page 18 of __
<PAGE> 19
crisis. Based on the Company's current projections, this
level of capital infusion is required in order for the Company
to meet its obligations for the current year and remain a
going concern.
PENDING ACQUISITIONS:
The Company is not currently pursuing acquisitions until its new
strategic business plan is approved by the Board of Directors. The strategic
business plan will include a strategy for future acquisitions.
ITEM 7. FINANCIAL STATEMENTS
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
INDEX
Page
<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditor's Report
Consolidated Balance Sheet - September 30, 1996
Consolidated Statements of Operations - Years Ended September 30, 1995 and 1996
Consolidated Statement of Stockholders' Equity - Years Ended September 30, 1995 and 1996
Consolidated Statements of Cash Flows - Years Ended September 30, 1995 and 1996
Notes to Consolidated Financial Statements
</TABLE>
Page 19 of __
<PAGE> 20
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
American HealthChoice, Inc.
We have audited the accompanying consolidated balance sheet of American
HealthChoice, Inc. and subsidiaries as of September 30, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended September 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American HealthChoice, Inc. and subsidiaries as of September 30, 1996, and the
results of their operations and their cash flows for each of the two years in
the period ended September 30, 1996, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred a loss of $2,932,230 during fiscal
1996 and the Company has been unable to generate sufficient cash flow from
operations to fund its operating requirements. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regards to these matters are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Houston, Texas
January 17, 1997
Page 20 of ___
<PAGE> 21
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 159,166
Accounts receivable, less allowance for doubtful accounts of $5,480,389 7,926,609
Advances due from an affiliate and stockholders 498,095
Advances to physicians and employees 47,104
Current portion of note receivable from stockholder 54,000
Other current assets 97,173
Income tax receivable 22,000
-------------
Total current assets 8,804,147
NOTE RECEIVABLE FROM STOCKHOLDER, less current portion 216,000
PROPERTY AND EQUIPMENT, net 1,259,298
GOODWILL, net 633,000
OTHER ASSETS 14,949
-------------
Total assets $ 10,927,394
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of notes payable, including $176,719 due to a stockholder $ 1,799,958
Current portion of capital lease obligations 305,444
Advances from stockholders 145,781
Accrued payroll and payroll taxes 322,062
Accounts payable and accrued expenses 1,228,516
Deferred income taxes 807,783
-------------
Total current liabilities 4,609,544
NOTES PAYABLE, less current portion 1,040,741
CAPITALIZED LEASE OBLIGATIONS, less current portion 64,876
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000 shares authorized; none issued -
Common stock, $.001 par value; 115,000,000 shares authorized; 7,232,692
shares issued and outstanding 7,232
Option to acquire common stock 100,000
Common stock subscribed 78,527
Additional paid-in capital 5,327,256
Accumulated deficit (300,782)
-------------
Total stockholders' equity 5,212,233
-------------
Total liabilities and stockholders' equity $ 10,927,394
=============
</TABLE>
See accompanying notes to these consolidated financial statements.
Page 21 of
<PAGE> 22
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------
1995 1996
------------- -------------
<S> <C> <C>
NET PATIENT REVENUES $ 6,168,110 $ 10,186,857
OPERATING EXPENSES:
Compensation and benefits 2,567,038 7,488,898
Advertising and promotion 233,453 945,992
Depreciation and amortization 81,221 371,053
General and administrative, including management fees and other
expenses paid to related parties of $65,000 in 1995 1,000,062 4,253,857
Other expense, net 7,832 -
------------- -------------
Total operating expenses 3,889,606 13,059,800
------------- -------------
OTHER INCOME (EXPENSE):
Goodwill impairment - (1,054,829)
Interest income - 19,918
Interest expense and other costs of borrowing - (328,376)
------------- -------------
- (1,363,287)
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES AND PRO FORMA
INCOME TAXES 2,278,504 (4,236,230)
INCOME TAX EXPENSE (BENEFIT) :
Current 92,396 (179,783)
Deferred 982,563 (1,124,217)
------------- -------------
1,074,959 (1,304,000)
------------- -------------
NET INCOME (LOSS) BEFORE PRO FORMA INCOME TAXES 1,203,545 (2,932,230)
Pro forma income tax expense (benefit) (220,520) (285,000)
------------- -------------
NET INCOME (LOSS) AFTER PRO FORMA INCOME TAXES $ 1,424,065 $ (2,647,230)
============= =============
NET INCOME (LOSS) PER SHARE AFTER PRO FORMA
INCOME TAXES $ .25 $ (.41)
============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,797,000 6,515,248
============= =============
</TABLE>
See accompanying notes to these consolidated financial statements.
Page 22 of ___
<PAGE> 23
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
Retained
Common Stock Option to Additional Earnings
------------------- Acquire Common Stock Paid-in Accumulated
Shares Amount Common Stock Subscribed Capital (Deficit) Total
--------- -------- ------------ ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, OCTOBER 1, 1994 3,650,000 $ 36,500 $ - $ - $ 105,196 $ 2,906,390 $3,048,086
Shares issued to acquire Valley Family
Health Center, L.L.C. 360,000 360 - - 125,785 - 126,145
Reclassification upon conversion of
subsidiaries from nontaxable to
taxable entities - - - - 1,260,479 (1,260,479) -
Exchange of common stock in connection
with the acquisition of Paudan, Inc. 1,787,000 (31,063) - - 231,064 - 200,001
Common stock to be issued in connection
with the acquisition of Peachtree Corners
Medical Center - - - 75,000 - - 75,000
Distribution to members of Valley Family
Health Center, L.L.C. - - - - - (74,000) (74,000)
Net income - - - - - 1,203,545 1,203,545
--------- -------- -------- -------- ---------- ----------- ----------
BALANCES, SEPTEMBER 30, 1995 5,797,000 5,797 - 75,000 1,722,524 2,775,456 4,578,777
Common stock issued in connection
with acquisition 25,000 25 - (75,000) 74,975 - -
Sale of shares of common stock at prices
ranging from $2.00 to $4.90 per share 1,402,652 1,402 - - 3,422,532 - 3,423,934
Common stock issued in lieu of note
payment 8,040 8 - - 64,721 - 64,729
Warrants issued in connection with
financing provided - - - - 42,504 - 42,504
Proceeds from sale of option to acquire
153,061 shares of common stock at
$4.90 per share - - 100,000 - - - 100,000
Common stock to be issued in connection
with financing provided - - - 78,527 - - 78,527
Distribution to members of Valley Family
Health Center, L.L.C. - - - - - (144,008) (144,008)
Net loss - - - - - (2,932,230) (2,932,230)
--------- -------- -------- -------- ---------- ----------- ----------
BALANCES, SEPTEMBER 30, 1996 7,232,692 $ 7,232 $100,000 $ 78,527 $5,327,256 $ (300,782) $5,212,233
========= ======== ======== ======== ========== =========== ==========
</TABLE>
See accompanying notes to these consolidated financial statements.
Page 23 of ___
<PAGE> 24
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------------
1995 1996
------------- -------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,203,545 $ (2,932,230)
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Depreciation and amortization 81,221 371,053
Change in assets and liabilities:
Goodwill Impairment -- 1,054,829
Common Stock and Warrants issued in connection
with financing transactions -- 121,031
Increase in trade accounts receivable, net (1,596,268) (1,301,867)
(Increase) decrease in other current assets (165,701) 44,289
Increase (decrease) in accounts payable and accrued expenses (36,550) 683,552
Increase (decrease) in deferred taxes and income taxes payable 982,563 (1,356,217)
Other, net 175,324 191,140
------------- -------------
Net cash provided by (used in) operating activities 644,134 (3,124,420)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from acquisitions 203,978 --
Amounts paid for acquisitions (295,745) (214,603)
Advances to physicians and other receivables, net (70,978) (282,091)
Purchases of property and equipment (215,430) (407,812)
Cash advances to stockholders, net (246,735) (230,438)
------------- -------------
Net cash used in investing activities (624,910) (1,134,944)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- 763,912
Payments on notes payable and capital leases - (309,492)
Proceeds from sale of common stock - 3,423,934
Proceeds from sale of stock option - 100,000
Contributions by members of Valley Family Health Center, L.L.C. 71,145 --
Distributions paid to members of Valley Family Health Center, L.L.C. (74,000) (144,008)
Proceeds from sale and leaseback of fixed assets 300,000 --
------------- -------------
Net cash provided by financing activities 297,145 3,834,346
------------- -------------
INCREASE (DECREASE) IN CASH 316,369 (425,018)
CASH, beginning of year 267,815 584,184
------------- -------------
CASH, end of year $ 584,184 $ 159,166
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ - $ 22,000
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Net assets (liabilities) purchased (See Note 3) $ 368,610 $ 1,076,791
Equipment contributed by stockholders $ 55,000 $ -
Common stock issued in lieu of debt payment - 64,729
Capital lease additions - 69,518
============= =============
</TABLE>
See accompanying notes to these consolidated financial statements.
Page 24 of ___
<PAGE> 25
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS AND OPERATING LOSSES:
American HealthChoice, Inc. and subsidiaries (the Company) consists of
a parent company and twenty-one clinics providing physical therapy,
chiropractic and medical services in San Antonio, McAllen, Brownsville
and Houston, Texas, New Orleans, Louisiana and Atlanta, Georgia.
Additionally, the Company includes one clinic providing diagnostic
services throughout the United States and one clinic provides medical
testing in the State of Texas for individuals located near the site of
the release of hazardous substances. Substantially all of the
Company's revenues are derived from chiropractic, physical therapy and
medical services provides to individuals living in the vicinity of the
clinics.
On March 31, 1995, Paudan, Inc. acquired 100% of the outstanding
common stock of the Company in exchange for 91.6% of the outstanding
common stock of Paudan, Inc. As a result, the stockholders of
American HealthChoice, Inc. became the controlling stockholders of
Paudan, Inc. Paudan, Inc. was an inactive public shell company which
had total assets of $200,000, consisting entirely of cash, and no
liabilities at the time of the acquisition. This transaction was
accounted for as a reverse acquisition of Paudan, Inc. by American
HealthChoice, Inc. The accompanying financial statements are those of
American HealthChoice, Inc. for all periods presented. The legal name
of Paudan, Inc. was changed to American HealthChoice, Inc. after the
merger.
During fiscal 1996, the Company incurred a net loss of $2,932,230.
The loss primarily resulted from increased provisions for doubtful
accounts and writedowns of goodwill on certain clinics. The increased
provision for doubtful accounts reflected poorer than expected
collection results during fiscal 1996 and billing problems on certain
Medicaid claims. The decline in collections was accompanied by
start-up costs for new clinics formed during fiscal 1996 and increased
working capital requirements associated with the clinics acquired
during fiscal 1996 and late fiscal 1995. As a result, the Company has
been unable to generate sufficient cash flow from operations to fund
its operating requirements. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Management of the Company recognizes the Company must generate
additional cash flow, reduce operating costs and obtain additional
sources of financing. Management's plans include a program to
increase the accounts receivable collectibility activity, close
certain acquired clinics and recently opened clinics and to reduce
overall operating costs. Additionally, the Company is actively
pursuing the sale of debt and equity securities with investment
bankers and other financing sources.
Management expects these efforts will result in improved operating
results and net working capital. However, no assurances can be given
that the Company will be successful in these efforts. If the Company
is not successful in these efforts, management will be required to
halt current plans for acquisitions and expansion and further curtail
its current operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation Policy - The accompanying financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated
in consolidation.
Net Patient Revenues - Revenue is recognized upon performance of
services. Substantially all of the Company's revenues are derived
from personal injury claims and claims filed on major medical
policies, worker's compensation policies, Medicare or Medicaid.
Allowances for discounts on services provided are recognized in the
periods the related revenue is earned. Allowances are maintained at
levels considered appropriate by management based upon historical
charge-off experience and other factors deemed pertinent by
management. Revenues related to the medical testing for individuals
near the site of the release of hazardous substances are recognized as
payments for the services are received.
Fiscal 1996 net patient revenues; as a percentage of total revenues,
for medical, chiropractic and physical therapy services amounted to
54%, 37% and 9%, respectively.
Page 25 of ___
<PAGE> 26
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment, net - Property and equipment are stated at cost
less accumulated depreciation. Depreciation is provided over the
estimated useful lives of the related assets, primarily using
accelerated methods. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful lives of the
improvements.
Income taxes - Certain of the entities included in the accompanying
consolidated financial statements were non-taxable entities during
portions of fiscal 1995 and 1996. As such, federal income taxes
relating to these entities were the responsibility of the members or
stockholders for each period. Pro forma income taxes have been
provided in the accompanying consolidated financial statements as
though these entities had been taxable for all of fiscal 1995 and 1996.
The Company accounts for income taxes under Financial Accounting
Standards Board (FASB) Statement No. 109, "Accounting for Income
Taxes." FASB Statement No. 109 requires that deferred income taxes be
recorded on a liability method for temporary differences between the
financial reporting and tax bases of a company's assets and
liabilities, as adjusted when new tax rates are enacted.
Goodwill - Goodwill arose from the Company's acquisitions of
various clinics and is being amortized on the straight-line method
over 20 years.
Recent Accounting Pronouncements - The Financial Accounting
Standards Board ("FASB" issued SFAS No. 121 entitled, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 121 specifies certain events and
circumstances which indicate the cost of an asset or assets may be
impaired and, the method by which writedowns, if any, of the asset or
assets are to be determined and recognized. The Company adopted SFAS
No. 121 in fiscal 1997. Management of the Company does not believe
the adoption of the new standard will have a significant effect on
the Company's financial position or results of operations.
The FASB also issued SFAS No. 123, "Accounting for Stock Based
Compensation" effective for fiscal years beginning after December 15,
1995. This statement allows companies to choose to adopt the
statement's new rules for accounting for employee stock-based
compensation plans. For those companies that choose not to adopt the
new rules, the statement requires disclosures as to what earnings per
share would have been if the new rules had been adopted. The Company
adopted the disclosure requirements of this statement in fiscal 1997.
Use of Estimates- The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles requires the Company's management to make estimates and
assumptions that effect the amounts reported in these financial
statements and accompanying notes. Actual results could differ from
those estimates. The accounts receivable allowance is a significant
estimate; actual results could materially differ from these estimates.
Net Income Per Share - Net income per share is based upon the weighted
average number of common shares outstanding during the years
presented. Common stock issued to acquire Paudan, Inc. during fiscal
1995 was deemed to be outstanding for all of fiscal 1995 for purposes
of determining the weighted average common shares outstanding. The
common stock issued to acquire Valley Family Health Center, L.L.C. was
deemed to be outstanding beginning on October 1, 1994.
3. ACQUISITIONS:
The Company acquired Peachtree Corners Medical Center (Peachtree) on
September 22, 1995 in exchange for cash, common stock, the assumption
of certain liabilities and promissory notes due the seller. Peachtree
is a medical, clinical and urgent care center located in Atlanta,
Georgia. The amount paid for Peachtree totaled $1,113,000 as follows:
Cash - $100,000; 25,000 shares of common stock - $75,000; liabilities
assumed - $287,000 and notes due the seller totaling $651,000. The
acquisition was accounted for under the purchase method of accounting
and resulted
Page 26 of ___
<PAGE> 27
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in goodwill of $651,000, which is being amortized over 20 years on the
straight-line method. During fiscal 1996, the Company wrote down the
goodwill related to the Peachtree acquisition by $376,000 (see Note 4).
Because the acquisition occurred eight days before the Company's 1995
fiscal year end, the operations of Peachtree for that eight-day period are
not reflected in the accompanying financial statements. The following
unaudited pro forma information is presented for fiscal 1995 as if
Peachtree had been acquired at the beginning of the year.
<TABLE>
<CAPTION>
Year Ended
September 30,
1995
-------------
(unaudited)
<S> <C>
Revenues 9,377,119
Net income after pro forma income taxes 1,397,352
-------------
Net income per share after pro forma income taxes $ .24
=============
</TABLE>
During the second quarter of fiscal 1996, the Company acquired 100% of the
ownership interest of Valley Family Health Center, L.L.C. (a chiropractic
clinic) for 360,000 shares of its common stock. This acquisition was
accounted for under the pooling of interests method of accounting.
Accordingly, the historical financial statements of the Company have been
restated as if the acquisition had occurred on October 1, 1994, the date
Valley Family Health Center, L.L.C. began operations.
The following is a summary of selected unaudited historical operating
information of the Company and Valley Family Health Center, L.L.C. for the
year ended September 30, 1995 and the six months ended March 31, 1996:
<TABLE>
<CAPTION>
Valley
Family
American Health
HealthChoice, Center
Year Ended September 30, 1995 (unaudited): Inc. L.L.C. Combined
----------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 5,247,693 $ 920,417 $ 6,168,110
Income before income taxes $ 1,697,126 $ 581,378 $ 2,278,504
Net income before pro forma income taxes $ 649,167 $ 554,378 $ 1,203,545
Net income after pro forma income taxes $ 1,060,704 $ 363,361 $ 1,424,065
============= ============= =============
Valley
Family
American Health
HealthChoice, Center
Six Months Ended March 31, 1996 (unaudited): Inc. L.L.C. Combined
------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 4,964,340 $ 719,847 $ 5,684,187
Income before income taxes $ 674,834 $ 518,406 $ 1,193,240
Net income before pro forma income taxes $ 22,873 $ 509,406 $ 532,279
Net income after pro forma income taxes $ 427,396 $ 318,379 $ 745,775
============= ============= =============
</TABLE>
The Valley Family Health Center, L.L.C. was owned by an individual who
became a consultant to the Company and a limited liability company, equally
owned by the Company's chief executive officer and an individual who also
became a consultant to the Company (see Note 8).
In March 1996, the Company acquired substantially all of the assets and
liabilities of four medical clinics located in and around Atlanta, Georgia
(Metropolitan) for $1,564,516, consisting of various trade liabilities and
notes payable due physicians assumed by the Company and direct acquisition
costs. This acquisition was accounted for on the purchase method of
accounting and gave rise to goodwill of $908,225, which is being amortized
over 20 years. During fiscal 1996, the Company wrote down the goodwill
related to the Metropolitan acquisition by $495,166 (see Note 4). Financial
information for these four clinics preceeding the purchase date was not
available, therefore pro forma information for fiscal 1995 is not included
herein. The following is a summary of the assets acquired and liabilities
assumed:
Page 27 of ___
<PAGE> 28
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Current assets $ 498,791
Furniture, fixtures and equipment 157,500
-------------
Total assets acquired 656,291
-------------
Trade liabilities (402,246)
Notes payable to physicians (1,162,270)
-------------
Total liabilities acquired (1,564,516)
-------------
$ (908,225)
=============
</TABLE>
In December 1995, the Company acquired a medical clinic in San Antonio
(Southcross) for $315,000 consisting of cash of $100,000, a note for
$200,000 and direct acquisition costs of $15,000. This acquisition was
accounted for on the purchase method of accounting and gave rise to goodwill
of $55,000. During fiscal 1996, the Company wrote down the amount of
goodwill related to the Southcross Joint Venture by $55,000 (see Note 4).
The following is a summary of the assets acquired:
<TABLE>
<S> <C>
Accounts receivable and inventory $ 45,000
Land and buildings 165,000
Furniture and fixtures 50,000
--------------
$ 260,000
==============
</TABLE>
4. GOODWILL IMPAIRMENT:
The poorer than expected 1996 operating results for the Peachtree,
Metropolitan and Southcross clinics during fiscal 1996 resulted in an
evaluation of related goodwill for possible impairment. The Company
evaluated the clinics and determined based on their expected future
revenues and cash flows that the goodwill relating to these clinics was
impaired. Additionally, the Company determined two of the Metropolitan
clinics were no longer in the Company's long-term plan and intends to
close them during fiscal 1997. Based on this analysis, the Company wrote
down goodwill during fiscal 1996 by $1,054,829. Management believes the
remaining carrying value of goodwill will be supported by the anticipated
cash flows of the remaining clinics with associated goodwill.
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
Useful Life 1996
-------------- --------------
<S> <C> <C>
Land - $ 120,000
Building 20 years 45,000
Furniture and equipment 5 years 1,881,813
--------------
2,046,813
Less accumulated depreciation and amortization (787,515)
--------------
$ 1,259,298
==============
</TABLE>
Page 28 of ___
<PAGE> 29
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of furniture, fixtures and equipment under
capital leases, except for the assets sold and leased back to the
Company included in Note 9:
<TABLE>
<CAPTION>
September 30,
1996
-----------------
<S> <C>
Equipment $ 373,018
Less accumulated amortization (209,727)
---------------
$ 163,291
===============
</TABLE>
6. NOTE RECEIVABLE FROM STOCKHOLDER:
The Company has advanced $270,000 to a stockholder who was the former
owner of Peachtree. The note receivable is unsecured and bears
interest at a rate of 10%. Principal payments are due in five equal
installments of $54,000 beginning December 31, 1996. Interest on the
note is due with each principal installment.
7. NOTES PAYABLE:
A summary of notes payable is as follows:
<TABLE>
<CAPTION>
September 30,
1996
-----------------
<S> <C>
Notes payable due to physicians in connection with the Metropolitan acquisition.
Interest on the notes range from 8% to 10%. Monthly payments, including
interest, range from $2,133 to $9,161 over periods ranging from four to six years.
The notes are collateralized by accounts receivable and furniture, fixtures and equipment. $ 903,783
Unsecured note payable due November 29, 1996. The Company issued 16,026 shares
of the Company's common stock upon maturity of the note in lieu of interest due. The
effective interest rate, based upon the fair value of the shares of common stock issued,
amounted to 37.69%. The note payable was paid in full subsequent to September 30, 1996. 500,000
Unsecured notes payable to former stockholder of Peachtree. Interest on the notes,
range from 8% to 10%. Principal is due in three installments of $100,000, beginning
October 1, 1996 and each six-months thereafter and in five annual installments of
$54,400 beginning December 31, 1996. The Company has not made the $100,000 payment
due on October 1, 1996, accordingly, the entire balance of this note is classified
as current in the accompanying balance sheet. 572,000
Unsecured note payable to stockholder maturing on January 31, 1996. Interest on the
note of 7.5% is due upon maturity (see Note 8). 153,753
</TABLE>
Page 29 of ___
<PAGE> 30
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Note payable due to former owner of the Southcross clinic. Interest on the note is
10% and is due quarterly. Principal is due in eight quarterly installments of $25,000
beginning March 1996. The note is collateralized by the clinic and an office building. 150,000
Unsecured non interest-bearing note payable. Monthly payments totaling $6,118 began
in May 1996 and continue for the following 22 months. 146,827
Unsecured notes payable, including a $125,000 note payable to a stockholder, due
November 3, 1996. Interest on each of the notes of 10% is due upon maturity. In
connection with this borrowing, the Company issued a warrant to each lender to
acquire 13,750 shares of the Company's common stock on or before October 1, 1998
for $5.00 per share, subject to certain price adjustments. These notes payable
were paid in full subsequent to September 30, 1996. 250,000
Unsecured note payable due in monthly payments of $1,587, including interest at 8%,
through May 2000. 60,340
Note payable to former owner of one of the Metropolitan clinics. Principal is due in
monthly payments of $5,481 through June 1997. This note is collateralized by shares
of the Company's common stock. 49,329
Note payable to stockholder due November 1994, collateralized by certain accounts receivable.
Interest on the note is 12%. 22,966
Other notes payable 31,701
--------------
2,840,699
Less: Current maturities (1,799,958)
--------------
Long-term notes payable $ 1,040,741
==============
</TABLE>
Scheduled maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year ending September 30,
-------------------------
<S> <C>
1997 $ 1,699,958
1998 459,319
1999 293,585
2000 186,662
2001 156,272
Thereafter 44,903
--------------
$ 2,840,699
==============
</TABLE>
8. RELATED PARTY TRANSACTIONS:
The Company has an unsecured note payable to a major stockholder in
the principal amount of $153,753 (see Note 7). The note bears
interest at 7.5% and was due, along with the principal amount
outstanding, on January 31, 1996. The note originated as a result of
the acquisition of equipment by the Company from such stockholder for
common stock and
Page 30 of ___
<PAGE> 31
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a note of $125,067. Subsequent advances increased the note to
$153,753. No interest was paid on this note during fiscal 1995 or
fiscal 1996.
Certain stockholders had advances totaling $145,781 outstanding from
the Company at September 30, 1996. Additionally, certain stockholders
had amounts due to the Company totaling $498,095 at September 30,
1996. All of these amounts are unsecured, non-interest bearing and
have no defined repayment terms. The Company believes that all
amounts due from these stockholders will be repaid in full.
The Company has a note payable with a stockholder of the Company which
originated in connection with the purchase of clinic assets. The note
payable is due in monthly principal and interest installments of
$2,669, bears interest at 12%, matured in November 1994 and is
collateralized by certain trade accounts receivable. The note payable
balance was $22,966 at September 30, 1995 and 1996, respectively.
In October 1993, the Company began to rent equipment from a
stockholder of the Company. There is no formal document related to
this arrangement. Rent expense was $7,200 and $3,600 for the years
ended September 30, 1995 and 1996, respectively.
Valley Family Health Center, L.L.C. was acquired from a group which
included a limited liability company in which the Company's chief
executive officer was a 50% owner. This limited liability company
owned 50% of Valley Family Health Center, L.L.C. at the time of its
acquisition.
9. COMMITMENTS:
The Company leases office space for four of its clinics with third
party lessors under noncancellable operating leases which expire
during 1999 and the year 2001. Rent expense for the years ended
September 30, 1995 and 1996 amounted to approximately $228,000 and
$979,741 respectively. The Company also leases furniture, fixtures
and equipment under capital leases with interest rates ranging from
9.20% to 16.24%. Future minimum lease payments under operating leases
with terms in excess of one year and capital leases are as follows:
<TABLE>
<CAPTION>
Year Ended September 30, Operating Capital
------------------------ ------------- -------------
<S> <C> <C>
1997 $ 624,140 $ 172,345
1998 594,428 114,446
1999 515,994 109,500
2000 256,934 19,399
2001 4,439 15,199
------------- -------------
Total minimum lease payments $ 1,995,935 430,889
=============
Future interest (60,569)
-------------
370,320
Less: Current maturities (305,444)
-------------
$ 64,876
=============
</TABLE>
Page 31 of ___
<PAGE> 32
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has three-year employment agreements with two of its
officers under which the Company must pay any amounts due under the
remaining term of the agreements if they are terminated without cause.
In certain other circumstances they would be due one-year compensation
upon termination.
The Company has consulting arrangements with three individuals to
provide assistance in locating acquisition candidates and performing
due diligence in connection with any such acquisitions. Total monthly
payments under these agreements amount to $27,000. The terms of these
agreements range from 24 to 36 months beginning in January 1996.
10. STOCKHOLDERS' EQUITY:
The Company granted an investment group the right to acquire an option
to acquire the Company's common stock at specified prices over a
defined period of time. The agreement provides for each option to be
issued in exchange for $100,000, which amount will be applied to the
purchase of common stock, when and if the option is exercised. The
following is a summary of the terms of the transaction:
<TABLE>
<CAPTION>
Last Nonrefundable Possible
Option Fee To Total Exercise
Purchase Acquire Exercise Price
Date Option Price Per Share
----------------------- ------------------- --------------- -------------------
<S> <C> <C> <C>
March 18, 1996 $ 100,000 $ 750,000 $ 2.25
June 18, 1996 $ 100,000 $ 750,000 $ 4.90
September 18, 1996 $ 100,000 $ 750,000 $ 4.90
December 18, 1996 $ 100,000 $ 750,000 $ 4.90
</TABLE>
The first option was exercised in May 1996 and 333,333 shares of
common stock were issued for $750,000. The second option was
exercised in August 1996 and 102,041 shares of common stock were
issued for $500,000. The third option was exercised in September 1996
and 99,277 shares of common stock were issued for $486,457. In
addition, $100,000 was received in September 1996 to acquire the
fourth option. Under the terms of the second, third and fourth
options, the options are exercisable over the 24-month period following
the acquisition of the option. As of September 30, 1996, under the
terms of the second, third and fourth options, the investment group
has the right to purchase an additional 257,865 shares of the Company's
common stock at $4.90 per share. To the extent an option is not
purchased, then all rights to the remaining options are forfeited. The
Company has granted registration rights to all of the shares issued and
to be issued in connection with this transaction.
The Company issued 768,001 shares of common stock during the second
quarter of fiscal 1996 in connection with a private placement of its
stock. The Company sold 711,111 shares at $2.25 per share and issued
56,890 shares to the placement agent as compensation. The net
proceeds of the offering amounted to $1,487,477. Under the terms of
the private placement agreement, the Company agreed to file a
registration statement with the Securities and Exchange Commission
within a specified period of time following the private placement for
the purpose of registering such shares. The Company failed to file a
registration statement within the period specified and, as a result,
may be required to issue each holder of the shares sold in the private
placement, one share of common stock for every ten shares held by such
stockholder.
Page 32 of ___
<PAGE> 33
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company issued 100,000 shares of its common stock during the
second quarter of fiscal 1996 for $2.00 per share under Regulation S
of the Securities Act of 1933. Total proceeds from this transaction
amounted to $200,000. The Company has granted registration rights to
the holders of these shares.
The Company issued 8,040 shares of its common stock during the third
quarter of fiscal 1996 in lieu of a note payable payment. The
principal and interest due on this note payment totaled $64,729 on
April 1, 1996.
The holders of any preferred stock which might be issued shall have
such rights, preferences and privileges as may be determined by the
Company's board of directors.
11. CONCENTRATION OF CREDIT RISK:
The Company's trade receivables at September 30, 1995 and 1996 consist
of the following, stated as a percentage of total accounts receivable:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Personal injury claims 65% 62%
Medical claims filed with insurance companies 20 18
Medicare/Medicaid 4 9
Workman's compensation claims 5 5
Other 6 6
-------- --------
100% 100%
======== =========
</TABLE>
The Company maintains deposits in banks which may exceed the amount of
federal deposit insurance available. The Company believes that the
risk of material loss is minimal.
12. INCOME TAXES:
Substantially all of the Company's deferred income tax liability at
September 30, 1995 and 1996 represents temporary differences arising
from the Company reporting on the cash method for income tax reporting
purposes. Income tax expense for the years ended September 30, 1995
and 1996 differed from the expected amounts at the federal statutory
rate of 34% because of state income taxes and because certain of the
subsidiaries were nontaxable entities for all or a portion of both
years. As a result, income tax expense was approximately $527,000
higher in fiscal 1995 and $285,000 in 1996 because of deferred
income taxes recorded when certain nontaxable entities became taxable
on October 1, 1994.
13. STOCK OPTION PLANS:
The Company has a stock option plan under which options to purchase a
maximum of 1,000,000 shares of common stock may be issued employees
and consultants of the Company. The stock option plan provides both
for the grant of options intended to qualify as "incentive stock
options" under the Internal Revenue Code of 1986, as amended (the
"Code"), as well as options that do not so qualify. With respect to
incentive stock options, no option may be granted more than ten years
after the date of the grant (five years if the optionee owns more than
10% of the common stock
Page 33 of ___
<PAGE> 34
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the Company). The exercise price of incentive stock options may
not be less than 100% of the fair market value of the common stock on
the date of grant (110% if the optionee owns more than 10% of the
common stock of the Company). The exercise price of nonqualified
stock options may not be less than 85% of the fair market value of the
Company's common stock on the date of grant. Subject to certain
limited exceptions, options may not be exercised unless, at the time
of exercise, the optionee is in the service of the Company. The
following table is a summary of stock options the Company's board of
directors has authorized to be granted as of September 30, 1996:
<TABLE>
<CAPTION>
Number Exercise
of Shares Price
--------- ---------
<S> <C>
210,000 $ 2.20
75,000 $ 2.00
10,000 $ 5.00
2,500 $ 2.00
---------
297,500
=========
</TABLE>
Substantially all of these options were exercisable at September 30,
1996 under the terms authorized by the board of directors. No options
had been exercised at that date.
The Company has a non-employee director stock option plan (the
"Director Plan") which provides for the grant of options that do not
qualify as "incentive stock options" under the Code. Options granted
under the Director Plan are to have an exercise price equal to the
fair market value of the Company's common stock on the date of grant.
Pursuant to the Director Plan, an option to purchase 10,000 shares of
common stock is granted to each non-employee director upon their
election to the Board and an option to purchase 5,000 shares every
year thereafter is granted so long as they are re-elected to the Board
of Directors. As of September 30, 1996, no options have been granted
under the Director Plan.
The Company's board of directors authorized or issued the grant of
options to acquire a total of 20,000 shares of its common stock at an
exercise price of $3.00 per shares in connection with the Metropolitan
transaction (see Note 3). These options are to be exercisable for a
three-year period ending February 28, 1998. None of these options
were executed as of September 30, 1996.
The Company issued an option to acquire 200,000 shares of its common
stock at an exercise price of $3.00 per share in connection with the
private placement of 100,000 shares of common stock (see Note 10).
The options may be exercised for a period of three years ending on
December 15, 1998, provided certain events occur. As of September 30,
1996, these options are not exercisable.
14. STOCK PURCHASE PLAN:
The Company has a stock purchase plan, which allows employees to acquire
common stock of the Company at 85% of its fair market value from payroll
deductions received from the employees. The Company has reserved a total
of 250,000 shares of its common stock to be sold to eligible employees in
the plan.
Page 34 of ___
<PAGE> 35
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. PENDING ACQUISITIONS:
The Company has entered into letters of intent to acquire various
companies from time to time. These potential acquisitions are subject
to due diligence, further negotiations, execution of definitive
agreements and the success of the Company to obtain additional funds
(total or partial) for the acquisition price. Due to the Company's
operating losses and an inability to generate sufficient cash flows
from operations, as described in Note 1, the Company has determined
to delay this acquisition process.
16. SUBSEQUENT EVENTS:
In November and December 1996, the Company obtained $2,200,000 in a
private placement of promissory notes. The notes bear interest at 10%
and are due the earlier of twelve months after the final closing of
the private placement or the closing of a public offering of the
Company's equity securities which produces gross proceeds of at
least $10 million. The Company issued approximately 200,000 shares of
its common stock to the note holders at a cost of $.001 per share.
The notes are collateralized by accounts receivable, furniture,
fixtures and equipment, and all other assets of the Company to the
extent not encumbered.
In December 1996, the Company completed a $1.5 million revolving
credit facility with a financial institution. Advances under this
facility are limited to the borrowing base as defined in the agreement
and are collateralized by substantially all of the Company's accounts
receivable. Advances outstanding under the revolving credit facility
accrue interest at prime plus 3%. The facility terminates on December
30, 1998 and is renewed for consecutive one year terms thereafter
unless the Agreement is terminated. The revolving credit facility
agreement contains covenants which requires, among other things, the
Company maintain a minimum tangible net worth of $5,000,000. The
Company is currently in default of this minimum tangible net worth
requirement.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes or disagreements of the type required to be
reported under this item between the Company and its independent accountants
during the Company's last two fiscal years.
PART III
Page 35 of ___
<PAGE> 36
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Joseph W. Stucki, D.C. 39 President, Chief Executive March 1995
Officer and Chairman of
the Board of Directors
C. Dean York 55 Chief Financial Officer December 1996
and Vice President - Finance
Jon A. Sommerhauser 47 Vice President - June 1996
Operations, Director
Jeffrey Jones, D.C. 35 Director March 1995
Ronald Potts 49 Director June 1996*
James Roberts 38 Director December 1996
Michael R. Smith, M.D. 39 Director December 1996
- -------------------
</TABLE>
* Mr. Potts resigned from the Board of Directors in December 1996.
Joseph W. Stucki, D.C. Dr. Stucki is Chairman of the Board of
Directors, Chief Executive Officer and President of the Company. Dr. Stucki
has been a licensed chiropractor for 14 years and is currently licensed in four
states. In May 1983, he founded United Chiropractic Clinics, Inc. and, as its
Chairman and President, purchased or developed and opened approximately 84
multi-disciplined (chiropractor, physical therapist, massage therapist, etc.)
clinics. From 1988 to the present, Dr. Stucki has served as Chairman and Chief
Executive Officer of United Health Services and from 1989 to 1993 acted as a
consultant to various health care organizations. Also, during 1992 and 1993,
he provided consulting services relating to mergers and acquisitions to
CliniCorp, Inc. From 1987 through 1989, Dr. Stucki was a board member of the
Chiropractic Association of Louisiana. Currently he is a Diplomate of the
National Board of Chiropractors. He is also a member of the American
Chiropractic Association, the International Chiropractic Association, and
various other state and local associations. Dr. Stucki maintains an
investment apart from the Company in six chiropractic clinics that do not
compete with the Company's clinics. Dr. Stucki intends to divest ownership of
such clinics.
Page 36 of ___
<PAGE> 37
C. Dean York. Mr. York became Chief Financial Officer and Vice
President of Finance in December 1996. From January 1996 to November 1996, Dr.
York was the Chief Operating Officer of Family Medical Care, SAFMC in San
Antonio, Texas where he was responsible for the day to day operations of that
primary care group. Prior to his position with Family Medical Care, Mr. York
provided consulting services for approximately six months to Hallmark
Management, Inc., a period which included that insurance company's merger with
Physicians Corporation of America. From 1988 to 1995, Mr. York served as the
Associate Executive Director of the Oklahoma City Clinic where he was
responsible for the day to day operations of that private practice physician
group as well as their overall financial management, budgeting and reporting.
Prior to joining that clinic, Mr. York was in public accounting for
approximately 20 years with the firm KPMG Peat Marwick. Mr. York received his
Bachelors in Accounting from the University of Oklahoma.
Jon A. Sommerhauser. Mr. Sommerhauser became Vice President of
Operations in June 1996. Mr. Sommerhauser has over 20 years of experience in
direct sales and operations in a wide range of businesses, including,
primarily, those related to the health care industry. From 1995 through May
1996 he held the position of Director of Operations for the Princeton Medical
Group. From 1993 through 1995, Mr. Sommerhauser served as the Executive
Director of Phycor IPA Management, LLC, and from 1984 through 1993 he was the
President of Emergency Care Centers. Mr. Sommerhauser received his Masters
Degree in Business Administration in 1982 from the University of Dallas
Graduate School of Management in Dallas, Texas.
Jeffrey Jones, D.C. Dr. Jones is a Director of the Company. Dr.
Jones is the Clinic Director of the United Chiropractic Uptown clinic. He
obtained his Louisiana Doctor of Chiropractic license in July 1985, and began
his association with the United Chiropractic Uptown clinic shortly thereafter.
In the past, Dr. Jones has acted as Regional Manager of other United Clinics in
the greater New Orleans area. He is a member of the Chiropractic Association
of Louisiana, The Union of Chiropractic Physicians and the American
Chiropractic Association.
Ronald Potts. Mr. Potts became a Director of the Company in June
1996. Mr. Potts provides management consulting and merchant banking services
through Londoff Investment, Ltd. Mr. Potts has 25 years experience in the
investment industry. Mr. Potts resigned from the Board of Directors in
December 1996.
James Roberts. Mr. Roberts became a Director of the Company in
December 1996. From 1975 to 1987, Mr. Roberts served in management level
positions with two manufacturing companies, including Harris/Lanier Corporation
as a National Accounts Manager. In 1988, Mr. Roberts assumed the position of
Vice President of American Dental Plan of Georgia, now CompDent. In 1992, Mr.
Roberts became President of Health Dental Plus, Inc. where he oversees the
daily operations of this company which provides dental benefit plans to
employer groups.
Michael R. Smith, M.D. Dr. Smith became a Director of the Company in
December, 1996. Dr. Smith, a practicing physician board certified in family
practice, has been emloyed by the Company since September 1994. Dr. Smith
provides medical services at certain of the Company's clinics and serves as the
Medical Director for the Company's Texas clinics. He also serves on the Board
of Directors of AHC Physicians Corporation, Inc., a subsidiary of the Company.
From June 1992 through August 1994, Dr. Smith was an employee and then partner
at the Texas Trauma Rehabilition Association. Dr. Smith graduated from the
University of Texas Medical Branch in 1984.
There are no family relationships among the executive officers and
directors.
Members of the Company's Board of Directors are elected to hold office
until the next meeting of shareholders and until their successors are elected
and qualified. Officers are elected to serve subject to the discretion of the
Board of Directors until their successors are appointed and have qualified.
There are no committees of the Company's Board of Directors.
Page 37 of ___
<PAGE> 38
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's officers and directors, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC") and with the exchange on which the Company's securities are traded.
Such reporting persons are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms so filed.
Based solely on review of the copies of such forms furnished to the
Company by any such reporting person and, if appropriate, representations made
to the Company by any such reporting person concerning whether a Form 5 was
required to be filed, the Company has determined that none of the required
section 16(a) filings applicable to the Company's officers, directors and
"greater than ten percent" stockholders have been made other than those
required for Mr. York.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and
non-cash compensation awarded to, earned by, or paid to the Company's Chief
Executive Officer for the last three fiscal year. No other executive officer
of the Company who was serving at the end of fiscal year 1996 earned more than
$100,000 of annual compensation for services in all capacities to the Company
and its subsidiaries.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
FISCAL COMPENSATION
NAME AND YEAR ENDING ANNUAL AWARDS/SECURITIES
PRINCIPAL POSITION SEPTEMBER 30(2) COMPENSATION/SALARY UNDERLYING OPTIONS
- ------------------ ------------ ------------------- ------------------
<S> <C> <C> <C>
Joseph W. Stucki(1)
Chairman of the Board 1996 $211,938.33 --
President and Chief 1995 $192,000.00 150,000 options
Executive Officer 1994 $317,822.00 --
</TABLE>
- --------------
(1) The Company is party to an employment agreement with Dr. Stucki. See
"Employment and Consulting Agreements."
(2) The compensation reported for fiscal year 1994 and the first quarter
of fiscal year 1995 includes amounts paid by a predecessor to the
Company.
Page 38 of ___
<PAGE> 39
STOCK OPTION AND STOCK PURCHASE PLANS
No options were granted in fiscal year 1996 to the named individual
set forth in the Summary Compensation Table above. The following table
provides information as to the value of outstanding options held by the
Company's Chief Executive Officer.
AGGREGATED OPTIONS EXERCISED IN FISCAL YEAR 1996
AND FISCAL 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN THE
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
SHARES OPTIONS AT FISCAL YEAR-END (#) YEAR-END ($)(1)
ACQUIRED VALUE ------------------------------ ---------------------------
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph W. Stucki 0 0 150,000 0 $1,207,500(2) 0
- --------------
</TABLE>
(1) Value is based on a $10.25 per share closing price as quoted on the
Nasdaq Small Cap Market on September 30, 1996.
(2) Amounts represent options to acquire 150,000 shares of Common Stock in
the aggregate at $2.20 per share.
EMPLOYEE BENEFIT PLANS
In August 1995 the Company adopted its 1995 Employee Stock Option Plan
(the "Employee Plan") under which options to purchase shares of Common Stock
may be issued to employees and consultants of the Company. The Company
reserved 1,000,000 shares of Common Stock for issuance under the Employee Plan.
Also in August 1995, the Company adopted the 1995 Non-Employee Director Stock
Option Plan (the "Director Plan") which provides for the grant of options that
do not qualify as "incentive stock options" under the Internal Revenue Code of
1986. In addition, the Company adopted its 1995 Employee Stock Purchase Plan
(the "Stock Purchase Plan"), effective October 1, 1995, which allows employees
to acquire Common Stock of the Company at 85% of its fair market value from
payroll deductions received from the employees. The Company has reserved a
total of 250,000 shares of its Common Stock to be sold to eligible employees in
the plan. In October 1996, the Board of Directors amended each of the Employee
Plan, the Director Plan and the Stock Purchase Plan to clarify various matters
concerning the administration of such plans.
COMPENSATION OF DIRECTORS
The Company pays its non-employee Directors $250 for each Board of
Director meeting attended. The Company reimburses all Directors for reasonable
out-of-pocket expenses incurred in connection with attending Board of Director
meetings. Pursuant to the Director Plan, any new Director elected to the Board
of Directors will receive a 10-year option to purchase 10,000 shares of Common
Stock at an exercise price determined by the Board of Directors at the time of
grant. If a non-employee Director is re-elected, such Director will receive,
upon such re-election, a 10-year option to purchase 5,000 shares of Common
Stock at an exercise price determined by the Board of Directors at the time of
grant.
EMPLOYMENT AND CONSULTING CONTRACTS
The Company (or its subsidiaries) has entered into three year
employment contracts with Messrs. Stucki, York, Jones and Sommerhauser.
The agreement with respect to Dr. Stucki commenced October 1, 1994.
While it provides for annual compensation of $180,000, the agreement provides
that the Board of Directors may adjust the base level of compensation after the
first year of the term. The agreement also provides for an automobile
allowance of $1,000.00 per month. The agreement further provides for a
bifurcated severance pay schedule. If Dr. Stucki's employment is terminated
without a change in control, then the Company will be obligated to pay
severance in an amount equal to six months of base salary. However, if Dr.
Stucki's employment is terminated by Dr. Stucki within 120 days following a
change in control, then the Company will be obligated to pay an amount equal to
three times Dr. Stucki's annual base salary. A change in
Page 39 of ___
<PAGE> 40
control, for the purpose of determining severance pay, is defined as the
acquisition of a beneficial ownership of 25% or more of the Company's voting
securities or the election, at an annual election of a class of directors, of
persons who are not nominated by the Board of Directors and who comprise more
than one-half of the class of Directors so elected. Finally, the agreement
provides that Dr. Stucki may terminate his employment at any time without
penalty. Pursuant to various stock purchase agreements whereby Dr. Stucki sold
to the predecessor of the Company various clinics, Dr. Stucki agreed not to
compete within a 15-mile radius of any of the Company's clinics for a period of
three (3) years from October 1997.
The agreement with respect to Mr. Sommerhauser commenced on June 10,
1996. It provides for annual compensation of $84,000. The Board of Directors
may adjust the base level of compensation after the first year of the term.
Furthermore, Mr. Sommerhauser will receive a minimum yearly increase based upon
the consumer price index for all urban consumers. Mr. Sommerhauser received
1,000 shares of Common Stock and stock options for the purchase of 10,000
shares of Common Stock upon the execution of his employment contract. Such
options vest after 12 months of employment. He will also receive bonuses of
(a) 1,000 shares of Common Stock 90 days following the signing of the
employment contract and (b) $12,000.00 at the end of each year's employment if
the Company meets corporate performance goals as established by Mr.
Sommerhauser and the Company at the beginning of each employment year. Mr.
Sommerhauser will also receive options to acquire 20,000 and 40,000 shares of
Common Stock after each of the second and third years of employment upon the
achievement of certain established performance goals.
The term of Mr. York's employment with the Company commenced December
2, 1996. Mr. York's employment agreement provides for annual compensation of
$120,000 increased each year on the anniversary of the commencement date of the
agreement by the percentage increase, if any, in the consumer price index for
all urban consumers. The Company is obligated to issue Mr. York 1,000 shares
of Common Stock and options to purchase 10,000 shares of Common Stock (vesting
after 12 months of employment) which were earned by Mr. York upon the execution
of his employment agreement. In addition, upon the achievement by the Company
of certain established performance goals during each of the first three years
of Mr. York's employment, Mr. York will be entitled to receive options to
purchase 20,000 shares of Common Stock in the first year and 40,000 shares of
Common Stock in each of the second and third years.
Dr. Jones is employed by United Chiropractic Clinic of Uptown, Inc., a
subsidiary of the Company, as a clinic director providing chiropractic services
at the New Orleans Uptown clinic. Dr. Jones' contract provides for an annual
salary of $200,000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of
the Company's Common Stock as of January 27, 1996, by (i) each beneficial owner
of more than five percent (5%) of the outstanding Common Stock, (ii) each
current Director, (iii) the Chief Executive Officer, and (iv) the executive
officers and Directors as a group. All share numbers are provided based on
information supplied to management of the Company by the respective individuals
and members of the group. Unless otherwise indicated, each of the stockholders
has sole voting and investment power with respect to the shares beneficially
owned.
Page 40 of ___
<PAGE> 41
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF
DIRECTORS AND OFFICERS NUMBER OF SHARES PERCENT OF CLASS
---------------------- ---------------- ----------------
<S> <C> <C>
Joseph W. Stucki(1) 2,862,466 38.53%
1300 W. Walnut Hill Lane
Suite 275
Irving, Texas 75038
Jon A. Sommerhauser(2) 11,000 *
1300 W. Walnut Hill Lane
Suite 275
Irving, Texas 75038
Jeffrey Jones(3) 1,216,678 16.55%
807 S. Carrollton Avenue
New Orleans, LA 70118
James Roberts(4) 2,500 *
1300 W. Walnut Hill Lane
Irving, Texas 75038
Officers and Directors as a group(5) 4,092,644 54.48%
NAMES AND ADDRESSES OF
5% BENEFICIAL OWNERS
--------------------
Joseph Nelson 610,700 8.39%
6416 Bandera Road
Suite B
San Antonio, Texas 78230
Stock Option Group(6) 531,881 7.31%
401 Keene Street
Columbia, Missouri 65201
</TABLE>
______________________
* less than (1%)
(1) Dr. Stucki is the Chief Executive Officer, President and Chairman of
the Board of Directors of the Company. The number of shares reported
includes 150,000 shares issuable upon exercise of options at $2.20 per
share which options are currently exercisable and expire August 15,
1998.
(2) Mr. Sommerhauser is the Vice President of Operations and a Director of
the Company. The number of shares reported includes 10,000 shares
issuable upon exercise of options at $5.00 per share which options
will be exercisable June 10, 1997 and expire June 10, 2001.
(3) Dr. Jones is a Director of the Company. The number of shares reported
includes (i) 60,000 shares issuable upon exercise of options at $2.20
per share which options are currently exercisable and expire August
15, 1998 and (ii) 13,750 shares issuable upon exercise of warrants at
$5.00 per share which
Page 41 of ___
<PAGE> 42
warrants are currently exercisable and 6,250 of which expire May 3,
1998 and 7,500 of which expire October 1, 1998.
(4) Mr. Roberts is a Director of the Company.
(5) Such group consists of 5 persons. The number of shares reported
includes the number of shares reported at Footnotes 1-4, inclusive.
(6) According to a Schedule 13D filed with the SEC, as amended, a group
comprised of John A. Crouch, M.D., Jerry D. Kennett, M.D., Merlin
Kirby, M.D. and A. Jerry Murrell, M.D. (the "Stock Option Group") has
been issued 531,881 shares of Common Stock pursuant to the exercise of
options under a certain Stock Option Agreement. The Stock Option
Group has options currently vested under such agreement to purchase
additional shares the number and exercise price per share of which
will be determined at the time of exercise. The aggregate purchase
price of such options will not exceed $1,233,356.60. The last of
these options expire September 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company received an unsecured bridge loan, represented by two
notes, from Pangloss International, S.A. in the aggregate principal amount of
$700,000. Mr. Ronald Potts, a Director of the Company from June through
December 1996, owns a significant interest in Pangloss International, S.A. The
notes bore interest at 10% and were repaid in November 1996.
The Company has issued an unsecured note payable to Dr. Stucki in the
principal amount of $153,753. The note bears interest at 7.5% and was due,
along with the principal amount outstanding, on January 31, 1996. The note was
issued in the original principal amount of $125.067 as partial consideration
along with shares of Common Stock for the acquisition of equipment by certain
of the Company's clinics from Dr. Stucki. Subsequent advances made by
Dr. Stucki to the Company increased the principal of the note to $153,753.
No interest was paid on this note during fiscal years 1995 and 1996.
Certain stockholders of the Company had advances totalling $145,781
outstanding from the Company at September 30, 1996. Additionally, certain
stockholders had amounts due to the Company at September 30, 1996 totalling
$498,095. All of these amounts are unsecured, non-interest bearing and have
no defined repayment terms.
AHC Chiropractic Clinic, Inc., a subsidiary of the Company, issued a
note payable to a stockholder of the Company which originated in connection
with the purchase of clinic assets. The note payable is due in monthly
principal and interest installments of $2,669, bears interest at 12%, matured
in November 1994 and is collateralized by certain trade accounts receivable.
The note payable balance was $22,966 at September 30, 1995 and 1996,
respectively.
In January 1996, the Company acquired all of the membership interests
of Valley Family Health, L.L.C. ("Valley Family"), the owner and operator of a
primary care medical clinic in McDonough, Georgia, in exchange for 360,000
shares of Common Stock. Dr. Stucki owns a 50% membership interest in an entity
which owned a 50% membership interest in Valley Family. Thus, Dr. Stucki
received 90,000 shares of the Company's Common Stock in connection with the
Valley Family transaction.
In October 1993, the Company began to rent equipment from a stockholder
of the Company. There is no formal document related to this arrangement. Rent
expense was $7,200 and $3,600 for the years ended September 30, 1995 and 1996,
respectively.
See also footnote 8 to the Notes to Consoliated Financial Statements.
Page 42 of ___
<PAGE> 43
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601
(1) The following financial statements are filed herewith in Item 7
(i) Consolidated Balance sheet as of September 30, 1996
(ii) Consolidated Statements of Operations for the years
ended September 30, 1996 and 1995.
(iii) Consolidated Statement of Stockholders' Equity for
the years ended September 30, 1996 and 1995.
(iv) Consolidated Statements of Cash Flows for the years
ended September 30, 1996 and 1995.
(v) Notes to Consolidated Financial Statements.
(2)
3.1 Certificate of Incorporation of American HealthChoice,
Inc. (incorporated by reference to Exhibit 4.1 to
Registration Statement on Form SB-2, Registration
Number 33-09311, filed on July 31, 1996)
3.2 Certificate of Amendment to Certificate of
Incorporation of American HealthChoice, Inc.
3.3 Bylaws of American HealthChoice, Inc. (incorporated
by reference to Exhibit 3(ii) to Form 10-KSB, file
number 33-30677-NY, filed for the fiscal year ended
December 31, 1994).
10.1 Employment Agreement dated July 1, 1994 between
American HealthChoice (Texas), Inc. and Dr. J. Wes
Stucki.
10.2 Executive Employment Agreement dated June 10, 1996
between American HealthChoice, Inc. and Jon A.
Sommerhauser.
10.3 Executive Employment Agreement dated December 2, 1996
between American HealthChoice, Inc. and C. Dean York.
10.4 Physician Employment Agreement dated July 1, 1994
between American HealthChoice, Inc. and Dr. Jeffrey
Jones.
10.5 1995 Employee Stock Option Plan (incorporated by
reference to Exhibit 10.2 to Form 10-QSB, file number
33-30677-NY, filed for the quarter ended June 30,
1995).
10.6 1995 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.1 to Form
10-QSB, file number 33-30677-NY, filed for the
quarter ended June 30, 1995).
Page 43 of ___
<PAGE> 44
10.7 1995 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.3 to Form 10-QSB, file number
33-30677-NY, filed for the quarter ended June 30,
1995).
10.8 1995 Employee Stock Option Plan Amendment 1996-1.
10.9 1995 Non-Employee Director Plan Amendment 1996-1.
10.10 1995 Employee Stock Purchase Plan Amendment 1996-1.
10.11 Loan and Security Agreement dated December 30, 1996
between DVI Business Credit Corporation and American
Health Choice, Inc.
21 List of Subsidiaries of American HealthChoice, Inc.
(b) The Company filed no reports on Form 8-K during the quarter
ended September 30, 1996. Since September 30, 1996, the Company filed a report
on Form 8-K on October 2, 1996 relating to the acquisition of all the
membership interests in Valley Family Health, L.L.C. The Company also filed a
report on Form 8-K on December 5, 1996 relating to the acquisition of certain
assets of Metropolitan Healthcare, Inc.
Page 44 of ___
<PAGE> 45
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN HEALTHCHOICE, INC.
Date: January 30, 1997 By: /s/ Dr. J.W. Stucki
----------------------------------
Dr. J.W. Stucki, Chief Executive
Officer and President
In accordance with the Securities Exchange Act of 1934, this Report has been
signed below 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/ Dr. J.W. Stucki Chief Executive Officer, President
- --------------------------- and Chairman of the Board
Dr. J.W. Stucki (Principal Executive Officer) January 30, 1997
/s/ C. Dean York Chief Financial Officer and
- --------------------------- Vice President - Finance
C. Dean York (Principal Financial and
Accounting Officer) January 30, 1997
/s/ Jon Sommerhauser Vice President - Operations January 30, 1997
- --------------------------- and Director
Jon Sommerhauser
/s/ James Roberts Director January 30, 1997
- ---------------------------
James Roberts
</TABLE>
Page 45 of ___
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMERICAN HEALTHCHOICE, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, being the President and Secretary of American HealthChoice,
Inc., a New York Corporation, do hereby certify and set forth:
I. The name of the corporation (hereinafter called the
"Corporation") is AMERICAN HEALTHCHOICE, INC. The Corporation's Certificate of
Incorporation was filed on September 14, 1988 under the name Paudan, Inc.
II. The certificate of incorporation of the Corporation authorizes
the issuance of 5,000,000 shares of Preferred Stock of a par value of $.001 per
share and expressly vests in the Board of Directors of the Corporation the
authority provided therein to issue any or all of said shares in one or more
series and by resolution or resolutions to establish the designation, number,
full or limited voting powers, or the denial of voting powers, preferences and
relative, participating, optional, and other special rights and the
qualifications, limitations, restrictions, and other distinguishing
characteristics of each series to be issued.
III. The Board of Directors of the Corporation, pursuant to the
authority expressly vested in it as aforesaid, has adopted the following
resolutions creating a Series A issue of Preferred Stock and the Certificate of
Incorporation is hereby amended to create such Series A issue of Preferred
Stock:
RESOLVED, that Fifteen Thousand (15,000) of the Five Million (5,000,000)
authorized shares of Preferred Stock of the Corporation shall be designated
Series A Preferred Stock (the "Series A Preferred Stock") and shall possess the
rights and privileges set forth below:
A. Stated Value.
Each share of Series A Preferred Stock shall have a
stated (face) value of $1,000.00.
B. Dividends.
1. The holder of each issued and outstanding share
of Series A Preferred Stock shall be entitled to receive, when and as declared
by the Board of Directors of the Corporation, out of the assets at the time
legally available for such purpose, dividends at a rate of four percent (4%)
per annum on the stated value, payable semi-annually at the Company's option in
cash or in shares of the Common Stock of the Corporation at a dividend
conversion price equal to the lesser of $15.00 per share or the average closing
bid price for the five (5) trading days prior to payment; provided, however
that in no event shall the dividend conversion price be
<PAGE> 2
less than $7.50. Such dividends shall accumulate until paid to the holders. If
any dividends payable on the Series A Preferred Stock with respect to any
dividend payment period are not paid for any reason, the right of the holders
of the Series A Preferred Stock to receive payment of such dividend shall not
lapse or terminate, but said unpaid dividend or dividends shall be added to the
stated value of the Series A Preferred Stock effective at the beginning of the
semi-annual period next succeeding the semi-annual period as to which such
dividends were not paid, and shall thereafter accrue additional dividends at
the above-stated dividend rate. Any dividend payment made on the Series A
Preferred Stock shall be credited against the earliest accrued but unpaid
dividend which has been added to the stated value of the Series A Preferred
shares and shall reduce the stated value by the amount of the dividend paid. No
dividends shall be declared or paid with respect to the Corporation's Common
Stock (other than a dividend payable solely in Common Stock of the Corporation),
or upon any other class of Preferred Stock of the Corporation with a dividend
preference subordinate to the dividend preference of the Series A Preferred
Stock, unless a dividend of equal or greater amount per share (on an
as-if-converted to Common Stock basis) is first declared and paid with respect
to the Series A Preferred Stock.
2. No dividends shall be paid on the Series A Preferred
Stock if such payment would violate New York law.
C. Liquidation Preference.
1. In the event of any liquidation, dissolution or
winding-up of the Corporation, either voluntary or involuntary (a
"Liquidation"), the holders of shares of the Series A Preferred Stock then
issued and outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its shareholders, whether from
capital, surplus or earnings, before any payment shall be made to the holders
of shares of the Common Stock or upon any other series of Preferred Stock of
the Corporation with a liquidation preference subordinate to the liquidation
preference of the Series A Preferred Stock, an amount equal to one thousand
dollars ($1,000) per share, plus an amount equal to any unpaid dividends
accumulated and unpaid on each such share to and including the date of
distribution on such share. If, upon any Liquidation of the Corporation, the
assets of the Corporation available for distribution to its shareholders shall
be insufficient to pay the holders of shares of the Series A Preferred Stock
and the holders of any other series of Preferred Stock with a liquidation
preference equal to the liquidation preference of the Series A Preferred Stock
the full amounts to which they shall respectively be entitled, the holders of
shares of the Series A Preferred Stock and the holders of any other series of
Preferred Stock with liquidation preference equal to the liquidation preference
of the Series A Preferred Stock shall receive all of the assets of the
Corporation available for distribution and each such holder of shares of the
Series A Preferred Stock and the holders of any other series of Preferred Stock
with a liquidation preference equal to the liquidation preference of the Series
A Preferred Stock shall share ratably in any distribution in accordance with
the amounts due such shareholders. After payments shall have been made to the
holders of shares of the Series A Preferred Stock of the full amount to which
they shall be entitled, as aforesaid, the holders of shares of the Series A
Preferred Stock shall be entitled to no further distributions thereon and the
holders of shares of the Common Stock and of shares of any other series of
stock of the Corporation shall be entitled to share, according to their
respective rights and preferences, in all remaining assets of the Corporation
available for distribution to its shareholders.
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2. A merger or consolidation of the Corporation with or
into any other corporation, or a sale, lease, exchange, or transfer of all or
any part of the assets of the Corporation which shall not in fact result in the
liquidation (in whole or in part) of the Corporation and the distribution of
its assets to its shareholders shall not be deemed to be a voluntary or
involuntary liquidation (in whole or in part), dissolution, or winding-up of
the Corporation.
D. Conversion of Series A Preferred Stock.
The holders of Series A Preferred Stock shall have the
following conversion rights:
1. Right to Convert. Each share of Series A Preferred
Stock shall be convertible, on the Conversion Dates and at the Conversion Prices
set forth below, into fully paid and nonassessable shares of Common Stock.
2. Mechanics of Conversion. Each holder of Series A
Preferred Stock who desires to convert the same into shares of Common Stock
shall provide notice ("Conversion Notice") via telecopy to the Corporation. The
original Conversion Notice and the certificate or certificates representing the
Series A Preferred Stock for which conversion is elected, shall be delivered to
the Corporation by international courier, duly endorsed. The date upon which a
Conversion Notice is properly received by the Corporation shall be a "Notice
Date."
The Corporation shall use its best efforts to issue and deliver within
three (3) business days after the Notice Date, to such holder of Series A
Preferred Stock at the address of the holder on the stock books of the
Corporation, a certificate or certificates for the number of shares of Common
Stock to which the holder shall be entitled as aforesaid; provided that the
original shares of Series A Preferred Stock to be converted are received by the
transfer agent or the Corporation within three business days after the Notice
Date and the person or persons entitled to receive the shares of Common Stock
issuable upon such comversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date. If the original
shares of Series A Preferred Stock to be converted are not received by the
transfer agent or the Corporation within three business days after the Notice
Date, the Conversion Notice shall become null and void.
3. Conversion Dates. The Series A Preferred Stock shall
become convertible into shares of Common Stock at any time commencing sixty
(60) days after the date of issuance of the shares to be converted (the
"Conversion Date").
4. Conversion Price. In the event accrued dividends have
been paid, the shares of Series A Preferred Stock shall be convertible into the
number of shares of Common Stock according to the following formula.
N x 1,000
---------
Conversion Price
N = the number of shares of the Series A Preferred Stock for which
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<PAGE> 4
conversion is being elected.
Conversion
Price the lesser of (x) $15.00 or (y) the average closing bid
price of the Corporation's Common Stock for the five (5)
trading days immediately preceding the Notice Date;
provided, however, that in no event shall the Conversion
Price be less than $7.50; and provided, further, that in
all cases the Corporation shall pay all accumulated but
unpaid dividends with respect to the shares of Series A
Preferred Stock being converted.
5. Automatic Conversion. Each share of Series A Preferred
Stock outstanding on July 31, 1998 automatically shall be converted into Common
Stock on such date at the Conversion Price then in effect, and July 31, 1998
shall be deemed to be the Notice Date with respect to such conversion.
6. Fractional Shares. No fractional share shall be issued
upon the conversion of any shares, share or fractional share of Series A
Preferred Stock. All shares of Common Stock (including fractions thereof)
issuable upon conversion of shares (or fractions thereof) of Series A Preferred
Stock by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share.
If, after the aforementioned aggregation, the conversion would result in the
issuance of a fraction of a share of Common Stock, the Corporation shall, in
lieu of issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the closing bid price of the Corporation's
Common stock on the Notice Date multiplied by such fraction.
7. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all then outstanding shares of the Series A Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, the Corporation will take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
8. Adjustment to Conversion Price.
(a) If, prior to the conversion of all shares of
Series A Preferred Stock, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, or other similar event, the
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Conversion Price shall
be proportionately increased.
(b) If, prior to the conversion of all shares of
Series A Preferred Stock, there shall be any merger, consolidation, exchange of
shares, recapitalization,
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<PAGE> 5
reorganization, or other similar event, as a result of which shares of Common
Stock of the Corporation shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Corporation or another entity, then the holders of Series A Preferred Stock
shall thereafter have the right to purchase and receive upon conversion of
shares of Series A Preferred Stock, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore purchasable and
receivable upon the conversion of shares of Series A Preferred Stock held by
such holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of the Series A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Series A Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the exercise hereof. The Corporation shall not effect any
transaction described in this subsection unless the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation to deliver to the holders of the Series A Preferred Stock such shares
of stock and/or securities as, in accordance with the foregoing provisions, the
holders of the Series A Preferred Stock may be entitled to purchase.
(c) If any adjustment under this subsection would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion shall be the next higher
number of shares.
E. Voting. Except as otherwise provided below or by the
General Corporation Law of the State of New York, the holders of the Series A
Preferred Stock shall have no voting power whatsoever, and no holder of Series
A Preferred Stock shall vote or otherwise participate in any proceeding in which
actions shall be taken by the Corporation or the shareholders thereof or be
entitled to notification as to any meeting of the Board of Directors or the
shareholders.
F. Protective Provisions. So long as shares of Series A
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock:
(a) alter or change the rights, preferences or privileges
of the shares of Series A Preferred Stock so as to affect adversely the Series
A Preferred Stock;
(b) create any new class or series of stock or issue any
capital stock senior to or having a preference over the Series A Preferred
Stock with respect to dividends, payments upon Liquidation (as provided for in
Section B of this Designation) or redemption, except for a class of stock
approved by J.P. Carey Enterprises, Inc.;
(c) do any act or thing not authorized or contemplated by
this Designation which would result in taxation of the holders of the shares of
the Series A Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended); or
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<PAGE> 6
(d) enter into a merger in which the Corporation is not the
surviving corporation; provided, however, that the provisions of this
subparagraph (e) shall not be applicable to any such merger if the authorized
capital stock of the surviving corporation immediately after such merger shall
include only classes or series of stock for which no such consent or vote would
have been required pursuant to this section. If such class of series had been
authorized by the Corporation immediately prior to such merger or which have
the same rights, preferences and limitations and authorized amount as a class
or series of stock of the Corporation authorized (with such consent or voice of
the Series A Preferred Stock) prior to such merger and continuing as an
authorized class or series at the time thereof.
G. Status of Converted Stock. In the event any shares of Series A
Preferred Stock shall be converted as contemplated by this Designation, the
shares so converted shall be canceled, shall return to the status of authorized
but unissued Preferred Stock of no designated class or series, and shall not be
issuable by the Corporation as Series A Preferred Stock.
H. Taxes. All shares of Common Stock issued upon conversion of
Series A Preferred Stock will be validly issued, fully paid and nonassessable.
The Corporation shall pay any and all documentary stamp or similar issue or
transfer taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series A Preferred Stock pursuant
hereto. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series A
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such transfer has paid to
the Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid or that no such tax
is payable. The Corporation shall adjust the amount of dividends paid or
accrued so as to indemnify the holders of Preferred Stock against any
withholding or similar tax in respect of such dividends.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series A Preferred Stock and
fixing the number, powers, preferences and relative, optional, participating,
and other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics thereof shall, upon the effective date of
said series, be deemed to be included in and be a part of the certificate of
incorporation of the Corporation pursuant to the provisions of Sections
502(d)(3) and 805 of the Business Corporation Law of the State of New York.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury on August 7, 1996.
American HealthChoice, Inc.
By: /s/ DR. J. W. STUCKI
----------------------------------
Dr. J. W. Stucki, President & CEO
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/s/ Randy Johnson
- ----------------------------------
Randy Johnson, Secretary
7
<PAGE> 8
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AMERICAN HEALTHCHOICE, INC.
UNDER SECTION 805 OF THE
BUSINESS CORPORATION LAW
AMERICAN HEALTHCHOICE, INC.
1300 W. WALNUT LANE
STE 275
IRVING TX 75038
8
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the
1st day of July, 1994, between American HealthChoice (Texas), Inc., a Texas
corporation, (hereinafter called the "Company"), and Dr. J. Wes Stucki
(hereinafter called the "Employee").
WITNESSETH
WHEREAS, the Company owns and operates various health care service
businesses (all such businesses hereinafter being referred to collectively as
the "Business"); and
WHEREAS, the Company desires to employ the Employee upon the terms and
conditions hereinafter set forth, and the Employee desires to accept employment
with the Company and render services to the Company on such terms and
conditions;
NOW, THEREFORE, in consideration of the covenants and agreements
herein made, the parties hereto agree as follows:
A. Recitals: The above recitals are incorporated by reference
herein and made a part hereof as if set forth herein verbatim.
B. Employment: The Company hereby employs Employee, and Employee
hereby accepts employment with the Company, to serve as the Chief
Executive Officer of the Company. The Employee's duties shall
include, but not be limited to Those duties of a Chief Executive and
such other duties as the Company may from time to time reasonably
direct.
C. Term and Duties
1. The period of Employee's employment under this
Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a
period of three (3) years thereafter.
2. During the period of employment hereunder and except
for illness, reasonable vacation periods and
reasonable leaves of absence, the Employee shall
devote all of the Employee's time, attention, skill
and efforts to the faithful performance of the
Employee's duties hereunder and the furtherance of
the Company's Businesses.
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D. Compensation
1. For all services rendered by Employee hereunder,
Employer shall pay Employee base salary of one
hundred eighty thousand ($180,000.00) per year,
payable in equal installments at the same intervals
as other Company employees. Deductions shall be made
from Employee's compensation for social security,
withholding tax and such other taxes as may from time
to time be required by governmental authorities.
2. Employee shall be considered for bonus compensation
annually from time to time based upon the overall
performance and financial condition of the Company
and in particular those areas of the Company's
business operations for which the Employee has
primary responsibility. Such bonus amounts shall be
determined by the Company's Compensation Committee
(the "Committee"). For purposes hereof, the
Committee shall be the Board of Directors of the
Company or a committee of the Board of Directors
consisting of not fewer than three members of the
Board of Directors. If the Committee is the Board of
Directors, it shall hold meetings and act as provided
in the Company's Bylaws. If the Committee is other
than the Board of Directors: (a) the Committee shall
hold its meetings at such times and places as it may
determine and shall maintain written minutes of its
meetings; (b) a majority of the members of the
Committee shall constitute a quorum at any meeting of
the Committee; (c) all determinations of the
Committee shall be made by the vote of a majority of
the members who participate in a meeting; (d) the
members of the Committee may participate in a meeting
of the Committee in person or by conference telephone
or similar communications equipment by means of which
all members can hear each other; and (e) any decision
or determination by written consent of all of the
members of the Committee shall be as effective as if
it had been made by a vote of a majority of the
members who participate in a meeting.
3. Employee is encouraged, from time to time, to incur
reasonable expenses in promoting the business of the
Company, provided that the business name and logo are
used, all in accordance with the directives of the
Company's Board of Directors. Such expenses include,
but are not limited to, expenses for travel,
entertainment and miscellaneous expenses incurred in
the conduct of the business of the Company. Employee
shall be entitled to reimbursement from the Company
for such expenses upon submission of proper
documentation thereof.
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<PAGE> 3
E. Benefits
1. At such reasonable times as the Company shall, in its
discretion, permit, Employee shall be entitled,
without loss of pay, to up to 30 business days per
calendar year of combined vacation, personal, sick,
and holiday leave. Such leave shall be taken in such
a manner and at such times as shall be agreed upon by
Employee and the Company, subject to the following
conditions:
a. All leaves shall be scheduled in a reasonable
manner by the Employee with reasonable prior
notice to the Company. Employee is
responsible for ensuring appropriate
supervision of those areas of the Businesses
for which the Employee has primary
responsibility during such leaves.
b. Unused time off shall accrue or carry over
from one calendar year to the next only up to
36 months, provided that Employee shall be
entitled to compensation (at the Employee's
normal per diem rate) for unused time off.
2. So long as group health insurance is generally
available in the marketplace, and subject to such
exclusions and underwriting conditions as the insurer
may impose as to Employee, the Company shall pay the
cost of group health insurance for the Employee and
his dependents. The insurance provided for Employee
shall be the same as that provided for all other
employees of the Company, as the same may be modified
from time to time. This Agreement does not guarantee
Employee's insurability; rather, it merely requires
the Company to pay for the Employee's insurance on
the same basis as for other employees of the Company
so long as it is commercially available, until
termination hereof.
3. So long as the Company shall have a 401 (k) and/or
any other deferred compensation plan, Employee shall
be entitled to participate in all such deferred
compensation plans.
4. Company shall pay employee an automobile expense
allowance of $1,000.00 (one thousand) per month.
5. Company shall pay up to $1,500 per calendar year
toward the cost of continuing professional education
courses for Employee, provided that same are relevant
to Employee's duties hereunder. Expenditures of any
amount exceeding an aggregate total of $1,500 during
any one calendar year for continuing professional
education for Employee shall be submitted to the
Committee for its prior approval.
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F. Termination: Severance Pay
1. Subject to the provisions of subsection (4) below,
this Agreement shall be terminated upon the happening
of the first of any of the following events:
a. Whenever the Company and the Employee
mutually agree to terminate this Agreement; or
b. Upon the death of the Employee; or
c. At the latter of such time as Employee (i)
has been absent from work, disabled or
otherwise impaired from performing the
Employee's duties hereunder on a full-time
basis for a continuous period of ten (10)
weeks or a total of eighteen (18) weeks in
any consecutive twelve (12) month period, or
(ii) begins receiving disability insurance
benefits; or
d. Whenever the Employee accepts other
employment; or
e. If the Employee violates any provision of
this Agreement, and fails or refuses to cure
same within 15 days after notice thereof from
the Company (cure may be effected by written
acknowledgment of such violation if it is not
a continuing course of conduct); or
f. If the Employee violates any provision of the
Company's Shareholder Agreement while such
agreement is still in effect, and fails to
cure such violation within any applicable
grace period provided therein; or
g. Employee's failure or refusal to comply with
the accepted professional policies and
standards of the Company after written notice
thereof specifying the nature of such failure
or refusal; or
h. Any behavior which is repeated or persistent
following written notice from the Company and
which is egregious or materially adverse to
the normally harmonious and productive
conduct of the Company's Businesses; or
i. At the Company's option, at any time for
"cause", as hereinafter defined.
2. For purposes of this Agreement, the term "cause" is
defined to include: (a) the matters set forth in
sections (1)(d) through (1)(h) above; (b)
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<PAGE> 5
fraud, dishonesty or conviction of or pleading no
contest to any felony; (c) embezzlement; or (d) the
imposition of any sanctions against Employee by
regulatory agencies governing the Company or the
Employee with respect to the Businesses of the
Company; or (e) alcohol or drug abuse.
3. Unless the Company determines, by unanimous vote of
its Board of Directors (exclusive of Employee), that
immediate termination of the Employee is necessary
for protection of the Company's Businesses or
property, the Company shall notify Employee in
writing at least fifteen (15) days in advance of any
proposed termination pursuant to subsection (1)(e)
through (1)(h) of this Section F (which notice shall
state the event for which Employee is proposed to be
dismissed in such detail as to permit a reasonable
assessment by Employee of the bona fides thereof),
and shall give Employee (a) such fifteen (15) days to
cure any breach or misconduct, if the same is capable
of being cured within such period; or (b) such
reasonable amount of time that the Board of Directors
determines is required in order to cure said breach
or misconduct.
4. In the event of termination of this Agreement for any
reason Employee shall be entitled to
termination/severance pay equal to six (6) months of
full salary (based on the Employee's most recent
monthly salary payment) (less any amounts due the
Company from the Employee). Upon receipt by Employee
of such termination/severance pay, all of Employee's
rights hereunder shall terminate.
G. Termination for Good Reason
1. Definitions: For purposes of this Section G the
following will be applicable:
a. Change in Control: (i) Acquisition by an
individual, business organization or related
group of individuals and business
organizations of the beneficial ownership of
25% or more of the Company's voting
securities; or (ii) election, at an annual
election of a class of directors, of persons
who are not nominated by the Board and who
comprise more than one-half of the class so
elected.
b. Good Reason: (i) Without the Employee's
express written consent, the assignment to
the Employee of any duties inconsistent with
the Employee's positions, duties,
responsibilities and status with the Company
immediately prior to a Change in Control, or
a change in the Employee's reporting
responsibilities, titles or offices as in
effect immediately prior to
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a Change in Control, or the Employee's
removal from or any failure to re-elect the
Employee to any of such positions, except in
connection with the termination of the
Employee's employment in accordance with the
provisions of Section F above, or by the
Employee other than for Good Reason; (ii) a
reduction by the Company in the employee's
base salary as in effect on the date hereof
or as the same may be increased from time to
time; (iii) a failure by the Company to
continue any incentive compensation plans in
which the Employee is presently entitled to
participate (the "Incentive Plans") as the
same may be modified from time to time but
substantially in the forms currently in
effect, or a failure by the Company to
continue the Employee as a participant in the
Incentive Plans on at least the same basis as
Employee presently participates in accordance
with the Incentive Plans; (iv) without the
Employee's written consent, the Employee's
reassignment by the practicality dictates a
change in the Employee's residence, except
for required travel on the Company's business
to an extent substantially consistent with
the Employee's present business travel
obligations; (v) the failure by the Company
to continue in effect any benefit or
compensation, life insurance, health and
accident, or disability plan in which the
Employee is participating at the time of a
Change in Control (or plans providing the
Employee with substantially similar
benefits), the taking of any action by the
Company that would adversely affect the
Employee's participation in or materially
reduce the Employee's benefits pursuant to
any such plans or deprive the Employee of any
material fringe benefit enjoyed by the
Employee at the time of the Change in
Control, or the failure of the Company to
provide the Employee with a number of paid
vacation days to which the Employee is then
entitled in accordance with the Company's
normal vacation policy in effect on the date
hereof; or (vi) any purported termination of
the Employee's employment that is not
effected in accordance with the provisions of
subsection F (3) above, which purported
termination shall not be effective for
purposes of this Agreement.
c. Person: Any individual, partnership,
corporation, limited liability company or
other group or entity, including two or more
persons acting as a partnership, limited
partnership, syndicate, association or other
group for the purpose of the acquisition,
possession or disposition of stock.
d. Effective Annual Compensation: The aggregate
total of the Employee's then current base
salary amount and bonus amount
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received by the Employee from the company
based on services provided to the Company
during the previous fiscal year.
2. Severance Benefits for Termination For Good Reason:
If the Employee, following a Change in Control,
terminates the Employee's employment as the President
and Chief Executive Officer of the Company for Good
Reason within one hundred twenty (120) days after the
occurrence of such Change in Control, the Employee
will be entitled to severance pay in the aggregate
amount of three (3) times the Employee's then current
Effective Annual Compensation, to be payable in three
(3) equal annual installments with the first
installment to be paid within thirty (30) days after
the Employee's termination and with each succeeding
installment occurring on the same day in each of the
two succeeding calendar years. The severance pay
shall be secured by an irrevocable letter of credit
drawn on a commercial bank designated by the
Employee. The Company, at its expense, will cause
the irrevocable letter of credit to be issued in
favor of the Employee within thirty (30) days after
the Employee's termination. The Employee will also
be entitled to the continuation of all the Employee's
employee benefits as of the date of the Change in
Control from the Employee's termination through the
end of the time period prescribed in this section for
the payment of severance pay.
H. Employee Cooperation: The Employee agrees to cooperate fully
with the Company, during as well as after the Employee's association
with the Company has terminated, in the investigation or defense of
all claims and/or any audits or other reviews conducted by or on
behalf of any third-party payer (including the Federal or state
government) arising out of or relating to the Businesses during the
Employee's association with the Company, and/or any proceedings
connected with the collection of any fees relating thereto. The
Employee agrees to complete, sign and furnish to the Company promptly
any documentation required or requested by any third-party payer in
connection with the examination, verification or review of any payment
relating to any services rendered by the Employee during the
Employee's association with the Company.
I. Disclosure of Confidential Information; Patient Records: The
Employee acknowledges that, as a result of the Employee's association
with the Company, the Employee will be making use of, acquiring and/or
adding to confidential information of a special and unique nature and
value, relating to such matters as the Company's confidential reports,
lists of referring physicians, third-party and direct payor contracts,
contracts with managed care plans, lists of patients and the fees paid
by such patients, and other confidential matters. As a material
inducement to Company to enter into this Agreement, and to pay to the
Employee the compensation referred to in Section D hereof, the
Employee covenants and agrees that the Employee shall not, at any time
during or following the term of this Agreement, directly or
indirectly, divulge, disclose
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<PAGE> 8
or make any use of, for any purpose whatsoever, any confidential
information which has been obtained by or disclosed to the Employee as
a result of or otherwise in connection with the Employee's provision
of services hereunder. Such information of a confidential nature
includes, but is not limited to, referral source information, medical
records, scans, patient charts, patient ledgers, records of amounts
received from patients, patient lists, other financial records of the
Company and of patients, any and all insurance. Medicare and other
such records, and any other information of a private, internal or
confidential nature pertaining to the Company's Businesses, functions
or operations, including, without limitation, the nature of its
contractual relationships. In accordance with the foregoing, the
Employee further agrees that the Employee will at no time retain or
remove from the premises of the Company records of any kind or
description whatsoever for any purpose unconnected with the strict
performance of the Employee's services for the Company and that, upon
termination of the Employee's association with the Company for any
reason, the Employee will promptly return to the Company all lists,
books and records of or pertaining to the Company's patients and
Businesses, and all other property belonging to the Company, in the
Employee's custody, control or possession. The Employee hereby
acknowledges that all Company records shall be, and remain the
property of the Company, and the Employee shall not be entitled to
possession of or access to such records upon the termination of the
Employee's association with the Company.
In the event of a breach or threatened breach by the Employee
of any of the provisions of this Section I, the Company, in addition
to and not in limitation of any other rights, remedies or damages
available to the Company at law or in equity, shall be entitled to
preliminary and permanent injunctive relief in order to prevent or to
restrain any such breach by the Employee, or by the Employee's
partners, agents, representatives, servants, employers, employees
and/or any and all persons, directly or indirectly, acting for or with
the Employee. The provisions of this Section I shall survive the
termination of this Agreement.
J. Covenants Against Competition
1. The Employee acknowledges that the Employee's
services to be rendered hereunder are of a special
and unusual character which have a unique value to
Company, the loss of which may not adequately be
compensated by damages in an action at law, and
2. It is acknowledged by both parties to this Agreement
that Employee is engaged in (i) the ownership of
health care clinics, (ii) diagnostic facilities and
(iii) in providing management and consulting services
to healthcare professionals throughout the United
States of America, which activities are permitted to
the extent they do not interfere with Employee's
duties hereunder. The companies that are exempt from
this covenant not to compete section are listed on
Schedule A. Employee will refrain from soliciting or
attempting to solicit to employ any
8
<PAGE> 9
employee of the Company of any of its subsidiaries,
or committing any act the primary purpose of which is
to induce any employee of the Company to leave the
Company's employ, or significantly interfere with,
disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise,
relating to the Company's business activities,
between the Company and its customers and suppliers.
3. In view of the foregoing and of the confidential
information to be obtained by or disclosed to the
Employee as hereinabove set forth (including, without
limitation, the confidential referral source lists
and information which are the proprietary property of
Company), and further as a material inducement to the
Company to enter into this Agreement and pay to the
Employee the compensation referred to in this
Agreement, the Employee covenants and agrees that,
during the term of this Agreement and for a period of
two (2) years after termination of this Agreement for
any reason (one year in the case of termination of
this Agreement in accordance with the provisions of
Subsection G (2)) including, but not limited to, the
expiration of this Agreement without renewal, neither
the Employee nor any person or entity under the
Employee's control shall, either directly or
indirectly, for the Employee's own account or as
agent, servant, partner, employee or shareholder of
any corporation, invest in (other than passive
investments of 5% or less in publicly traded
entities), manage or control any individual or entity
that is engaged in the trade or business of providing
medical, chiropractic or physical services, staffing
or health care personnel, or diagnostic health care
services in Dallas or Dallas County, Texas, or within
a 5-mile radius of any facility at which the Company
or any of its subsidiaries is then providing
services. Such covenant shall not be deemed or
constructed to prohibit the Employee from simply
treating patients (as opposed to being involved in
management, ownership or consulting). This section
shall apply only to transactions and situations
arising or occurring after the date of this
Agreement, and shall not apply to passive investments
in entities publicly traded over a regulated
securities exchange and does not apply to those
entities listed in Schedule A.
3. The Employee covenants and agrees that, if the
Employee shall violate any of the Employee's
covenants or agreements provided for pursuant to the
foregoing subsections of this Section J, the Company
shall be entitled to an accounting and repayment of
all profits, compensation, commissions, remunerations
or benefits which the Employee directly or indirectly
has realized and/or may realize as a result of,
growing out of or in connection with any such
violation: such remedy shall be in addition to and
not in limitation of any injunctive relief or other
rights
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<PAGE> 10
or remedies to which the Company is or may be
entitled at law or in equity or under this Agreement.
It is specifically agreed that, if the Employee
attempts to or does act in contravention of this
Section J, the Company shall suffer irreparable
injury because of inter alia, the Employee's
knowledge of the Company's confidential information,
and the Company shall be entitled to obtain
preliminary and permanent injunctive relief
prohibiting such practice, in addition to any damages
which are suffered, together with reasonable
attorney's fees and other costs in connection with
any such litigation. Without limitation of the
foregoing, with respect to any action by the Company
for injunctive relief pursuant to this Section J, the
Employee hereby waives any defense to, such action on
the grounds of failure of the Company to show
irreparable injury from the Employee's breach of this
Section J.
4. The foregoing covenants by the Employee shall be
construed as an agreement independent of any claim or
right of the Employee hereunder. The existence or
alleged existence of any claim or cause of action by
the Employee against the Company, whether predicted
on this employment relationship or otherwise, shall
in no event constitute a defense against or waiver of
the Company's right to enforce the foregoing
covenants.
K. Reasonableness of Restrictions
1. The Employee has carefully read and considered the
provisions of Sections I and J hereof and, having
done so, agrees that the restrictions and remedies
set forth in such sections (including, but not
limited to, the time period of restriction, the
geographical area of restriction and the damages and
injunctive relief provisions therein) are fair and
reasonable and are reasonably required for the
protection of the interests of the Company.
2. In the event that, notwithstanding the foregoing, any
of the provisions of Section I or J shall be held to
be invalid or unenforceable, the remaining provisions
thereof shall nevertheless continue to be valid and
enforceable as though the invalid or unenforceable
parts had not been included therein. In the event
that any provision of Section J hereof relating to
time period and/or area of restriction shall be
declared by a court of competent jurisdiction to
exceed the maximum time period or area such court
deems reasonable and enforceable, said time period
and/or area of restriction shall be deemed to become
and thereafter be the maximum time period and/or area
which such court deems reasonable and enforceable.
L. Notices: Any notice or document required or desired to be
given to either party herein shall be in writing and shall be deemed
given (a) when sent registered mail,
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<PAGE> 11
return receipt requested and postage prepaid, addressed to the party
at the address indicated below (or such other address as that party
may hereafter designate); or (b) when delivered personally to that
party at said address:
If to the Company:
__________________________________________
__________________________________________
__________________________________________
__________________________________________
If to the Employee:
__________________________________________
__________________________________________
__________________________________________
__________________________________________
M. Arbitration: Any claim, controversy or dispute with respect to
this Agreement shall be promptly submitted to arbitration
("Arbitration") for determination. The Arbitration shall be binding
upon the parties thereto, without a right by any party to a trial de
novo in a court of competent jurisdiction, and shall be conducted
under the auspices of the American Arbitration Association (herein
referred to as "Association") in Dallas County, Texas, and in
accordance with its Commercial Arbitration Rules, however:
1. The party seeking Arbitration shall give written
notice of a Demand to Arbitrate (herein referred to
as "Demand") to the other party and to the
Association; the Demand shall include (a) the issues
to be determined, (b) a copy of this arbitration
provision and (c) the designation of one arbitrator;
2. Within ten (10) days after receipt of the Demand, the
other party shall give (a) written notice (herein
referred to as "Response") to the party that demanded
arbitration and to the Association of any additional
issues to be arbitrated, (b) its answer to the issues
raised by the party that sent the Demand and (c) its
designation of a second arbitrator;
3. If a Response designating a second arbitrator is not
received within the aforesaid ten day time, the
Association shall designate the second arbitrator
forthwith.
4. The two arbitrators as designated pursuant to the
foregoing provisions shall then designate a third
arbitrator within ten (10) days after the designation
of the second arbitrator. If the two arbitrators
cannot agree
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<PAGE> 12
on the designation of the third arbitrator within the
ten day time period allotted, the Association shall
designate the third arbitrator forthwith.
5. The arbitration panel as thus designated shall
proceed with the Arbitration by giving written notice
to all parties of its proceedings and hearings in
accordance with the Association's applicable
procedures. The Arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of
the Association except as modified by this Agreement.
The arbitrators shall follow and apply the
substantive laws of the State of Texas, and, at all
hearings where evidence is taken, they shall follow
and apply the rules of evidence as then in effect in
the State of Texas. The cost of the Arbitration
shall be borne and paid equally between the parties
thereto, but that cost, along with all other costs
and expenses, including attorneys' fees, shall be
subject to award, in whole or in part by the
arbitrators in their discretion to the prevailing
party on the various issues arbitrated.
6. Upon written demand on any party to the Arbitration
for the production of documents reasonably related to
the issues being arbitrated, the party upon which
such demand is made shall forthwith produce, or make
available for inspection and copying, such documents
without the necessity of any action by the
arbitrators.
7. The arbitrators shall have the power to grant any and
all relief and remedies, whether at law or in equity,
that the courts in the State of Texas may grant. The
decision of the arbitrators shall be final and may be
enforced by any court, including the
______________________________, as if it were a
judgment of that court. The parties to this
Agreement expressly consent to the jurisdiction of
the Association and of the
__________________________________________.
N. Miscellaneous
1. Further Assurances: At any time, and from time to
time, each party will execute such additional
instruments and take such action as may be reasonably
requested by the other party to carry out the intent
and purposes of this Agreement.
2. Costs and Expenses: Each party hereto agrees to pay
its own costs and expenses incurred in negotiating
this Agreement and consummating the transactions
described herein.
3. Time: Time is of the essence.
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<PAGE> 13
4. Entire Agreement: This Agreement constitutes the
entire agreement between the parties hereto with
respect to the subject matter hereof. It supersedes
all prior negotiations, letters and understandings
relating to the subject matter hereof.
5. Amendment: This Agreement may not be amended,
supplemented or modified in whole or in part except
by an instrument in writing signed by the party or
parties against whom enforcement of any such
amendment, supplement or modification is sought.
6. Assignment: This Agreement may not be assigned by
any party hereto without the prior written consent of
the other party.
7. Choice of Law: This Agreement will be interpreted,
construed and enforced in accordance with the laws of
the State of Texas.
8. Headings: The section and subsection headings in
this Agreement are inserted for convenience only and
shall not affect in any way the meaning or
interpretation of this Agreement.
9. Pronouns: All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine,
neuter, singular or plural as the context may
require.
10. Number and Gender: Words used in this Agreement,
regardless of the number and gender specifically
used, shall be deemed and construed to include any
other number, singular or plural, and any other
gender, masculine, feminine or neuter, as the context
indicates is appropriate.
11. Construction: The parties hereto participated in the
preparation of this Agreement; therefore, this
Agreement shall be construed neither against nor in
favor of any of the parties hereto, but rather in
accordance with the fair meaning thereof.
12. Effect of Waiver: The failure of any party at any
time or times to require performance of any provision
of this Agreement will in no manner affect the right
to enforce the same. The waiver by any party of any
breach of any provision of this Agreement will not be
construed to be a waiver by any such party of any
succeeding breach of that provision or a waiver by
such party of any breach of any other provision.
13. Severability: The invalidity, illegality or
unenforceability of any provision or provisions of
this Agreement will not affect any other provision of
this Agreement, which will remain in full force and
effect,
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<PAGE> 14
nor will the invalidity, illegality or
unenforceability of a portion of any provision of
this Agreement affect the balance of such provision.
In the event that any one or more of the provisions
contained in this Agreement or any portion thereof
shall for any reason be held to be invalid, illegal
or unenforceable in any respect, this Agreement shall
be reformed, construed and enforced as if such
invalid, illegal or unenforceable provision had never
been contained herein.
14. Enforcement: Should it become necessary for any
party to institute legal action to enforce the terms
and conditions of this Agreement, the successful
party will be awarded reasonable attorneys' fees at
all trial and appellate levels, expenses and costs.
15. Binding Nature: This Agreement will be binding upon
and will inure to the benefit of any successor or
successors of the parties hereto.
16. No Third-Party Beneficiaries: No person shall be
deemed to possess any third-party beneficiary right
pursuant to this Agreement. It is the intent of the
parties hereto that no direct benefit to any third
party is intended or implied by the execution of this
Agreement.
17. Counterparts: This Agreement may be executed in one
or more counterparts, each of which will be deemed an
original and all of which together will constitute
one and the same instrument.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMPLOYEE:
\s\ J. W. Stucki
----------------------------
----------------------------
COMPANY:
American HealthChoice, Inc.
By: \s\ J. W. Stucki
-------------------------
----------------------------
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SCHEDULE A
Westheimer Chiropractic Clinic, Inc.
Central Houston Sports Injury & Rehab, Inc.
Health Dental Plus
Afton Investments
Rehabco
Mainstream Enterprises, L.L.C.
Vally Family Health Centre, L.L.C.
United Chiropractic of Hickory Hollow
Bexar Diagnostic Centre, L.L.C.
Perrin Beitel Sports Injury & Rehab, Inc. (2)
Omega Sports Injury & Rehab, Inc.
Beltline Chiropractic
New Braunfels Sports Injury & Rehab, Inc.
Back Pain Chiropractic
Trade Names:
- ------------
United Chiropractic
United Franchise
<PAGE> 1
EXHIBIT 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), is made this
10th day of June, 1996, by and between American HealthChoice, Inc. (AHC), a New
York non-profit corporation (the "Company"), with its principal offices at 1300
W. Walnut Hill Lane, Irving, Texas 75038 and Jon A. Sommerhauser (the
"Executive"), an individual residing at 2432 Sweet Grass Trail, Flower Mound,
Texas 75028.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company has determined that it
is in the best interests of the Company to retain the services of the Executive
in the position set forth hereinbelow and to enter into a written agreement
embodying the terms of such employment; and
WHEREAS, the By-laws of the Company permit the Company to enter into
contracts for the employment of officers of the Company; and
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement, and the Executive wishes
to continue to serve in the employ of the Company in the capacity and on the
terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by each of the parties
hereto, the parties agree as follows:
ARTICLE I
EMPLOYMENT AND DUTIES
SECTION 1.1. EMPLOYMENT. The Company hereby continues to employ the
Executive, and the Executive hereby agrees to such continued employment with
the Company as an employee of the Company, upon the terms and subject to the
conditions hereinafter set forth.
SECTION 1.2. DUTIES. The Executive shall serve as the Executive Vice
President of Operations. The Executive shall devote substantially all of his
business time and energies to the business of the Company. The Executive
agrees to perform such services not inconsistent with his position as shall from
time to time be assigned to him by the Company's Board of Directors or the
President of the Company.
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<PAGE> 2
ARTICLE II
TERM OF EMPLOYMENT
SECTION 2.1. TERM. The Executive shall be employed by the Company for
a period commencing on June 10, 1996 and, except as otherwise provided herein,
ending three (3) years from such date; provided, however, that unless the
Company shall have delivered to the Executive written notice of its intent, or
the Executive shall have delivered to the Company written notice of his intent,
not to renew this Agreement on or prior to June 10 in any year, commencing with
June 10, 1996, the term of this Agreement shall be extended by twelve months
from the then effective expiration date. The period of the Executive's
employment hereunder, including any extension or extensions pursuant to the
foregoing sentence, is referred to hereinafter as the "Employment Term."
SECTION 2.2. TERMINATION. This Agreement, and the employment of the
Executive hereunder, shall terminate prior to the expiration of the Employment
Term in the following manner:
a. Retirement.
(1) This Agreement shall terminate automatically upon the
Executive's Retirement, as defined hereinafter.
(2) For purposes of this Agreement, "Retirement" means the
termination of the Executive's employment initiated by the Executive
whereby the Executive is entitled to receive an immediately payable
benefit, including an early retirement benefit, under the Company's
retirement plan generally applicable to its salaried employees or under
any retirement arrangement established with respect to the Executive
with his consent, in either case, whether or not the Executive commences
to receive such benefit at the time of such termination.
(3) Upon termination of the Executive's employment by reason
of Retirement, the Executive shall be entitled to benefits determined in
accordance with the Company's retirement, benefit and insurance programs
in effect at such time.
b. Termination for Cause.
(1) The Executive's employment under this Agreement may be
terminated for cause at any time, effective upon written notice after
formal action by the Board of Directors of the Company at a special
meeting duly called for the purpose of considering the termination of
the Executive for
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<PAGE> 3
cause and at said meeting the Board of Directors decides to terminate
for cause, as defined herein. The Executive shall have the right to
receive notice of and appear at such meeting to respond to any
allegations made against him concerning the contemplated termination.
(2) As used in this Agreement, "cause" shall be deemed to
mean one or more of the following:
(a) The Executive's embezzlement or misappropriation
of funds;
(b) The Executive's conviction of a felony involving
moral turpitude;
(c) The Executive's commission of material acts of
dishonesty, fraud, or deceit;
(d) The Executive's breach of any material provision
of this Agreement;
(e) The Executive's habitual or willful neglect of
his duties;
(f) The Executive's breach of fiduciary duty to the
Company involving personal profit; or
(g) The Executive's material violation of any other
duty to the Company or its stockholders imposed by law or by the
Board of Directors.
(3) In the event that the Board of Directors acts to
terminate the Executive for cause in accordance with paragraph (1), the
Executive shall be paid all compensation and other sums due to him
through the date of termination, including, without limitation,
reimbursements for allowable expenses incurred by the Executive, but
shall not be entitled to receive any compensation or benefits
thereafter.
c. Termination Without Cause.
(1) The Company may, at any time, terminate this Agreement
without cause on sixty (60) days' written notice to the Executive.
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<PAGE> 4
(2) As used in this Agreement, the phrase "termination without
cause" means termination of employment other than:
(a) Termination pursuant to Section 2.2.b of this Agreement;
or
(b) Termination pursuant to Section 2.2.d of this Agreement;
or
(c) The Executive's voluntary termination of his employment
pursuant to Section 2.2.a. or otherwise.
(3) If the Executive's employment with the Company is terminated
without cause, then;
(a) Where the termination without cause occurs within twelve
(12) months of the date of employment, the Company will continue to pay
as liquidated damages his then current Base Salary (as defined herein)
for the next sixty (60) days immediately following the date of such
termination (the "Severance Period");
(b) Where the termination without cause occurs between
twelve (12) and eighteen (18) months of the date of employment, the
Company will continue to pay as liquidated damages his then current Base
Salary for the next thirty (30) days immediately following the date of
such termination (the "Severance Period");
(c) Where the termination without cause occurs between
eighteen (18) and twenty-four (24) months of the date of employment, the
Company will continue to pay as liquidated damages his then current Base
Salary for the next fourteen (14) days immediately following the date of
such termination (the "Severance Period").
(4) If the Executive's employment with the Company is terminated
without cause:
(a) The Executive shall be deemed to be an "Executive" of
the Company for the applicable Severance Period with respect to any
health insurance plans maintained by the Company in which the Executive
is eligible and
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participating at the time of such termination and the Executive
shall be entitled to continued coverage, if applicable, during
such Severance Period; and
d. Termination Upon Death or Disability.
(1) If the Executive dies or becomes permanently disabled
to the extent that he is unable to perform his duties under this
Agreement, at such time as he is determined to be permanently disabled
or upon death, he shall be deemed terminated and he, his heirs, or
assigns, as applicable, shall receive an amount equal to one hundred
percent (100%) of his Base Salary for two (2) months, plus any bonus
compensation to which the Executive would be entitled, pro rated to the
date of death or permanent disability; provided, however, that the
payment of such Base Salary shall be reduced by an amount equal to the
sum of all benefits received by the Executive from (i) federal or state
disability programs or (ii) any private disability plan provided by the
Company. Payment of such sum shall be made in accordance with Section
3.1 hereof.
(2) For purposes of this Agreement, the term "permanently
disabled" shall mean the Executive's inability to perform services by
reason of illness or other incapacity for a period of more than two (2)
months, established by medical evidence satisfactory to the Company.
(3) All other benefits to which the Executive may be
entitled following the Executive's termination for death or disability
shall be determined in accordance with the plans, policies and practices
of the Company then in effect.
SECTION 2.3 OTHER OCCURRENCES UPON TERMINATION. Upon termination of
this Agreement:
a. The Company's obligation to provide the Executive with
compensation and benefits as provided herein shall discontinue at the
termination date of this Agreement except as otherwise required by law
or as herein set forth in this Section 2.
b. The Executive shall comply fully with the provisions of
Section 4.4.e. hereof, including, without limitation, the surrender to
the Company's designated agent of all property of the Company belonging
thereto that is in the possession, custody or control of the Executive
at the time of termination, including, but not limited to, keys, files,
furnishings, reports, records, documents and the like; and
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<PAGE> 6
c. With respect to any stock options, restricted stock,
incentive plans, deferred compensation arrangements or other plans or
programs in which the Executive is participating at the time of
termination of his employment, the Executive's rights and benefits under
each such plan shall be determined in accordance with the terms,
conditions, and limitations of the plan and any separate agreement
executed by the Executive which may then be in effect.
SECTION 2.4 MITIGATION OF AMOUNTS PAYABLE UPON TERMINATION. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Section 2 by seeking other employment or otherwise, nor shall the
amount of any payment provided for in this Section 2 be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the date of the Executive's termination of employment, or
otherwise.
ARTICLE III
COMPENSATION AND BENEFITS
SECTION 3.1. BASE SALARY.
a. For all services rendered by the Executive during his
employment under this Agreement, the Company shall pay the Executive as
compensation a salary at the rate of $84,000.00 per year, increased
annually on June 10 of each year, commencing June 10, 1996, by the
Salary Adjustment Amount (the salary payable in any calendar year,
including the applicable Salary Adjustment Amount is referred to herein
as the "Base Salary" for such calendar year). All taxes and
governmentally required withholdings shall be deducted in conformity
with applicable laws.
b. For purposes of this Agreement, the phrase "Salary
Adjustment Amount" means an amount equal to the sum of (i) the
percentage increase (if any) in the "Consumer Price Index for all Urban
Consumers" (the "Index") published by the Bureau of Labor Statistics of
the United States Department of Labor for the twelve month period ending
with the December immediately preceding such determination of Salary
Adjustment Amount, plus (ii) any additional increase in salary which the
Board of Directors of the Company may approve for the Executive.
Appropriate adjustment shall be promptly made in case there is a
published amendment of the Index figures upon which the computation is
based. In the event the Index is discontinued, the parties hereto shall
accept comparable statistics on the cost of living published by an
agency of the United States or a responsible financial periodical of
recognized authority.
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<PAGE> 7
c. The Company shall pay the Executive as additional
compensation a motor vehicle allowance of $4,800.00 per year.
d. During the Employment Term, the Executive's salary shall
be reviewed at least annually. Such review shall be conducted by the
Board of Directors of the Company, or a committee designated by the
Board of Directors, and such Board or committee may increase, but not
decrease, said salary.
Section 3.2. BONUS. In addition to such compensation as is to be payable
to the Executive pursuant to the provisions of Section 3.1, the Executive shall
be entitled to receive bonuses defined as follows:
a. Signing: AHC will issue 1000 shares of ordinary stock
par value $0.001 as fully paid.
b. 90 days: on completion of satisfactory performance
during initial employment period, AHC will issue further 1000 shares of
ordinary stock, par value $0.001 as fully paid.
c. AHC will pay employee bonus of $12,000.00 at end of each
year's employment if AHC meets corporate performance goals as
established between employee and Company at the beginning of each
employment year.
Section 3.3. STOCK OPTIONS.
a. The Company will grant to employee the following stock
options in recognition of performance achievement.
(i) on signing of employment contract the Company
will grant employee option to acquire 10,000
shares at $5.00 per share, such options are
irrevocable and exist up to 5 years and can only
be exercised after minimum of 12 months
employment.
(ii) on achievement of the following Corporate goals
in year 1, 2 and 3 while employed, the Company
will grant employee option to acquire 20,000
options in year 1 and 40,000 options in years 2
and 3 at $7.50 per share.
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Year 1 or 9/30/96 NPBT $3,250,000
Year 2 or 9/30/97 NPBT $7,500,000
Year 3 or 9/30/98 NPBT $17,500,000
SECTION 3.4. BENEFITS. In addition to, and not in lieu of, Base
Salary, bonus or other compensation payable to the Executive hereunder, the
Executive shall be entitled to the following benefits:
a. Employee Benefits. The Executive shall be entitled to
participate in the employee benefit programs generally available to
employees of the Company, and to receive such benefits for which his
level of employment makes him eligible, all in accordance with the
Company's policies as in effect from time to time during the Employment
Term.
b. Health Insurance: Health insurance will be paid by the
Company for the employee, spouse, and children living at home.
c. Vacations. The Executive shall be entitled to two (2)
weeks of vacation (pro rated for periods of less than 12 months), or
such greater length of time as may be approved from time to time by the
Board of Directors of the Company during each full year of his
employment hereunder, with full pay in accordance with the vacation
policy of the Company, such vacation to be taken by the Executive at
such time or times as are consistent with the reasonable business needs
of the Company. Vacation shall accrue as of the date hereof with
respect to the Company's calendar year 1996, and thereafter, each of
each year and any accrued vacation time not used during the year in
which it is available to be taken will be lost.
d. Business Expenses. The Executive shall be reimbursed in
accordance with Company policies for any and all necessary and
reasonable business expenses incurred by the Executive during the
Employment Term.
e. Holidays. The Executive shall be entitled to such
holidays as the Board of Directors may approve for all employees of the
Company.
f. Sick Leave. The Executive shall be entitled to a
maximum of five (5) days paid sick leave per year because of sickness or
accident. The
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Executive shall accrue three (3) paid sick days on the date of the
commencement of this Agreement and on each subsequent January 1st. No
unused sick leave shall be carried over from one calendar year to the
next.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.1. REDUCTION OF PAYMENTS. If any payment to or for the
benefit of the Executive under this Agreement, either alone or together with
other payments to or for the benefit of the Executive, would constitute a
"parachute payment" (as such term is defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), the payments under this
Agreement shall be reduced to the largest amount that will minimize or
eliminate both the imposition of the excise tax imposed by Section 4999 of the
Code and the disallowance of deductions to the Company under Section 280G of
the Code of any such payments. The determination of any reduction in the
payments under this Agreement pursuant to this Section shall be made by the
Company's independent accountants.
SECTION 4.2. INDEMNIFICATION. The Company will indemnify the Executive
(and his legal representative or other successors) to the fullest extent
permitted (including payment of expenses in advance of final disposition of a
proceeding) by the laws of the jurisdiction of incorporation of the Company, as
in effect at the time of the subject act or omission, or by the Certificate of
Incorporation and By-Laws of the Company, as in effect at such time or on the
effective date of this Agreement, or by the terms of any indemnification
agreement between the Company and the Executive, whichever affords or afforded
greatest protection to the Executive, and the Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally
for the benefit of its directors and officers, and to the extent the Company
maintains such an insurance policy or policies, the Executive shall be covered
by such policy or policies, in accordance with its or their terms, to the
maximum extent of the coverage available for any Company officer or director
against all costs, charges and expenses whatsoever incurred or sustained by him
or his legal representatives at the time such costs, charges and expenses are
incurred or sustained, in connection with any action, suit or proceeding to
which he (or his legal representatives or other successors) may be made a party
by reason of his being or having been a director, officer or employee of the
Company, or any of its subsidiaries or his serving or having served any other
enterprise as a director, officer or employee at the request of the Company.
SECTION 4.3. COVENANT NOT TO COMPETE WITH THE COMPANY.
a. If this Agreement is terminated for any reason, the
Executive, for a period of one (1) year after the date of termination
(the "Noncompete Term"), shall not directly or indirectly own, manage,
operate or control, or be
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employed by or participate in or be connected in any manner with the
ownership, management, operation, or control of, any business or type of
business, located within a ten (10) mile radius of any facility owned or
operated by any member of the Company Group (as defined below), which renders
medical, chiropractic or physical therapy services competitive with those of
such member.
b. In addition, the Executive agrees that for the duration of the
Noncompete Term, he will not, either directly or indirectly: (i) make any use
of or make known to any competing person, firm, or corporation the names or
addresses of any potential or pending acquisition and/or the names of the
patients of any member of the Company Group or any other information
pertaining to said businesses, acquisitions, and/or patients; (ii) call on,
solicit or take away, or attempt to call on, solicit or take away, any of the
business, acquisitions, and/or patients of any member of the Company Group
with whom the Executive became acquainted during his employment or association
with the Company or any other member of the Company Group, for commercial or
competitive purposes either for himself or for any other person, firm, or
corporation; or (iii) solicit or take away or attempt to solicit or take away
any person then employed (including any employee who had been employed by the
Company or any other member of the Company Group within six (6) months prior to
the time of the termination of this Agreement) by the Company or any other
member of the Company Group, for purposes of employment by or any consulting
relationship with himself or any other person, firm or corporation.
(c) As used herein, the phrase "Company Group" means the Company,
and any entity that directly or indirectly controls, is controlled by, or is
under common control with, the Company, and for purposes of this definition
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such entity, whether
through the ownership of voting securities, by contract or otherwise.
(d) Notwithstanding the provisions of paragraph a above this
Section 4.3, the Executive may invest in the securities of any enterprise (but
without otherwise participating in the activities of such enterprise) if (i)
such securities are listed on any national or regional securities exchange or
have been registered under Section 12(9) of the Securities Exchange Act of
1934 and (ii) the Executive does not beneficially own (as defined in Rule 1
3d-3 promulgated under the Securities Exchange Act of 1934) in excess of 5% of
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the outstanding capital stock of such enterprise. The Company
acknowledges that Jon Sommerhauser owns 16% of a company called
Intervention Outcome Inc. and it will not violate his noncompete
agreement.
e. The Executive agrees that if a court of competent
jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 4.3 is overly
restrictive and unenforceable, the court may reduce or modify such
restrictions to those which it deems reasonable and enforceable under
the circumstances, and as so reduced or modified, the parties hereto
agree that if a court of competent jurisdiction determines that any
provision of this Section 4.3 is invalid or against public policy, the
remaining provisions of this Section 4.3 and the remainder of this
Agreement shall not be affected thereby, and shall remain in full force
and effect.
f. The Executive acknowledges that the business of the
Company and the other members of the Company Group is national in scope
and that the restrictions imposed by this Agreement are legitimate,
reasonable and necessary to protect the Company's and the other members
of the Company Group's investment in their respective businesses and the
goodwill thereof. The Executive acknowledges that the scope and duration
of the restrictions contained herein are reasonable in light of the time
that the Executive has been engaged in the business of the Company, the
Executive's reputation in the markets for the businesses of the Company
and the other members of the Company Group and the Executive's
relationship with the patients of the members of the Company Group. The
Executive further acknowledges that the restrictions contained herein
are not burdensome to the Executive in light of the consideration paid
therefor and the other opportunities that remain open to the Executive.
Moreover, the Executive acknowledges that he has other means available
to him for the pursuit of his livelihood.
g. The Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the
provisions of this Section 4.3 would be inadequate and, in recognition
of this fact, the Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company,
without posting any bond, shall be entitled to obtain equitable relief
in the form of specific performance, temporary restraining order,
temporary or permanent injunction or any other equitable remedy which
may then be available.
SECTION 4.4. CONFIDENTIALITY; SPECIFIC PERFORMANCE.
a. The Executive will not at any time (whether during or
after his employment with the Company) disclose or use for his own
benefit or
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purposes, or the benefit or purposes of any other person, firm, partnership,
joint venture, association, corporation or other business organization, entity
or enterprise other than the Company and any other member of the Company Group,
any Trade Secrets (as defined below) of the Company without first obtaining the
written consent of the Company.
b. The Executive will not at any time during his employment with
the Company or for a period of two (2) years after termination of his
employment, disclose or use for his own benefit or purposes or the benefit or
purposes of any other person, firm, partnership, joint venture, association,
corporation or other business organization, entity or enterprise other than the
Company and any other member of the Company Group, any Confidential Information
(as defined below) of the Company or any other member of the Company Group
which is disclosed to or learned by the Executive during employment with the
Company. The Executive acknowledges that Confidential Information and materials
developed by the Executive, or Confidential Information and materials received
by the Company in confidence from third parties, are also included within the
meaning and provisions of this Section.
c. As used herein, "Trade Secrets" means the whole or any portion
or phase of technical information, design, process, procedure, formula or
improvement known or used by the Company or any other member of the Company
Group that is valuable and secret (in the sense that it is not generally known
to competitors of the Company). To the extent consistent with the foregoing,
Trade Secrets include (without limitation) the specialized information and
technology that provide any member of the Company Group with an advantage over
competitors or potential competitors in its industry.
d. As used herein, "Confidential Information" means, with respect
to any person, any data or information known by that person related to the
business of the person, other than Trade Secrets, that is of competitive
significance to the person and not generally known by or available to the
public or are maintained as confidential by such person. To the extent
consistent with the foregoing, "Confidential Information" includes (without
limitation): patient records; cost data (such as labor or material costs
pertaining to services) of the Company; the identity and location of vendors
and the terms of sales (including prices) negotiated with such vendors; data
relating to sales - by patient, by location, by service category, or by sales
price; patient lists; financial information that has not been released to the
public; future business plans, marketing strategies, or advertising campaigns;
and personnel files.
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e. The Executive agrees that upon termination of his
employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom in any way relating to the business
of the Company and any other member of the Company Group, except that he may
retain personal notes, notebooks and diaries. The Executive further agrees
that he will not retain or use for his account at any time any trade names,
trademark or other proprietary business designation used or owned in connection
with the business of the Company or any other member of the Company Group.
f. The Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of this Section 4.4 would be inadequate and, in recognition of this
fact, the Executive agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, the Company, without posting any
bond, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction or
any other equitable remedy which may then be available.
SECTION 4.5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
SECTION 4.6. ENTIRE AGREEMENT: AMENDMENTS; EFFECTIVENESS. This
Agreement shall supersede any and all existing employment, change in control
or severance agreements between the Executive and the Company or any of its
respective affiliates and contains the entire understanding of the parties with
respect to the employment of the Executive by the Company. There are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter hereof other than those
expressly set forth herein. No provisions of this Agreement may be amended or
modified unless such amendment or modification is in writing and signed by each
of the paries hereto. THIS AGREEMENT AND ANY AMENDMENT HERETO SHALL NOT BE
EFFECTIVE UNLESS AND UNTIL SIGNED BY THE COMPANY AND THE EXECUTIVE.
SECTION 4.7. NO WAIVER. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
SECTION 4.8. SEVERABILITY. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the
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validity, legality and enforceability of the remaining provisions of this
Agreement shall not be affected thereby.
SECTION 4.9. SUCCESSORS. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount would still be payable
to the Executive hereunder if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee or other designee
or, if there is no such designee, to the Executive's estate. This Agreement
shall not be assignable by the Executive.
SECTION 4.10. NOTICE. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered or mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth in the opening of this
Agreement; provided that all notices to the Company shall be directed to the
attention of the President, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
SECTION 4.11. ARBITRATION.
a. Subject to the Company's right to seek injunctive relief in
court as provided in Sections 4.3 and 4.4, the parties hereby agree to
submit all controversies, claims and matters of difference in any way
related to this Agreement or the performance or breach of the whole or
any part hereof, to arbitration in Dallas, Texas, according to the rules
and practices of the American Arbitration Association from time to time
in force. Any such dispute shall be decided by three (3) arbitrators.
Each of the parties to the dispute shall appoint one arbitrator within
thirty (30) days of the submission of a notice of arbitration, and the
two party-appointed arbitrators shall appoint the third arbitrator
within thirty (30) days following the appointment of the last
party-appointed arbitrator. All decisions and awards by the arbitration
tribunal shall be made by majority vote. If one party fails to appoint
an arbitrator within the time allotted therefor, or the party-appointed
arbitrators cannot reach agreement on the third arbitrator of the
tribunal within the said thirty (30) day period, then the appointing
authority for the implementation of such procedures shall be the Senior
Federal District Judge sitting for the Northern District of Texas. If
such rules and practices shall conflict with the Texas Rules of Civil
Procedure or any other provisions of Texas law then in force, such Texas
rules and provisions shall govern. Arbitration of any such controversy,
claims or matter of difference shall be
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a condition precedent to any legal action thereon, so, in the event that
arbitration fails to settle any dispute arising in connection with this
Agreement, each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of Texas in any action or
proceeding arising out of or relating to this Agreement. This submission
and agreement to arbitration shall be specifically enforceable.
b. Awards shall be final and binding on all parties to the
extent and in the manner provided by Texas law; provided that an
arbitration award shall not be binding on the Company to the extent such
award exceeds the maximum amount the Company would be required to pay
the Executive pursuant to the express terms of this Agreement. All
awards may be filed by any party with the Clerk of the District Court in
the County of Dallas, Texas and an appropriate judgment entered thereon
and execution issued therefor. At the election of any party said award
may also be filed, and judgment entered thereon and execution issued
therefor, with the clerk of one or more other courts, state or federal,
having jurisdiction over the party against whom such award is rendered
or its property.
Section 4.12. HEADINGS. The headings contained in this Agreement are
for convenience only and shall in no manner be construed as part of this
Agreement.
Section 4.13. ENFORCEMENT. In the event either party resorts to legal
action to enforce the terms and provisions of this Agreement, the prevailing
party shall be entitled to recover the costs of such action so incurred,
including, without limitation, reasonable attorneys' fees.
Section 4.14. COUNTERPARTS. This Agreement (and any written amendment
thereto) may be executed in one or more counterparts, each of which shall be
deemed to be an original but all of which together will constitute one and the
same instrument.
Section 4.15. SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's
obligations under this Agreement shall survive regardless of whether the
Executive's employment by the Company is terminated, voluntarily or
involuntarily, by the Company or the Executive, with or without cause.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
EXECUTIVE: COMPANY:
Jon A. Sommerhauser American HealthChoice, Inc.
/s/ JON A. SOMMERHAUSER By: /SIG/
- ----------------------- ---------------------------------
President
and
AHC Management, Inc.
By: /SIG/
---------------------------------
President
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EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), is made this 2nd day of
December, 1996, by and between American HealthChoice, Inc. (AHC), a New York
corporation (the "Company"), with its principal offices at 1300 W. Walnut Hill
Lane, Irving, Texas 75038 and C. Dean York (the "Executive"), an individual.
WITNESSETH:
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interests of the Company to retain the services of the Executive in
the position set forth hereinbelow and to enter into a written agreement
embodying the terms of such employment; and
WHEREAS, the By-laws of the Company permit the Company to enter into
contracts for the employment of officers of the Company; and
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement, and the Executive wishes
to continue to serve in the employ of the Company in the capacity and on the
terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by each of the parties
hereto, the parties agree as follows:
ARTICLE I
EMPLOYMENT AND DUTIES
SECTION 1.1. EMPLOYMENT. The Company hereby continues to employ the
Executive, and the Executive hereby agrees to such continued employment with
the Company as an employee of the Company, upon the terms and subject to the
conditions hereinafter set forth.
SECTION 1.2. DUTIES. The Executive shall serve as the Vice President of
Finance and Chief Financial Officer. The Executive shall devote substantially
all of his business time and energies to the business of the Company. The
Executive agrees to perform such services not inconsistent with his position as
shall from time to time be assigned to him by the Company's Board of Directors
or the President of the Company.
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ARTICLE II
TERM OF EMPLOYMENT
SECTION 2.1. TERM. The Executive shall be employed by the Company for a
period commencing on December 2, 1996 and, except as otherwise provided herein,
ending three (3) years from such date; provided, however, that unless the
Company shall have delivered to the Executive written notice of its intent, or
the Executive shall have delivered to the Company written notice of his intent,
not to renew this Agreement on or prior to December 2nd in any year, commencing
with December 2, 1996, the term of this Agreement shall be extended by twelve
months from the then effective expiration date. The period of the Executive's
employment hereunder, including any extension or extensions pursuant to the
foregoing sentence, is referred to hereinafter as the "Employment Term".
SECTION 2.2. TERMINATION. This Agreement, and the employment of the
Executive hereunder, shall terminate prior to the expiration of the Employment
Term in the following manner:
a. Retirement.
(1) This Agreement shall terminate automatically upon the
Executive's Retirement, as defined hereinafter.
(2) For purposes of this Agreement, "Retirement" means the
termination of the Executive's employment initiated by the Executive whereby the
Executive is entitled to receive an immediately payable benefit, including
an early retirement benefit, under the Company's retirement plan generally
applicable to its salaried employees or under any retirement arrangement
established with respect to the Executive with his consent, in either case,
whether or not the Executive commences to receive such benefit at the time of
such termination.
(3) Upon termination of the Executive's employment by
reason of Retirement, the Executive shall be entitled to benefits determined in
accordance with the Company's retirement, benefit and insurance programs in
effect at such time.
b. Termination for Cause.
(1) The Executive's employment under this Agreement may be
terminated for cause at any time, effective upon written notice after formal
action by the Board of Directors of the Company
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at a special meeting duly called for the purpose of considering the
termination of the Executive for cause and at said meeting the Board of
Directors decides to terminate for cause, as defined herein. The
Executive shall have the right to receive notice of and appear at such
meeting to respond to any allegations made against him concerning the
contemplated termination.
(2) As used in this Agreement, "cause" shall be deemed to
mean one or more of the following:
(a) The Executive's embezzlement or misappropriation
of funds;
(b) The Executive's conviction of a felony involving
moral turpitude;
(c) The Executive's commission of material acts of
dishonesty, fraud, or deceit;
(d) The Executive's breach of any material provision
of this Agreement;
(e) The Executive's habitual or willful neglect of
his duties;
(f) The Executive's breach of fiduciary duty to the
Company involving personal profit; or
(g) The Executive's material violation of any other
duty to the Company or its stockholders imposed by law or by the
Board of Directors.
(3) In the event that the Board of Directors acts to
terminate the Executive for cause in accordance with paragraph (1), the
Executive shall be paid all compensation and other sums due to him
through the date of termination, including, without limitation,
reimbursements for allowable expenses incurred by the Executive, but
shall not be entitled to receive any compensation or benefits
thereafter.
c. Termination Without Cause.
(1) The Company may, at any time, terminate this Agreement
without cause on sixty (60) days' written notice to the Executive.
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(2) As used in this Agreement, the phrase "termination
without cause" means termination of employment other than:
(a) Termination pursuant to Section 2.2.b. of this
Agreement; or
(b) Termination pursuant to Section 2.2.d. of this
Agreement; or
(c) The Executive's voluntary termination of his
employment pursuant to Section 2.2.a. or otherwise.
(3) If the Executive's employment with the Company is
terminated without cause, then;
(a) Where the termination without cause occurs
within twelve (12) months of the date of employment, the Company
will continue to pay as liquidated damages his then current Base
Salary (as defined herein) for the next ninety (90) days
immediately following the date of such termination (the
"Severance Period");
(b) If termination without cause occurs between
month 12 and 24 then liquidated damages will be prorated in
accordance with (a) and (c);
(c) Where the termination without cause occurs after
twenty four (24) months of the date of employment, the Company
will continue to pay as liquidated damages his then current Base
Salary for the next one hundred eighty (180) days immediately
following the date of such termination (the "Severance Period");
(4) If the Executive's employment with the Company is
terminated without cause:
(a) The Executive shall be deemed to be an
"Executive" of the Company for the applicable Severance Period
with respect to any health insurance plans maintained by the
Company in which the Executive is eligible and participating at
the time of such termination and the Executive shall be
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entitled to continued coverage, if applicable, during such
Severance Period; and
d. Termination Upon Death or Disability.
(1) If the Executive dies or becomes permanently disabled to
the extent that he is unable to perform his duties under this Agreement,
at such time as he is determined to be permanently disabled or upon
death, he shall be deemed terminated and he, his heirs, or assigns, as
applicable, shall receive an amount equal to one hundred percent (100%)
of his Base Salary for two (2) months, plus any bonus compensation to
which the Executive would be entitled, pro rated to the date of death or
permanent disability; provided, however, that the payment of such Base
Salary shall be reduced by an amount equal to the sum of all benefits
received by the Executive from (i) federal or state disability programs
or (ii) any private disability plan provided by the Company. Payment of
such sum shall be made in accordance with Section 3.1 hereof.
(2) For purposes of this Agreement, the term "permanently
disabled" shall mean the Executive's inability to perform services by
reason of illness or other incapacity for a period of more than two (2)
months, established by medical evidence satisfactory to the Company.
(3) All other benefits to which the Executive may be
entitled following the Executive's termination for death or disability
shall be determined in accordance with the plans, policies and practices
of the Company then in effect.
SECTION 2.3. OTHER OCCURRENCES UPON TERMINATION. Upon termination of
this Agreement:
a. The Company's obligation to provide the Executive with
compensation and benefits as provided herein shall discontinue at the
termination date of this Agreement except as otherwise required by law
or as herein set forth in this Section 2.
b. The Executive shall comply fully with the provisions of
Section 4.4.e. hereof, including, without limitation, the surrender to
the Company's designated agent of all property of the Company belonging
thereto that is in the possession, custody or control of the Executive
at the time of termination, including, but not limited
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to, keys, files, furnishings, reports, records, documents and the like;
and
c. With respect to any stock options, restricted stock,
incentive plans, deferred compensation arrangements or other plans or
programs in which the Executive is participating at the time of
termination of his employment, the Executive's rights and benefits under
each such plan shall be determined in accordance with the terms,
conditions, and limitations of the plan and any separate agreement
executed by the Executive which may then be in effect.
SECTION 2.4 MITIGATION OF AMOUNTS PAYABLE UPON TERMINATION. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Section 2 by seeking other employment or otherwise, nor shall the
amount of any payment provided for in this Section 2 be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the date of the Executive's termination of employment, or
otherwise.
ARTICLE III
COMPENSATION AND BENEFITS
SECTION 2.1. BASE SALARY.
a. For all services rendered by the Executive during his
employment under this Agreement, the Company shall pay the Executive as
compensation a salary at the rate of $120,000.00 per year, increased
annually on December 2nd of each year, commencing December 2nd, 1996, by
the Salary Adjustment Amount (the salary payable in any calendar year,
including the applicable Salary Adjustment Amount is referred to herein
as the "Base Salary" for such calendar year). All taxes and
governmentally required withholdings shall be deducted in conformity
with applicable laws.
b. For purposes of this Agreement, the phrase "Salary
Adjustment Amount" means an amount equal to the sum of (i) the
percentage increase (if any) in the "Consumer Price Index for all Urban
Consumers" (the "Index") published by the Bureau of Labor Statistics of
the United States Department of Labor for the twelve month period ending
with the December immediately preceding such determination of Salary
Adjustment Amount, plus (ii) any additional increase in salary which the
Board of Directors of the
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Company may approve for the Executive. Appropriate adjustment shall be
promptly made in case there is a published amendment of the Index
figures upon which the computation is based. In the event the Index is
discontinued, the parties hereto shall accept comparable statistics on
the cost of living published by an agency of the United States or a
responsible financial periodical of recognized authority.
c. The Company shall pay the Executive as additional
compensation a motor vehicle allowance of $3,000.00 per year.
d. During the Employment Term, the Executive's salary shall
be reviewed at least annually. Such review shall be conducted by the
Board of Directors of the Company, or a committee designated by the
Board of Directors, and such Board or committee may increase, but not
decrease, said salary.
SECTION 3.2. BONUS. In addition to such compensation as is to be
payable to the Executive pursuant to the provisions of Section 3.1, the
Executive shall be entitled to receive bonuses defined as follows:
a. Signing: AHC will issue 1000 shares of ordinary stock
par value $0.001 as fully paid.
SECTION 3.3. STOCK OPTIONS.
a. The Company will grant to employee the following stock
options in recognition of performance achievement.
(i) on signing of employment contract the Company
will grant employee option to acquire 10,000
shares at $7.50 per share, such options are
irrevocable and exist up to 5 years and can only
be exercised after minimum of 12 months
employment.
(ii) on achievement of the following Corporate goals
in year 1, 2 and 3 while employed, the Company
will grant employee option to acquire 20,000
options in year 1 and 40,000 options in years 2
and 3 at $7.50 per share.
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Year 1 or 9/30/97 NPBT $3,250,000
Year 2 or 9/30/98 NPBT $7,500,000
Year 3 or 9/30/99 NPBT $17,500,000
SECTION 3.4. BENEFITS. In addition to, and not in lieu of, Base
Salary, bonus or other compensation payable to the Executive hereunder, the
Executive shall be entitled to the following benefits:
a. Employee Benefits. The Executive shall be entitled to
participate in the employee benefit programs generally available to
employees of the Company, and to receive such benefits for which his
level of employment makes him eligible, all in accordance with the
Company's policies as in effect from time to time during the Employment
Term.
b. Health Insurance. Health insurance will be paid by the
Company for the employee, spouse, and children living at home effective
with date of employment.
c. Vacations. The Executive shall be entitled to three (3)
weeks of vacation (pro rated for periods of less than 12 months), or
such greater length of time as may be approved from time to time by the
Board of Directors of the Company during each full year of his
employment hereunder, with full pay in accordance with the vacation
policy of the Company, such vacation to be taken by the Executive at
such time or times as are consistent with the reasonable business needs
of the Company. Vacation shall accrue as of the date hereof with
respect to the Company's calendar year 1996, and thereafter, any accrued
vacation time not used during the year in which it is available to be
taken will be lost.
d. Business Expenses. The Executive shall be reimbursed in
accordance with Company policies for any and all necessary and
reasonable business expenses incurred by the Executive during the
Employment Term.
e. Holidays. The Executive shall be entitled to such
holidays as the Board of Directors may approve for all employees of the
Company.
f. Sick Leave. The Executive shall be entitled to a
maximum of five (5) days paid sick leave per year because of sickness or
accident.
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g. Dues and Licenses. The Company will pay on behalf of the Executive
his annual licenses and dues to professional organizations such as
MGMA, AICPA, State Board of Accountancy, etc.
h. Continuing Professional Education. The Company will support the
Executive's annual continuing professional education (CPE)
requirements of forty (40) yours per year. Accordingly, the Company
will reimburse the Executive to attend such professional meetings and
seminars, to cover expenses for materials, course fees, travel,
lodging, meals, etc.
i. Relocation Allowance. The Company will reimburse the Executive for
his costs to relocate from San Antonio to Irving in an amount not to
exceed $2,000.00.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.1. REDUCTION OF PAYMENTS. If any payment to or for the
benefit of the Executive under this Agreement, either alone or together with
other payments to or for the benefit of the Executive, would constitute a
"parachute payment" (as such term is defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), the payments under this
Agreement shall be reduced to the largest amount that will minimize or
eliminate both the imposition of the excise tax imposed by Section 4999 of the
Code and the disallowance of deductions to the Company under Section 280G of
the Code of any such payments. The determination of any reduction in the
payments under this Agreement pursuant to this Section shall be made by the
Company's independent accountants.
SECTION 4.2. INDEMNIFICATION. The Company will indemnify the Executive
(and his legal representative or other successors) to the fullest extent
permitted (including payment of expenses in advance of final disposition of a
proceeding) by the laws of the jurisdiction of incorporation of the Company, as
in effect at the time of the subject act or omission, or by the Certificate of
incorporation and By-Laws of the Company, as in effect at such time or on the
effective date of this Agreement, or by the terms of any indemnification
agreement between the Company and the Executive, whichever affords or afforded
greatest protection to the Executive, and the Executive shall be entitled to
the protection of any insurance policies the Company may elect to maintain
generally for the benefit of its directors and officers, and to the extent the
Company maintains such an insurance policy or policies, the Executive shall be
covered by such policy or policies, in accordance with its or their terms, to
the
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maximum extent of the coverage available for any Company officer or director
against all costs, charges and expenses whatsoever incurred or sustained by him
or his legal representatives at the time such costs, charges and expenses are
incurred or sustained, in connection with any action, suit or proceeding to
which he (or his legal representatives or other successors) may be made a party
by reason of his being or having been a director, officer or employee of the
Company, or any of its subsidiaries or his serving or having served any other
enterprise as a director, officer or employee at the request of the Company.
SECTION 4.3. COVENANT NOT TO COMPETE WITH THE COMPANY.
a. If this Agreement is terminated for any reason, the
Executive, for a period of one (1) year after the date of termination
(the "Noncompete Term"), shall not directly or indirectly own, manage,
operate or control, or be employed by or participate in or be connected
in any manner with the ownership, management, operation, or control of,
any business or type of business, located within a ten (10) mile radius
of any facility owned or operated by any member of the Company Group (as
defined below), which renders medical, chiropractic or physical therapy
services competitive with those of such member.
b. In addition, the Executive agrees that for the duration of
the Noncompete Term, he will not, either directly or indirectly: (i)
make any use of or make known to any competing person, firm, or
corporation the names or addresses of any potential or pending
acquisition and/or the names of the patients of any member of the
Company Group or any other information pertaining to said businesses,
acquisitions, and/or patients; (ii) call on, solicit or take away, or
attempt to call on, solicit or take away, any of the business,
acquisitions, and/or patients of any member of the Company Group with
whom the Executive became acquainted during his employment or
association with the Company or any other member of the Company Group,
for commercial or competitive purposes either for himself of for any
other person, firm, or corporation, or (iii) solicit or take away or
attempt to solicit or take away any person then employed (including any
employee who had been employed by the Company or any other member of the
Company Group within six (6) months prior to the time of the termination
of this Agreement) by the Company or any other member of the Company
Group, for purposes of employment by or any consulting relationship with
himself or any other person, firm or corporation.
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c. As used herein, the phrase "Company Group" means the Company,
and any entity that directly or indirectly controls, is controlled by,
or is under common control with, the Company, and for purposes of this
definition "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of such entity, whether through the ownership of voting
securities, by contract or otherwise.
d. Notwithstanding the provisions of paragraph a above this
Section 4.3, the Executive may invest in the securities of any
enterprise (but without otherwise participating in the activities of
such enterprise) if (i) such securities are listed on any national or
regional securities exchange or have been registered under Section 12(9)
of the Securities Exchange Act of 1934 and (ii) the Executive does not
beneficially own (as defined in Rule 1 3d-3 promulgated under the
Securities Exchange Act of 1934) in excess of 5% of the outstanding
capital stock of such enterprise.
e. The Executive agrees that if a court of competent
jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 4.3 if overly
restrictive and unenforceable, the court may reduce or modify such
restrictions to those which it deems reasonable and enforceable under
the circumstances, and as so reduced or modified, the parties hereto
agree that if a court of competent jurisdiction determines that any
provision of this Section 4.3 is invalid or against public policy, the
remaining provisions of this Section 4.3 and the remainder of this
Agreement shall not be affected thereby, and shall remain in full force
and effect.
f. The Executive acknowledges that the business of the Company
and the other members of the Company Group is national in scope and that
the restrictions imposed by this Agreement are legitimate, reasonable
and necessary to protect the Company's and the other members of the
Company Group's investment in their respective businesses and the
goodwill thereof. The Executive acknowledges that the scope and duration
of the restrictions contained herein are reasonable in light of the time
that the Executive has been engaged in the business of the Company, the
Executive's reputation in the markets for the businesses of the Company
and the other members of the Company Group and the Executive's
relationship with the patients of the members of the Company Group. The
Executive further acknowledges that the restrictions contained herein
are not burdensome to the Executive in light of the consideration paid
therefor and the other
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opportunities that remain open to the Executive. Moreover, the
Executive acknowledges that he has other means available to him for the
pursuit of his livelihood.
g. The Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 4.3 would be inadequate and, in recognition of this fact, the
Executive agrees that, in the event of such a breach or threatened breach, in
addition to any remedies at law, the Company, without posting any bond, shall be
entitled to obtain equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available.
SECTION 4.4 CONFIDENTIALITY; SPECIFIC PERFORMANCE.
a. The Executive will not at any time (whether during or after his
employment with the Company) disclose or use for his own benefit or purposes,
or the benefit or purposes of any other person, firm, partnership, joint
venture, association, corporation or other business organization, entity or
enterprise other than the Company and any other member of the Company Group,
any Trade Secrets (as defined below) of the Company without first obtaining the
written consent of the Company.
b. The Executive will not at any time during his employment with
the Company or for a period of two (2) years after termination of his
employment, disclose or use for his own benefit or purposes or the benefit or
purposes of any other person, firm, partnership, joint venture, association,
corporation or other business organization, entity or
enterprise other than the Company and any other member of the Company Group,
any Confidential Information (as defined below) of the Company or any other
member of the Company Group which is disclosed to or learned by the Executive
during employment with the Company. The Executive acknowledges that
Confidential Information and materials developed by the Executive, or
Confidential Information and materials received by the Company in confidence
from third parties, are also included within the meaning and provisions of this
Section.
c. As used herein, "Trade Secrets" means the whole or any portion
or phase of technical information, design, process, procedure, formula or
improvement known or used by the Company or any other member of the Company
Group that is
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<PAGE> 13
valuable and secret (in the sense that it is not generally known to competitors
of the Company). To the extent consistent with the foregoing, Trade Secrets
include (without limitation) the specialized information and technology that
provide any member of the Company Group with an advantage over competitors or
potential competitors in its industry.
d. As used herein, "Confidential Information" means, with respect
to any person, any data or information known by that person related to the
business of the person, other than Trade Secrets, that is of competitive
significance to the person and not generally known by or available to the public
or are maintained as confidential by such person. To the extent consistent with
the foregoing, "Confidential Information" includes (without limitation): patient
records; cost data (such as labor or material costs pertaining to services) of
the Company; the identity and location of vendors and the terms of sales
(including prices) negotiated with such vendors; data relating to sales - by
patient, by location, by service category, or by sales price; patient lists;
financial information that has not been released to the public; future business
plans, marketing strategies, or advertising campaigns; and personnel files.
e. The Executive agrees that upon termination of his employment
with the Company for any reason, he will return to the Company immediately all
memoranda, books, papers, plans, information, letters and other data, and all
copies thereof or therefrom in any way relating to the business of the Company
and any other member of the Company Group, except that he may retain personal
notes, notebooks and diaries. The Executive further agrees that he will not
retain or use for his account at any time any trade names, trademark or other
proprietary business designation used or owned in connection with the business
of the Company or any other member of the Company Group.
f. The Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 4.4 would be inadequate and, in recognition of this fact, the
Executive agrees that, in the event of such a breach or threatened breach, in
addition to any remedies at law, the Company, without posting any bond, shall
be entitled to obtain equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available.
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SECTION 4.5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
SECTION 4.6. ENTIRE AGREEMENT; AMENDMENTS; EFFECTIVENESS. This
Agreement shall supersede any and all existing employment, change in control or
severance agreements between the Executive and the Company or any of its
respective affiliates and contains the entire understanding of the parties with
respect to the employment of the Executive by the Company. There are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter hereof other than those
expressly set forth herein. No provisions of this Agreement may be amended or
modified unless such amendment or modification is in writing and signed by each
of the parties hereto. THIS AGREEMENT AND ANY AMENDMENT HERETO SHALL NOT BE
EFFECTIVE UNLESS AND UNTIL SIGNED BY THE COMPANY AND THE EXECUTIVE.
SECTION 4.7. NO WAIVER. The failure of a party to insist upon
strict adherence to any term of this Agreement on any occasion shall not be
considered a waiver of such party's rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
SECTION 4.8. SEVERABILITY. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
SECTION 4.9. SUCCESSORS. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount would still be payable
to the Executive hereunder if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee or other designee
or, if there is no such designee, to the Executive's estate. This Agreement
shall not be assignable by the Executive.
SECTION 4.10. NOTICE. For the purposes of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when personally delivered or mailed
by United States registered or certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth in the
opening of this Agreement; provided that all notices to the Company shall be
directed to the
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attention of the President, or such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
SECTION 4.11. ARBITRATION.
a. Subject to the Company's right to seek injunctive relief
in court as provided in Sections 4.3 and 4.4, the parties hereby agree
to submit all controversies, claims and matters of difference in any way
related to this Agreement or the performance or breach of the whole or
any part hereof, to arbitration in Dallas, Texas, according to the rules
and practices of the American Arbitration Association from time to time
in force. Any such dispute shall be decided by three (3) arbitrators.
Each of the parties to the dispute shall appoint one arbitrator within
thirty (30) days of the submission of a notice of arbitration, and the
two party-appointed arbitrators shall appoint the third arbitrator
within thirty (30) days following the appointment of the last
party-appointed arbitrator. All decisions and awards by the arbitration
tribunal shall be made by majority vote. If one party fails to appoint
an arbitrator within the time allotted therefor, or the party-appointed
arbitrators cannot reach agreement on the third arbitrator within the
said thirty (30) day period, then the appointing authority for the
implementation of such procedures shall be the Senior Federal District
Judge sitting for the Northern District of Texas. If such rules and
practices shall conflict with the Texas Rules of Civil Procedure or any
other provisions of Texas law then in force, such Texas rules and
provisions shall govern. Arbitration of any such controversy, claims or
matter of difference shall be a condition precedent to any legal action
thereon, so, in the event that arbitration fails to settle any dispute
arising in connection with this Agreement, each of the parties hereto
agrees to submit to the jurisdiction of the courts of the State of Texas
in any action or proceeding arising out of or relating to this
Agreement. This submission and agreement to arbitration shall be
specifically enforceable.
b. Awards shall be final and binding on all parties to the
extent and in the manner provided by Texas law; provided that an
arbitration award shall not be binding on the Company to the extent such
award exceeds the maximum amount the Company would be required to pay
the Executive pursuant to the express terms of this Agreement. All
awards may be filed by any party with the Clerk of the District Court in
the County of Dallas, Texas and an appropriate judgment entered thereon
and execution issued therefor. At the
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election of any party said award may also be filed, and judgment entered
thereon and execution issued therefor, with the clerk of one or more
other courts, state or federal, having jurisdiction over the party
against whom such award is rendered or its property.
SECTION 4.12. HEADINGS. The headings contained in this Agreement are
for convenience only and shall in no manner be construed as a part of this
Agreement.
SECTION 4.13. ENFORCEMENT. In the event either party resorts to legal
action to enforce the terms and provisions of this Agreement, the prevailing
party shall be entitled to recover the costs of such action so incurred,
including, without limitation, reasonable attorneys' fees.
SECTION 4.14. COUNTERPARTS. This Agreement (and any written amendment
thereto) may be executed in one or more counterparts, each of which shall be
deemed to be an original but all of which together will constitute one and the
same instrument.
SECTION 4.15. SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The
Executive's obligations under this Agreement shall survive regardless of
whether the Executive's employment by the Company is terminated, voluntarily or
involuntarily, by the Company or the Executive, with or without cause.
(The balance of the page left blank intentionally)
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
EXECUTIVE: COMPANY:
C. Dean York American HealthChoice, Inc.
/S/ A. DEAN YORK By: [SIG]
- ---------------------------- ----------------------------
President
and
AHC Management, Inc.
By: [SIG]
----------------------------
President
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EXHIBIT 10.4
PHYSICIAN EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into this 1
day of July, 1994, but to be effective the 1st day of July, 1994, (the
"Effective Date"), by and between United Chiropractic Clinic of Uptown, Inc., a
Louisiana corporation (hereinafter "Employer"), and Dr. Jeffrey Jones
(hereinafter "Employee").
RECITALS
A. Employer is a corporation which provides services at various
clinic sites in the State of Louisiana, including a clinic located at 807 S.
Carrollton, New Orleans, LA 70118, and doing business under the name American
HealthChoice (the "Clinic"). Employer does hereby employ Employee, a
chiropractor who is actively practicing and is duly licensed to practice in the
State of Louisiana as an employee on the staff of the Clinic, subject to the
rules thereof, and to the standards of the profession.
B. Employee may not unilaterally terminate this Agreement prior
to the end of the first ninety (90) day period. Thereafter, Employee may
unilaterally terminate this Agreement, but only after giving Employer thirty
(30) days written notice of the Employee's intentions to terminate. Employee
agrees that if Employee breaches this term of the Agreement, Employee will be
liable to Employer for all of Employer's lost profit as a result of the breach,
for the cost incurred in obtaining the personnel necessary to operate the
equipment as a proximate cause of the breach, and for Employer's attorneys'
fees incurred as a result of any legal actions brought to enforce the terms of
this provision.
C. Employee is willing to be employed by Employer, and Employer
is willing to employ Employee, on the terms, covenants and conditions
hereinafter set forth.
D. Employee has completed and submitted with Employer an
Employment Application Form, attached hereto (the "Application Form"), required
of all prospective Employees of Employer.
IN CONSIDERATION of the mutual covenants and promises of the parties
hereto, Employer and Employee covenant and agree as follows:
SECTION I
NATURE AND PLACE OF EMPLOYMENT
A. Employer does hereby employ, engage and hire Employee as a
Doctor of Chiropractic and Clinic Director at the Clinic, or at any other
location as directed by Employer (the "New Location"), such New Location to be
mutually agreed upon and designated in writing, and Employee does hereby accept
and agree to such hiring, engagement and employment. Subject to the
supervision and pursuant to the orders, advice and directions of Employer,
Employee shall serve in the capacity as a Clinic Director and Doctor at the
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Clinic; shall practice chiropractic within the parameters regulating the
practice of chiropractic within the State of Louisiana set forth in applicable
federal and state statutes, rules, regulations and ethical standards; shall
perform such other duties as are customarily performed by a Doctor of
Chiropractic holding such a position in other clinic locations operated by
Employer; shall additionally render such other services and duties relating to
the operations of the Clinic or Employer, as may be assigned to the Employee
from time to time by Employer; and shall comply with the policies as shall from
time to time be set out by Employer.
B. Employee shall promote the services of the Clinic, to the
extent permitted by law, the applicable canons of professional ethics and the
policies of Employer, the business and operations of Employer.
C. Employee shall be available via telephone at all reasonable
times and shall be "on-call" and capable of being present in person, at the
Clinic or New Location within one (1) hour after being called by Employer,
during established "on-call" time periods.
D. Employee shall, during the term of this Agreement, remain
qualified to have a policy or policies of malpractice insurance with a
nationally recognized insurance carrier and upon terms acceptable to Employer
and/or the State of Louisiana, in an aggregate amount of not less than ONE
HUNDRED THOUSAND/THREE HUNDRED THOUSAND DOLLARS ($100,000.00/$300,000), and
also to be covered by Louisiana Compensation Fund purchased by Employer, naming
and insuring Employee, Employer and the officers and directors of Employer,
jointly and severally, from and against any and all liability, costs, damages,
expenses and attorney's fees resulting from or attributable to any and all acts
and/or omissions of Employee, Employer and the officers and directors of
Employer.
E. Unless otherwise agreed by Employer, the Employer's sole and
absolute discretion, such agreement to be in writing and in advance of earning
such fees or other income, all fees or other income attributable to Employee's
professional services rendered during the term of this Agreement, including but
not limited to, fees derived from lecturing, are considered to be income
derived from and under the auspices of Employer, and shall belong to Employer,
with the exception of various deposition fees earned by Employee, not to exceed
$2,500.00 in any year of employment.
F. "Moonlighting" by Employee without Employers prior written
approval in any manner whatsoever is expressly forbidden. "Moonlighting" is
defined as the rendering of services of a professional nature, either directly
or indirectly, in any form, fashion or capacity, to or for any person,
partnership, corporation or entity of any nature whatsoever, in competition to
or with Employer's business, for which the Employee is receiving, or is to
receive, compensation or remuneration of any nature or form.
G. This is a personal services agreement between the parties, and
neither party may assign or delegate any rights, duties or obligations
hereunder without first obtaining the written consent of the other party.
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SECTION II
MANNER OF PERFORMANCE OF EMPLOYEES' DUTIES
A. Employee agrees that Employee will at all times faithfully,
industriously and to the best of Employee's ability, experience and talent,
perform all of the duties that may be required of and from Employee pursuant to
the express and implicit terms hereof, to the reasonable satisfaction of
Employer.
B. To the extent Employee's duties and schedule reasonably
permit, Employee shall attend all of Employer's company seminars. Employee
agrees to comply with all quality standards established by Employer, to ensure
quality patient care. Employer agrees to incur expenses or reimburse for
attended Employee Seminars.
C. Employee understands and acknowledges that certain business
operations of the Clinic are managed by American HealthChoice, Inc.
("American"), pursuant to the terms of a Management Agreement (the "Management
Agreement") by and between Employer and American and Employee agrees to abide
by all of the terms and conditions of the Management Agreement as they apply to
Employee. Employee agrees to review and initial the American Clinical Policies
and Procedures Manual (the "Policies Manual") and to abide by the terms and
conditions initially contained therein, as well as to review and abide by any
changes that may from time to time be made to the Policies Manual by American.
D. To the extent Employee's duties and schedule reasonably
permit, Employee shall attend all of Employer's company seminars, as well as
all doctors' meetings held by Employer or American, on behalf of Employer. All
such meetings shall be at Employer's expense.
SECTION III
DURATION OF EMPLOYMENT
A. Except as otherwise provided below, the term of this Agreement
shall be for a period of three (3) years, commencing on the Effective Date.
This Agreement shall be automatically renewed for additional consecutive one
(1) year terms without action by either party hereto, unless written notice of
an intent to terminate this Agreement is provided by Employer or Employee to
the other party, not less than ninety (90) days prior to the expiration of the
term currently in effect.
B. During the first ninety (90) days of the term of this
Agreement, Employee expressly understands and agrees that the Employee shall be
on probation, and that within fifteen (15) days following the end of such
ninety (90) day period the Agreement may be fifteen (15) days following the end
of such ninety (90) day period the Agreement may be terminated at the sole
discretion of the Employer, with or without cause. Thereafter, this Agreement
shall remain in effect for the term set forth in Paragraph A hereof, unless
otherwise terminated pursuant to the terms of this Agreement.
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SECTION IV
TERMINATION OF EMPLOYMENT
Employer shall have the right to immediately terminate Employee's
employment with Employer upon, or at any time after, the occurrence of one or
more of the following events:
A. Upon nonperformance of Employee's duties as an Employee for
whatever reason, including Employee's disability for which Employer can make no
reasonable accommodation;
B. Upon Employee's theft or dishonesty;
C. Upon the death of Employee;
D. If Employee attempts to alienate, encumber, sell transfer,
assign, hypothecate or pledge to any person, natural or corporate, shares of
stock, if any, issued by the Employer to the Employee in any manner, without
the Employer's express written consent, or in any manner prohibited by the
Articles of Incorporation of Employer, the Bylaws of Employer, any shareholder
agreements affecting the shares of stock of the Employer held by Employee, or
the provisions of this Agreement or in any manner prohibited by law;
E. Upon determination by the Board that the Employee has acted in
a manner contrary to the canons of professional ethics, the provisions of the
Staff Bylaws, the Management Agreement or the Policies Manual, as such
documents may from time to time be revised and amended, for unlawful harassment
of other Employees (including sex harassment), or if the Employee has been
convicted of a felony or a crime involving moral turpitude;
F. For abuse of drugs or alcohol;
G. The suspension, revocation or cancellation of the Employee's
right to practice within any State in which Employer Operates;
H. Upon Employer's discovery that any of the information
contained in the Application Form completed by Employee is incorrect or false,
as of the date of the Application Form; or
I. Whenever Employer and Employee shall mutually agree to
such termination in writing.
SECTION V
POST-TERMINATION DUTIES AND COMPENSATION
A. Upon termination of this Agreement, Employee will cooperate in
the transfer of patients under the Employee's care to the new chiropractor
hired by Employer to take the place of Employee, as directed by the Employer.
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B. To facilitate the transfer, while still employed by Employer,
Employee will change his or her practice hours or days, assist in the recall of
inactive patients, and do all that is reasonable to assure that the patient
receives complete care.
C. Employee agrees that for a period of one (1) year following
termination of this Agreement, Employee shall cooperate fully and assist
Employer with its efforts to collect all accounts receivable for services
performed by Employee while employed by Employer, including, without
limitation, transferring to Employer all funds made payable to Employee on such
accounts receivable, as well as appearing in any court of law within which any
cause of action is brought to seek enforcement of Employer's right to collect
such accounts receivable. Further, Employee agrees to notify Employer, in
writing, of any change of address of Employee, both business and residence,
during such one (1) year period so that Employer will be able to locate
Employee to carry out the terms and conditions of this Section V-C. Employee
shall not receive any compensation for providing the services set forth in this
paragraph, however, Employer shall reimburse Employee for all reasonable costs
and expenses of Employee, as approved in advance by Employer, relating to such
services. The terms and provisions of this Section V-C shall survive
termination of this Agreement.
D. Employer shall not be obligated to pay to Employee any
compensation which is directly or indirectly based on payments received on
accounts receivable collected after termination of this Agreement.
SECTION VI
PAYMENT AND REIMBURSEMENT
A. Base Remuneration: Annual compensation of $200,000 per year
payable bimonthly, plus:
1. Payment of premium for term life insurance of $500,000. Value
on Dr. Jeffrey Jones. The beneficiary of such policy is
nominated to be his spouse B. D. Jones.
2. Provision of fully paid health insurance coverage for Employee
and family.
B. An annual bonus will be paid to employee equivalent to the
amount equal to: Net Cash Operating Profit of Clinic x (times) 50% minus
annual base salary ($200,000). Such bonus payable sixty (60) days after the
end of each annual period anniversary to date of this contract.
C. If the Employee is terminated before the completion of a fall
month, the bonus provisions do not apply and Employee shall not be entitled to
any bonus for the incomplete month.
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<PAGE> 6
D. Any violation of the terms or conditions of this Agreement
shall automatically terminate Employee's rights to any bonuses, without the
necessity of formal written notice to Employee by the Board.
E. Employee shall be entitled to receive any bonus during the
first month of this Agreement.
F. Employer shall reimburse Employee for approved business
expenses. Employee must complete appropriate employer claim form and provide
receipts.
G. Employee shall be entitled to an annual vacation, without loss
of compensation, as follows:
1. Three (3) weeks per year, including 1st year.
2. After two (2) years, vacations will increase up to four (4)
weeks per year
Vacation scheduling shall be coordinated with Employer pursuant to the
Staff Bylaws and established procedures, so as not to disrupt the continuity of
patient care. For the purposes hereof, a week shall be deemed to equal five
(5) business days, provided, however, if Employee takes vacation in one week
blocks, the period from Sunday through Saturday shall constitute one week.
H. Employee shall be entitled to five (5) business days (as such
term is used in paragraph G) of sick leave, without loss of compensation,
during each consecutive twelve (12) month period of this Agreement, provided
such sick leave is taken in accordance with established policies and procedures
of Employer and the Clinic. Any absence from work due to illness or injury in
excess of the sick leave provided pursuant to this paragraph shall be without
compensation unless construed to be vacation. Any days of sick leave not used
in a given year may not be accumulated.
I. Maternity leave shall be treated the same as any other
temporary disability.
SECTION VII
DISCONTINUANCE OF BUSINESS AS TERMINATION OF EMPLOYMENT
Notwithstanding anything herein contained to the contrary, in the
event that Employer shall discontinue providing Employee services, then this
Agreement shall cease and terminate as of the last day of the month in which
the Employer ceases operations.
SECTION VIII
DEVOTION BY EMPLOYEE OF TIME TO BUSINESS
Employee shall devote much of the Employee's time, attention,
knowledge and skill required for the business and interest of Employer, and
Employer shall be entitled to any and
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<PAGE> 7
all of the benefits or remuneration of whatever form, paid to Employee and
arising from or incident to any and all work, services, and advice of Employee.
SECTION IX
NONDISCLOSURE OF INFORMATION
CONCERNING BUSINESS; PATIENT RECORDS
A. Employee recognizes and acknowledges that he or she will have
access to certain confidential information of the Employer and that such
information constitutes valuable, special and unique property of Employer.
Employee further specifically agrees that Employee will not at any time during
the term hereof, or after the termination of this Agreement, in any fashion,
form, or manner, either directly or indirectly, divulge, disclose, or
communicate to any person, firm, or corporation, in any manner whatsoever, the
terms and provisions of the Agreement or any information of any kind, nature or
description concerning any matters affecting or relating to the business of
Employer, including, without limiting the generality of the foregoing, the
names of any of its patients, the prices it obtains or had obtained or at which
it provides its services or sells or has sold its products, its manner of
operation, its plans, processes, or other data or information of any kind,
nature, or description, without regard to whether any or all of the foregoing
matters would be deemed confidential.
B. Employee Agrees that:
1. All patient and client names, addresses, telephone numbers,
files, and records (collectively, the "Patient Records") are,
and shall remain, the property of the Employer, and except as
necessary for the Employer, and except as necessary for
insurance referral or other purposes directly related to the
conducting of diagnostic tests or to proper patient care, the
Employee shall not remove, copy and/or transfer, or transmit
to any person, natural or corporate, any Patient Records at
any time;
2. Each Patient Record has reasonable value to Employer of
$2,750.00, and Employee agrees to pay Employer the sum of
$2,750.00 for each and every Patient Record, or any portion of
the contents thereof, which Employee attempts to obtain,
and/or actually does obtain, in contravention of the
provisions of this Section. Such sum shall be due and payable
immediately from the date of the violation or attempted
violation of these provisions, with such sums to bear interest
at the maximum allowable legal rate;
3. Violation, or any attempted violation of any provisions of
this Section, by Employee, either directly or indirectly,
shall be grounds for immediate termination of this Agreement.
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<PAGE> 8
C. The Employee recognizes and agrees that violation of any of
the agreements contained in this Section will cause irreparable damage or
injury to Employer, the exact amount of which may be impossible to ascertain,
and that, for such reason, among others, Employer shall be entitled to an
injunction, without the necessity of posting bond therefor, restraining any
further violation of such agreements. Such rights to any injunction shall be
in addition to, and not in limitation of, any other rights and remedies
Employer may have against the Employee, including, but not limited to, the
recovery of damages. The terms and provisions of this Section shall survive
termination of this Agreement.
SECTION X
COVENANT NOT TO SOLICIT
Employee agrees that during the term of this Agreement and for a
period of one (1) year thereafter, Employee shall not (i) solicit, encourage or
advise patients or clients treated during the term of this Agreement to obtain
or seek chiropractic and/or diagnostic testing services from any other
chiropractic and/or diagnostic testing group that is not the Employer or (ii)
solicit, encourage, or advise any employees of Employer to terminate such
employment with Employer, for any reason whatsoever. Employee agrees that the
limitations set forth herein on his or her rights are reasonable and necessary
for the protection of Employer. Notwithstanding the foregoing, nothing herein
is intended to prevent Employee from referring a patient in need of specialty
services, not otherwise provided by Employer, to another medical professional
or facility, provided, however, all such referrals shall be made in accordance
with Employer's established policies and procedures regarding referrals.
Employee further recognizes and agrees that violation of any of the agreements
contained in this Section may cause irreparable damage or injury to Employer,
the exact amount of which may be impossible to ascertain, and that, for such
reason, among others, Employer shall be entitled to an injunction, without the
necessity of posting bond therefor, restraining any further violation of such
agreements. Such rights to any injunction shall be in addition to, and not in
limitation of, any other rights and remedies Employer may have against
Employee, including, but not limited to, the recovery of damages. As used
herein, the term "patient" shall include any and all patients or clients
solicited by the Employee, during the term of this Agreement. The terms and
provisions of this Section shall survive termination of this Agreement.
SECTION XI
COVENANT NOT TO COMPETE
Employee agrees that during the term of this Agreement and for a
period of one (1) year thereafter, Employee shall not, within a ten (10) mile
radius of the Clinic including but not limited to Orleans and Jefferson
Parishes, any New Location or other clinic location to which the Employee is or
has been transferred by Employer, compete, directly or indirectly with the
business of Employer, nor own, directly or indirectly, any part of or become
the Employee of or otherwise render services to, any enterprise which directly
or indirectly competes with the business of Employer. Employee agrees that the
limitations set forth herein on his or her rights to compete with Employer
during the period of and after termination of
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<PAGE> 9
this Agreement are reasonable and necessary for the protection of Employer. In
this regard, Employee specifically agrees that the limitations as to period of
time and the geographic area are reasonable and necessary for the protection of
Employer. Employee further recognizes and agrees that violation of any of the
agreements contained in this Section will cause irreparable damage or injury to
Employer, the exact amount of which may be impossible to ascertain, and that,
for such reason, among others, Employer shall be entitled to an injunction,
without the necessity of posting bond therefore, restraining any further
violation of such agreements. Such rights to any injunction shall be in
addition to, and not in limitation of, any other rights and remedies that
Employer may have against Employee, including, but not limited to, the recovery
of damages. Further, it is agreed by Employee that in the event that the
provisions of this Section should ever be deemed to exceed the time or
geographic limitations permitted by applicable law, then such provisions shall
be reformed to the maximum time or geographic limitations permitted. Nothing
contained herein shall be deemed to prevent or limit the right of Employee to
invest any of his surplus funds in the capital stock or other securities of any
corporation whose stock or securities are regularly traded on any nationally
recognized stock exchange, nor shall anything herein contained be deemed to
prevent Employee from investing or limiting Employee's right to invest his
surplus funds in real estate. The terms and provisions of this Section shall
survive termination of this Agreement.
SECTION XII
ADDITIONAL CONSIDERATION
As additional consideration for the non-competition and
no-solicitation provisions set forth above, and in order to assist Employee,
Employer hereby agrees to pay to Employee the sum of $200.00 (two hundred
dollars) (less any applicable tax withholdings) per month for one (1) year
following termination of this Agreement. Payment may be ceased by Employer in
the event Employer reasonably believes that Employee is violating Employee's
non-competition and no- solicitation covenants. In the event of such cessation
of payments, however, Employer retains all of its legal rights to seek
enforcement of each provision of this Agreement, including, without limitation
a suit for damages and an injunction. Employee acknowledges that the sums
recited in this Section are sufficient independent consideration to make
Employee's non-competition and no-solicitation pledges binding and enforceable
under all applicable laws.
Employee acknowledges receipt of $200.00 (two hundred dollars)
being first month payment under Section XII.
----------------------- ------------------------
Employee Name Signature
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<PAGE> 10
SECTION XIII
COMMITMENTS BINDING ONLY ON WRITTEN CONSENT
Notwithstanding anything contained herein to the contrary, it is
expressly understood and agreed that Employee shall not have the right to make
any contracts or commitments for or on behalf of Employer without the written
consent of Employer.
SECTION XIV
ENTIRE AGREEMENT
This Agreement sets forth the entire agreement and understanding of
the parties hereto with respect to the transactions contemplated hereby, and
supersedes all prior agreements, arrangements and understandings related to the
subject matter hereof. No representation, promise, inducement or statement of
intention has been made by any party hereto which is not embodied in this
Agreement, and no party hereto shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention not so set forth.
SECTION XV
WAIVER OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
No waiver or modification of this Agreement or of any covenant,
condition, or limitation herein contained shall be valid unless in writing and
duly executed by the parties hereto, and no evidence of any waiver or
modification shall affect this Agreement, or the rights arising out of or
affecting this Agreement, or the rights or obligations of any party hereunder,
unless such waiver or modifications is in writing and duly executed by the
parties hereto. The parties further agree that the provisions of this Section
XVI may not be waived except as herein set forth.
SECTION XVI
CONTRACT GOVERNED BY THE LAWS OF LOUISIANA; SECTION HEADINGS
The parties hereto agree that it is their intention and covenant that
this Agreement and the performance hereunder and all suits and special
proceedings hereunder shall be construed and enforced in accordance with the
laws of the State of Louisiana. The Section and Paragraph headings contained
herein are for the purposes of convenience only, and shall not be deemed to
constitute a part of this Agreement or to affect the meaning or interpretation
of this Agreement in any way.
SECTION XVII
SEVERABILITY OF AGREEMENT
Should any provision of this Agreement be held unenforceable or
invalid under the laws of the United States of America or the State of
Louisiana or under any other applicable laws of any other jurisdiction, then
the parties hereto agree that such provision shall be deemed modified for
purposes of performance of this Agreement in such jurisdiction to the extent
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<PAGE> 11
necessary to render it lawful and enforceable, or if such a modification is not
possible without materially altering the intention of the parties hereto, then
such provision shall be severed herefrom for the purposes of performance of
this Agreement in such jurisdiction. The validity of the remaining provisions
of this Agreement shall not be affected by any such modification or severance.
SECTION XVIII
NOTICES
Except as otherwise provided herein, all notices, requests, demands
and other communications required or permitted to be given hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
given by prepaid telex or telegram or mailed first class, postage prepaid,
certified United States mail, return receipt requested, to the party to receive
such notice, request, demand or communication at such party's address set forth
on the signature page hereof, provided that any party may change its address
for notice by giving to the other party written notice of such change. Any
notice given under this Section XIX shall be effective (i) if delivered
personally, when delivered (ii) if sent by telex or telegram, 24 hours after
sending and (iii) if mailed, 48 hours after mailing.
IN WITNESS HEREOF, the parties hereto have executed this Agreement as
of the date first above written, but to be effective on the Effective Date.
"EMPLOYEE" "EMPLOYER"
By: \s\ Jeffrey T. Jones By: \s\ J.W. Stucki
------------------------------- ----------------------------
Name: Jeffrey T. Jones Name: J.W. Stucki
----------------------------- --------------------------
Title:
-------------------------
Address: 807 S. Carrolton Avenue
--------------------------
New Orleans, LA 70118
--------------------------
--------------------------
11
<PAGE> 1
EXHIBIT 10.8
AMERICAN HEALTHCHOICE, INC.
1995 EMPLOYEE STOCK OPTION PLAN
AMENDMENT 1996-1
SEPTEMBER 1, 1996
Pursuant to Section 16 of the American Healthchoice, Inc. 1995
Employee Stock Option Plan (the "Employee Option Plan"), American Healthchoice,
Inc., hereby amends the Employee Option Plan effective September 1, 1996 as
follows:
1. Employee Option Plan Section 4(a)(iv) is hereby amended to
read as follows:
"(iv) Notwithstanding the foregoing subparagraph
(iii), if the Company registers any of its equity securities
under Section 12(b) or 12(g) of the Exchange Act, the
following provisions shall replace subparagraph (iii) above:
The Committee administering this Plan shall be comprised
solely of two (2) or more non-employee directors of the
Company. A non-employee director is any member of the Board
who: (i) is not currently an officer of the Company or a
related corporation; (ii) does not receive compensation for
services rendered to the Company or a related corporation in
any capacity other than as a director; (iii) does not possess
an interest in any transaction with the Company for which
disclosure would be required under the securities laws; or
(iv) is not engaged in a business relationship with the
Company for which disclosure would be required under the
securities laws."
2. Employee Option Plan Section 5(b) is hereby amended to read as
follows:
"(b) Each Option shall be designated in the Option
Agreement evidencing such Option as either an Incentive Stock
Option or a Nonqualified Stock Option. However,
notwithstanding such designations, to the extent that the
aggregate fair market value (determined at the time an Option
is granted) of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under all
plans of the Company and any Parent or Subsidiary) exceeds
$100,000, then only Options with a fair market value equal to
$100,000 shall be treated as Incentive Stock Options, the
remainder shall be treated as Nonqualified Stock Options."
3. Employee Option Plan Section 8(a)(ii) is hereby amended to
read as follows:
"(ii) In the case of a Nonqualified Stock Option,
the per Share exercise price shall be the price the Board
determines in its sole discretion."
<PAGE> 2
4. Employee Option Plan Sections 9(b), (c) and (d) are hereby
amended to read as follows:
"(b) Termination of Status as an Employee or
Consultant. Upon the termination of an Optionee's Continuous
Status as an Employee or Consultant (as the case may be), such
Optionee may, but only for a period of time of no more than
three (3) months in the case of an Incentive Stock Option, or
such period of time as is provided by the Board in the case of
a Nonqualified Stock Option, after the date of such
termination (but in no event later than the date of expiration
of the term of such Option as set forth in the Option
Agreement), exercise his Option to the extent that he was
entitled to exercise it at the date of such termination. To
the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the Optionee
does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. Notwithstanding the
provisions of Section 9(b) above, in the event of termination
of an Optionee's Continuous Status as an Employee or
Consultant as a result of his total and permanent disability
(as defined in Section 22(e)(3) of the Code), such Optionee
may, for such period of time as is provided by the Board, but
not later than twelve (12) months from the date of such
termination (in the case of an Incentive Stock Option (and in
no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement), exercise his
Option to the extent he was entitled to exercise it at the
date of such termination. To the extent that the Optionee was
not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option
(which he was entitled to exercise) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the
provisions of Section 9(b) above, in the event of the death of
an Optionee:
(i) during the term of an Option with
respect to an Optionee who is at the time of his
death an Employee or Consultant and who has been in
Continuous Status as an Employee or Consultant since
the date of grant of such Option, the Option may be
exercised for such period of time as is provided by
the Board, but not later than twelve (12) months
following the date of death in the case of an
Incentive Stock Option (and in no event later than
the date of expiration of the term of such Option as
set forth in the Option Agreement), by the personal
representative of the Optionee's estate or by a
person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of
the right to exercise that would have accrued had the
Optionee continued living and remained in Continuous
Status as an Employee or Consultant for such provided
period after the date of death; or
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<PAGE> 3
(ii) within thirty (30) days after the
termination of Continuous Status as an Employee or
Consultant, the Option may be exercised for such
period of time after the date of death as is provided
by the Board (not to exceed three (3) months in the
case of an Incentive Stock Option, but in no event
later than the date of expiration of the term of such
Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or
inheritance, but only to the extent of the right of
exercise that had accrued at the date of
termination."
The remaining Employee Option Plan provisions shall continue in full
force and effect.
AMERICAN HEALTHCHOICE, INC.
By: [SIG]
----------------------------------------
Secretary
3
<PAGE> 1
EXHIBIT 10.9
AMERICAN HEALTHCHOICE, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AMENDMENT 1996-1
SEPTEMBER 1, 1996
Pursuant to Section 14 of the American Healthchoice, Inc. 1995
Non-Employee Director Stock Option Plan (the "Director Option Plan"), American
Healthchoice, Inc., hereby amends the Director Option Plan effective September
1, 1996 as follows:
1. Director Option Plan Section 4(a) is hereby amended to add
thereto the following:
"(iv) Notwithstanding the foregoing subparagraph
(iii), if the Company registers any of its equity securities
under Section 12(b) or 12(g) of the Exchange Act, the
following provisions shall replace subparagraph (iii) above:
The Committee administering this Plan shall be comprised
solely of two (2) or more non-employee directors of the
Company. A non-employee director is any member of the Board
who: (i) is not currently an officer of the Company or a
related corporation; (ii) does not receive compensation for
services rendered to the Company or a related corporation in
any capacity other than as a director; (iii) does not possess
an interest in any transaction with the Company for which
disclosure would be required under the securities laws; or
(iv) is not engaged in a business relationship with the
Company for which disclosure would be required under the
securities laws."
2. Director Option Plan Section 4(b) is hereby amended to read as
follows:
"(b) Powers of the Board. Subject to the
provisions of this Plan, the Board shall have the authority,
in its discretion, to:
i) grant Options;
ii) determine upon review of relevant
information and in accordance with Section 8(b) of
this Plan, the fair market value of the Common Stock;
iii) determine the exercise price per
Share of Options to be granted;
<PAGE> 2
iv) determine the Non-Employee Directors
to whom, and the time or times at which, Options
shall be granted and the number of Shares to be
represented by each Option;
v) interpret this Plan;
vi) prescribe, amend, and rescind rules
and regulations relating to this Plan;
vii) determine the terms and provisions
of each Option granted (which need not be identical)
and, with the consent of the holder thereof, modify
or amend each Option;
viii) accelerate or defer (with the
consent of the Optionee) the exercise date of any
Option;
ix) authorize any person to execute on
behalf of the Company any instrument required to
effectuate the grant of an Option previously granted
by the Board; and
x) make all other determinations deemed
necessary or advisable for the administration of this
Plan."
3. Director Option Plan Section 5(b) is hereby amended to read as
follows:
"(b) Option Grants. Each Option shall be designated
in the Option Agreement evidencing such Option."
4. Director Option Plan Section 8(a) is hereby amended to read as
follows:
"(a) The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be the price
the Board determines in its sole discretion. For purposes of
this Section 8(a), if an Option is amended to reduce the
exercise price, the date of grant of such Option shall
thereafter be considered to be the date of such amendment."
5. Director Option Plan Sections 9(b), (c) and (d) are hereby
amended to read as follows:
"(b) Termination of Status as a Non-Employee
Director. Upon the termination of an Optionee's Continuous
Status as a Non-Employee Director, such Optionee may, for such
period of time after the date of such termination as is
provided by the Board (but in no event later than the date of
expiration of the term of such Option as set forth in the
Option Agreement), exercise his Option to the
2
<PAGE> 3
extent that he was entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the
Optionee does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. Notwithstanding the
provisions of Section 9(b) above, in the event of termination
of an Optionee's Continuous Status as a Non-Employee Director
as a result of his total and permanent disability (as defined
in Section 22(e)(3) of the Code), such Optionee may, for such
period of time as is provided by the Board (but in no event
later than the date of expiration of the term of such Option
as set forth in the Option Agreement), exercise his Option to
the extent he was entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled
to exercise the Option at the date of termination, or if the
Optionee does not exercise such Option (which he was entitled
to exercise) within the time specified herein, the Option
shall terminate.
(d) Death of Optionee. Notwithstanding the
provisions of Section 9(b) above, in the event of the death of
an Optionee:
(i) during the term of an Option with
respect to an Optionee who is at the time of his
death a Non- Employee Director and who has been in
Continuous Status as a Non-Employee Director since
the date of grant of such Option, the Option may be
exercised for such period of time as is provided by
the Board (but in no event later than the date of
expiration of the term of such Option as set forth in
the Option Agreement), by the personal representative
of the Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as
a Non-Employee Director for such provided period
after the date of death; or
(ii) within thirty (30) days after the
termination of Continuous Status as a Non-Employee
Director, the Option may be exercised for such period
of time after the date of death as is provided by the
Board (but in no event later than the date of
expiration of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by
a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the
extent of the right of exercise that had accrued at
the date of termination."
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<PAGE> 4
6. New Director Option Plan Section 20 is hereby added to read as
follows:
"20. Acceleration in Certain Events. The Committee
may accelerate the exercisability of any Option in whole or in
part at any time. Notwithstanding the provisions of any
Option Agreement, the following provisions shall apply:
(a) Mergers and Reorganizations. If the
Company or its stockholders enter into an agreement
to dispose of all or substantially all of the assets
of the Company by means of a sale, merger, or other
reorganization, liquidation or otherwise, all Options
shall become immediately exercisable with respect to
the full number of shares subject to such Options
during the period commencing as of the date of the
agreement to dispose of all or substantially all of
the assets or stock of the Company and ending when
the disposition of assets or stock contemplated by
that agreement is consummated or the Option is
otherwise terminated in accordance with its
provisions or the provisions of this plan whichever
comes first; provided that no Option will be
immediately exercisable when the stockholders of the
Company immediately before the consummation of the
transaction will own at least 50% of the total
combined voting power of all the classes of the stock
entitled to vote of the surviving entity immediately
after the consummation of the transaction. An Option
shall not become immediately exercisable, however, if
the transaction contemplated in the agreement is a
merger or reorganization in which the Company shall
survive.
(b) Change in Control. In the event of
a change in control or threatened change in control
of the Company, all Options granted prior to the
change in control or threatened change in control
shall become immediately exercisable. A "change in
control" will be deemed to have occurred for purposes
hereof: (i) upon the occurrence of a change of stock
ownership of the Company of a nature that would be
required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Act of
1933, and any successor item of a similar nature; or
(ii) upon the acquisition of beneficial ownership,
directly or indirectly, by any person (as such term
is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) of securities of the Company
representing 33% or more of the combined voting power
of the Company's then outstanding securities; or
(iii) a change during any period of two consecutive
years of a majority of the members of the Board for
any reason, unless the election, or the nomination
for election by the Company's stockholders, of each
director was approved by a vote of a majority of the
directors then still in the office who were directors
at the beginning of the period; provided that a
change in control will not be deemed to have occurred
for purposes hereof with
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<PAGE> 5
respect to any person meeting the requirements of
clauses (i) and (ii) of Rule 13d-1(b)(1) promulgated
under the Securities Act of 1933."
The remaining Director Option Plan provisions shall continue in full
force and effect.
AMERICAN HEALTHCHOICE, INC.
By: [SIG]
-------------------------------
Secretary
5
<PAGE> 1
EXHIBIT 10.10
AMERICAN HEALTHCHOICE, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
AMENDMENT 1996-1
SEPTEMBER 1, 1996
Pursuant to Section 19 of the American Healthchoice, Inc. 1995
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan"), American
Healthchoice, Inc., hereby amends the Employee Stock Purchase Plan effective
September 1, 1996 as follows:
1. Employee Stock Purchase Plan Section 2(n) is hereby amended to
read as follows:
"(n) "Purchase Price" shall mean an amount equal to
at least 85% of the Fair Market Value of a share of Common
Stock on the Enrollment Date or on the Exercise Date,
whichever is lower."
2. Employee Stock Purchase Plan Section 13 is hereby amended to
read as follows:
"13. Administration.
(a) Administrative Body. The Plan shall
be administered by the Board or a committee of
members of the Board appointed by the Board. The
Board or its committee shall have full and exclusive
discretionary authority to construe, interpret and
apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the
Plan. Every finding, decision and determination made
by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon
all parties.
(b) Rule 16b-3 Limitations.
Notwithstanding the provisions of Subsection (a) of
this Section 13, if the Company registers any of its
equity securities under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, the following
provisions shall replace Subsection (a) above: The
Committee administering this Plan shall be comprised
solely of two (2) or more non-employee directors of
the Company. A non-employee director is any member
of the Board who: (i) is not currently an officer of
the Company or a related corporation; (ii) does not
receive compensation for services rendered to the
Company or a related corporation in any capacity
other than as a director; (iii) does not possess an
interest in any transaction with the Company for
which disclosure would be required under the
securities laws; or (iv) is not engaged in a business
relationship
<PAGE> 2
with the Company for which disclosure would be
required under the securities laws."
The remaining Employee Stock Purchase Plan provisions shall continue
in full force and effect.
AMERICAN HEALTHCHOICE, INC.
By: [SIG]
-------------------------------
Secretary
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EXHIBIT 10.11
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated as of December
30, 1996 by and between DVI Business Credit Corporation, a Delaware corporation
("Lender"), and America HealthChoice, Inc., a New York corporation; Total
Medical Diagnosis, Inc., a Texas corporation, AHC Physicians Corporation, Inc.,
a Texas corporation, United Chiropractic Clinic Uptown, Inc., a Louisiana
corporation; New Orleans East Chiropractic Clinic, Inc., a Louisiana
corporation, AHC Physicians Corporation, Inc., a Georgia corporation,
Nationwide Sports & Injury, Inc., a Texas corporation, AHC Chiropractic
Clinics, Inc., a Texas corporation (collectively, herein "Borrower").
SECTION 1
DEFINITIONS
SECTION 1.1. SPECIFIC DEFINITIONS. The following definitions
shall apply:
(a) "Account Debtors" shall mean Borrower's customers and
all other persons who are obligated or indebted to Borrower in any manner,
whether directly or indirectly, primarily or secondarily, contingently or
otherwise, with respect to Accounts.
(b) "Accounts" shall mean all accounts, accounts
receivable, monies and debt obligations in any form owing to Borrower (whether
arising in connection with contracts, contract rights, instruments, general
intangibles or chattel paper) arising out of the rendition of services by
Borrower whether or not earned by performance; all deposit accounts, credit
insurance, guaranties, letters of credit, advises of credit and other security
for any of the above; Borrower's Books relating to any of the foregoing.
(c) "Advance" shall mean an advance of loan proceeds
constituting all or a part of the Loan.
(d) "Borrower's Books" shall mean all of Borrower's books
and records including but not limited to: minute books, ledgers; records
indicating, summarizing or evidencing Borrower's assets, liabilities and the
Accounts; all information relating to Borrower's business operations or
financial condition; and all computer programs, disk or tape files, printouts,
runs and other computer-prepared information and the equipment containing such
information; provided, however, that confidential patient records shall not be
included therein, except to the extent otherwise provided by law.
(e) "Prime Rate" shall mean the rate of interest
announced publicly by Bank of America from time to time as its prime rate.
(f) "Borrowing Base" shall mean, on the date of
determination thereof, an amount equal to the sum of eighty percent (80%) of
the Net Collectible Value for each type of Eligible Account; provided, however,
that workers compensation lien and personal injury claims may never exceed
fifty percent (50%) of the Borrowing Base.
(g) "Cash Flow Ratio": as of any day, a fraction (a) the
numerator of which is equal to (i) the aggregate collections received during
the two immediately preceding calendar months in respect of Eligible accounts
receivable divided by (ii) 2.0 and (b) the denominator of which is an amount
equal
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to the average daily aggregate NCV of Eligible accounts receivable during such
two immediately preceding calendar months.
(h) "Closing Date" shall mean the date of the first
Advance of the Loan.
(i) "Collateral" shall have the meaning specified in
Section 3.1 hereof.
(j) "Commitment Amount" shall have the meaning set forth
in Section 2.1.
(k) "Distribution" shall mean, with respect to any shares
of capital stock or any warrant or right to acquire shares of capital stock or
any other equity security, (i) the retirement, redemption, purchase or other
acquisition, directly or indirectly, for value by the issuer of any such
security, except to the extent that the consideration therefor consists of
shares of stock, (ii) the declaration or (without duplication) payment of any
dividend in cash, directly or indirectly, on or with respect to any such
security, (iii) any investment in the holder of five percent (5%) or more of
any such security if a purpose of such investment is to avoid characterization
of the transaction as a Distribution and (iv) any other cash payment
constituting a distribution under applicable laws with respect to such
security.
(l) "Eligible Accounts" shall mean Borrower's accounts
receivable from commercial insurance, Medicare, Medicaid, HMO/PPO, workers'
compensation approved and lien and personal injury claims (collectively
referred to as "Retail Accounts"), which have been due and payable for one
hundred fifty (150) or fewer days from the date of service.
(m) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and all references to sections thereof shall include
such sections and any predecessor provisions thereto, including any rules or
regulations issued in connection therewith.
(n) "Event of Default" shall have the meaning specified
in Section 10 hereof.
(o) "Fair Value" means (i) with respect to Borrower's
assets, if Net Fair Value is being determined as of a date on or prior to the
first anniversary of the date hereof, the lower of (1) the value of such assets
as determined in accordance with Bankruptcy Code Section 5487 or (2) the value
of such assets as determined in accordance with the state fraudulent conveyance
or fraudulent transfer law that would be applicable to the determination
whether the obligations and/or the security interest relating thereto would
constitute a fraudulent conveyance or a fraudulent transfer (the "Applicable
State Law"), (ii) with respect to Borrower's assets, if Net Fair Value is being
determined as of a date after the first anniversary of the date hereof, the
value of such assets as determined in accordance with the Applicable State Law,
(iii) with respect to Borrower's liabilities, if Net Fair Value is being
determined as of a date on or prior to the first anniversary of the date
hereof, the lower of (1) the value of such liabilities as determined in
accordance with Bankruptcy Code Section 548 or (2) the value of such
liabilities as determined in accordance with the Applicable State Law, and (iv)
with respect to Borrower's liabilities, if Net Fair Value is being determined
as of a date after the first anniversary of the date hereof, the value of such
liabilities as determined in accordance with the Applicable State Law.
(p) "GAAP" means generally accepted accounting principles
set forth in the opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and/or in statements of the Financial
Accounting Standards Board, consistently applied.
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<PAGE> 3
(q) "Governmental Authority" shall mean any governmental
or political subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality thereof, or any court, tribunal,
grand jury or arbitrator, in any case whether foreign or domestic.
(r) "Health Care Laws" shall mean all federal, state and
local laws specifically relating to health care providers and health care
services, including, but not limited to, Section 1877(a) of the Social Security
Act as amended by the Omnibus Budget Reconciliation Act of 1993, 42 USC Section
1395nn.
(s) "Indebtedness" of a Person shall mean (i) all items
(except items of capital stock, capital or paid-in surplus or of retained
earnings) which, in accordance with GAAP, would be included in determining
total liabilities as shown on the liability side of the balance sheet of such
Person as of the date as of which Indebtedness is to be determined, including
any lease which, in accordance with GAAP would constitute indebtedness; (ii)
all indebtedness secured by any mortgage, pledge, security, lien or conditional
sale or other title retention agreement to which any property or asset owned or
held by such Person is subject, whether or not the indebtedness secured thereby
shall have been assumed; and (iii) all indebtedness of others which such Person
has directly or indirectly guaranteed, endorsed (otherwise than for the
collection or deposit in the ordinary course of business), discounted or sold
with recourse or agreed (contingently or otherwise) to purchase or repurchase
or otherwise acquire, or in respect of which such Person has agreed to supply
or advance funds (whether by way of loan, stock or equity purchase, capital
contribution or otherwise) or otherwise to become directly or indirectly
liable.
(t) "Lender Expenses" shall mean (i) all reasonable costs
or expenses (including, without limitation, taxes and insurance premiums)
required to be paid by Borrower under this Agreement or under any of the other
Loan Documents that are paid or advanced by Lender; (ii) filing, recording,
publication and search fees paid or incurred by Lender in connection with
Lender's transaction with Borrower; (iii) reasonable costs and expenses
incurred by Lender to correct any Event of Default or enforce any provision of
the Loan Documents or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, and preparing for sale or advertising
to sell the Collateral, whether or not a sale is consummated, after the
occurrence of an Event of Default; (iv) reasonable costs and expenses of suit
incurred by Lender in enforcing or defending the Loan Documents or any portion
thereof; (v) reasonable costs and expenses incurred by Lender to convert any
data submitted to Lender by Borrower to an acceptable form; and (vi) Lender's
reasonable attorney fees and expenses incurred (before or after execution of
this Agreement) in advising Lender with respect to, or in structuring,
drafting, reviewing, negotiating, amending, terminating, enforcing, defending
or otherwise concerning, the Loan Documents or any portion thereof,
irrespective of whether suit is brought.
(u) "Lien" shall mean any security interest, mortgage,
pledge, assignment, lien or other encumbrance of any kind, including any
interest of a vendor under a conditional sale contract or consignment and any
interest of a lessor under a capital lease.
(v) "Loan" shall mean each loan or any other loan or
loans made by Lender to Borrower pursuant to this Agreement.
(w) "Loan Availability" shall mean the lesser of (a) the
Commitment Amount or (b) the Borrowing Base minus the aggregate Advances and
other Obligations outstanding under this Agreement.
(x) "Loan Documents" shall mean (i) this Agreement; (ii)
the Note; (iii) any other agreements or documents hereafter delivered to secure
repayment of the Loan; (iv) the Lock Box
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Agreement and (v) any other certificates, documents, instruments, or financing
statements delivered by Borrower to Lender pursuant to the terms of this
Agreement.
(y) "Net Collectible Percentage" shall mean the
percentages described on Exhibit A attached hereto. The Net Collectible
Percentage may change from time to time in Lender's sole and absolute
discretion, written notification of which shall be given to Borrower by Lender.
(z) "Net Collectible Value" shall mean, for each type of
Eligible Account, the Net Collectible Percentage times the aggregate current
outstanding amount for such type of Eligible Account.
(aa) "Net Fair Value" the amount by which the Fair Value
of Borrower's assets exceeds the Fair Value of Borrower's liabilities
(including contingent liabilities).
(bb) "Note" shall mean the Secured Promissory Note
executed by Borrower pursuant to the terms of this Agreement.
(cc) "Obligations" means (1) all obligations (monetary or
otherwise) of Borrower arising under or in connection with this Agreement, the
Note and all other Loan Documents.
(dd) "Permitted Liens" shall mean (i) Liens for property
taxes and assessments or governmental charges or levies and Liens securing
claims or demands of mechanics and materialmen, provided that payment thereof
is not yet due or is being contested as permitted in this Agreement; (ii) Liens
of or resulting from any judgment or award, the time for the appeal or petition
for rehearing of which has not expired, or in respect of which Borrower is in
good faith prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review has been
secured; (iii) Liens and priority claims incidental to the ordinary course
conduct of business or the ownership of properties and assets (including
warehouse's and attorney's Liens and statutory landlord's Liens); deposits,
pledges or Liens to secure the performance of bids, tenders, or trade
contracts, or to secure statutory obligations; and surety or appeal bonds or
other Liens of like general nature incurred in the ordinary course of business
and not in connection with the borrowing of money; provided that in each case
the obligation secured is not overdue or, if overdue, is being contested in
good faith by appropriate actions or proceedings; and further provided that any
such warehouse's or statutory landlord's Liens have been subordinated to the
Liens of Lender in a manner satisfactory to Lender; and (iv) Liens existing on
the date of this Agreement that secure Indebtedness of Borrower outstanding on
such date and that are disclosed on Schedule 1.1 hereto;
(ee) "Person" shall mean an individual corporation,
partnership, limited liability company, trust, unincorporated association,
joint venture, joint-stock company, government (including political
subdivisions), Governmental Authority or any other entity.
(ff) "Proceeds" shall mean all proceeds and products of
Collateral and documents covering Collateral; all property received wholly or
partly in trade or exchange for Collateral; all claims against third parties
arising out of damage, destruction or decrease in value of the Collateral; all
leases of Collateral; and all rents, revenues, issues, profits and proceeds
arising from the sale, lease, license, encumbrance, collection or any other
temporary or permanent disposition of the Collateral or any interest therein.
(gg) "Subordinate Obligations" shall mean all Indebtedness
of Borrower subordinated to the Obligations pursuant to subordination and/or
intercreditor agreements in form satisfactory to Lender.
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<PAGE> 5
(hh) "Termination Date" shall mean the last day of any
term as to which a written notice of non-renewal pursuant to Section 2.7 has
been received or, in the case of a termination due to a prepayment under
Section 2.7, the date of such prepayment.
(ii) "Unmatured Default" shall mean any event or condition
that, with notice, passage of time, or a determination by Lender or any
combination of the foregoing would constitute an Event of Default.
SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
UNIFORM COMMERCIAL CODE. All financial terms used in this Agreement, other
than those defined in this Section 1, have the meanings accorded to them under
GAAP. All other terms used in this Agreement, other than those defined in this
Section 1, have the meanings accorded to them in the Uniform Commercial Code as
enacted any applicable jurisdiction.
SECTION 1.3. CONSTRUCTION
(a) Unless the context of this Agreement clearly requires
otherwise, the plural includes the singular, the singular includes the plural,
the part includes the whole, "including" is not limiting, and "or" has the
inclusive meaning of the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder" and other similar terms in this Agreement refer to this
Agreement as a whole and not exclusively to any particular provision of this
Agreement.
(b) Neither this Agreement nor any uncertainty or
ambiguity shall be construed or resolved against Lender or Borrower, whether
under any rule of construction or otherwise. On the contrary, this Agreement
has been reviewed by each of the parties and its counsel and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
SECTION 2
LOAN
SECTION 2.1. THE LOAN. Subject to the terms and conditions
and relying on the representations and warranties set forth herein, Lender
agrees to make Advances to Borrower from time to time in an aggregate amount
not to exceed the lesser of (i) Two Million and no/100 Dollars ($2,000,000.00)
(the "Commitment Amount"), or (ii) the Borrowing Base. Within the limits of
the Loan Availability, Borrower may borrow, make repayments and reborrow
pursuant to Section 2.4. If, at any time, the aggregate Advances and other
Obligations outstanding exceed the then Loan Availability, then Borrower shall
pay to Lender a sum sufficient to reduce the Advances and other Obligations
outstanding to an amount not greater than the Loan Availability. Lender's
commitment to make Advances shall expire, and the amount of the Loan then
outstanding shall mature and be repaid by Borrower, without further action on
the part of Lender, on the Termination Date.
SECTION 2.2. NOTE. All Loans made by the Lender under this
Agreement shall be evidenced by, and repaid with interest in accordance with, a
single promissory note of Borrower in substantially the form of Exhibit 2.02
duly completed, in the original principal amount equal to the initial
Commitment Amount, date the Closing Date, payable to the Lender and maturing as
to principal on the Termination Date (the "Note"). The amount of each Advance
and payment of principal amount received by the Lender shall be recorded in the
books and records of the Lender, which books and records shall, in the absence
of manifest error, be conclusive as to the outstanding balance of and other
information
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related to the Loan. Lender shall be entitled at any time to endorse on a
schedule attached to the Note the amount and type of each Advance and
information relating thereto.
SECTION 2.3. THE BORROWING BASE. On no less than a monthly
basis the Borrowing Base will be recalculated by adding monthly billings to the
prior month's Eligible Accounts and subtracting deposits and adjustments, if
applicable, and then multiplying this amount by the Net Collectible Percentage.
The Borrowing Base shall be calculated on the basis of the reports delivered to
Lender pursuant to Section 5.4.
SECTION 2.4. NOTICE OF BORROWING. Whenever Borrower desires
to borrow under Section 2.1, Borrower shall deliver to Lender a Drawdown
Request Form, in a form reasonably satisfactory to Lender, signed by an
authorized officer no later than 2:00 p.m. Pacific Standard Time at least one
(1) business day in advance of the proposed funding date. The Drawdown Request
Form shall specify (i) the funding date (which shall be a business day) with
respect to the requested Loan and (ii) the amount of the proposed Advance.
SECTION 2.5. USE OF PROCEEDS. The proceeds of the Loan shall
be used by Borrower to provide working capital.
SECTION 2.6. LOAN REPAYMENT VIA BLOCKED/SERVICER ACCOUNT.
Upon the execution hereof, Borrower shall become a party to the Blocked Account
Agreement which provides for the receipt and processing of Account payments.
Borrower shall, on a daily basis, irrevocably direct/deposit all Account
payments to an account established in Lender's name and control. The Blocked
Account provides for such accounts to be (i) at a financial institution
acceptable to Lender, and (ii) governed by terms and conditions acceptable to
Lender. Deposits (net of fees) shall be applied to reduce the Loan balance
including Advances, interest, fees, all applicable charges and other payments,
if applicable, within 24 hours. Deposits/receipts will reduce the Borrowing
Base in accordance with Section 2.3 above. Any receipts (net of such
servicer's fees) remaining after all such payments to Lender will be paid to
Borrower within 24 hours of receipt. Borrower shall bear all charges for
establishing and maintaining the post office box accounts and all bank charges
for such deposit accounts. Lender shall deduct from the deposit accounts all
sums Borrower owes to it hereunder, including fees, interest, reimbursements
and principal payments. Any obligations not paid by such deduction shall be
satisfied by direct payment to Lender at 4041 MacArthur Blvd., Suite 401,
Newport Beach, California 92660. Any amounts hereunder not paid as agreed
shall be assessed a late payment penalty of five percent (5%).
SECTION 2.7. TERM OF AGREEMENT; PREPAYMENT. The Term of this
Agreement is two (2) years. Provided that no Event of Default or any Unmatured
Event of Default exists, Borrower may terminate this Agreement provided that it
pays to Lender an amount equal to two and one half percent (2.5%) f the
Commitment Amount if canceled in year 1 of the initial term; and one and one
half percent (1.5%) of the Commitment Amount if canceled in year 2. This
Agreement shall be renewed for consecutive one (1) year terms unless this
Agreement is terminated, effective as of the last day of a term, by written
notice by Lender or Borrower no later than thirty (30) days before the
expiration of such term. All of lender's obligations, responsibilities and
duties shall cease upon the date of termination of this Agreement, except for
its obligation to remit excess receipts from the lock box deposit accounts in
accordance with the terms of this Agreement.
SECTION 2.8. LENDER'S FEES. Upon execution hereof, Lender
shall be entitled to an origination fee equal to one and one half percent
(1.5%) of $1,500,000, less $10,000.00 currently on deposit, plus one and one
half percent (1.5%) of $500,000 upon the Borrowing base availability first
exceeding $1,500,000. Increases to the Commitment Amount during the term will
be charged on the
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incremental increase at the same origination percentage. On or before the
first day of each month Borrower shall pay Lender a monthly maintenance fee of
One Thousand Two Hundred Seventy-Five and no/100 Dollars ($1,275.00). On or
before the first day of each month Borrower shall pay Lender an annual
unutilized loan fee of equal to (.5%) of the difference between the Commitment
Amount and the average outstanding Loan amount as of the previous month;
provided however, that such unutilized loan fee shall not exceed $1,000 per
month. Lender's fees will be deducted, when due, directly from receipts from
accounts receivable deposited in accordance with Section 2.6.
SECTION 2.9. INTEREST ON THE LOANS. All Advances shall bear
interest on the unpaid principal amount thereof from the date made until paid
in full at a fluctuating rate equal to the Prime Rate plus three percent (3%).
Interest shall be payable monthly in arrears on the first day of each month for
the preceding month. Interest shall be calculated on the basis of a year of
360 days, but for the actual number of days elapsed. Interest accrued but not
paid pursuant to Section 2.6 shall be treated as an Advance if not otherwise
paid within five (5) days of the end of the month in which it accrues.
SECTION 2.10. CONDITIONS TO THE CLOSING. Lender's obligation
to make the initial Advance hereunder on the Closing Date is subject to
Lender's determination that Borrower as of the date of the Advance has
satisfied, and continues to satisfy, the following conditions:
(a) The representations and warranties set forth in this
Agreement and in the other Loan Documents shall be true and correct on and as
of the ate hereof and shall be true and correct in all material respects as of
the Closing Date and Borrower shall have performed all obligations which were
to have been performed by it hereunder.
(b) Borrower shall have executed and delivered to Lender
(or shall cause to be executed and delivered to Lender by the appropriate
Persons) the following:
(i) this Agreement;
(ii) the Note;
(iii) UCC-1 Financing Statements;
(iv) the Blocked Account Agreement;
(v) certified copies of resolutions of the Board
of Directors of Borrower authorizing the execution and delivery of Loan
Documents to be executed by Borrower; and
(vi) copies of the Articles of Incorporation of
Borrower certified by the Secretary of State of the applicable issuing state.
(vii) a certificate from an officer of Borrower
indicating that the representations and warranties contained herein are true
and correct as of the Closing Date.
(c) Neither an Event of Default nor an Unmatured Default
shall have occurred and be continuing as of the Closing Date.
(d) Borrower or Guarantor shall not have suffered a
material adverse change in its business, operations or financial condition from
that reflected in the Financial Statements of Borrower or Guarantor delivered
to Lender or otherwise.
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(e) Lender shall have received such additional supporting
documents, certificates and assurances as Lender shall reasonably request which
shall be satisfactory to Lender in form and substance.
SECTION 2.11. If there is more than one Borrower, the
obligations hereunder are joint and several obligations of the Borrowers.
Notwithstanding any other provision hereof, a Borrower's liability for the
obligations at any time shall not exceed the greater of (1) the sum of (a) the
total principal of the obligations that such Borrower directly or indirectly
received and (b) the interest and expenses accrued with respect to such
principal, and (2) the greater of (a) ninety-five percent (95%) of such
Borrower's Net Fair Value on the date hereof, and (b) ninety-five percent (95%)
of such Borrower's highest Net Fair Value during the period commencing after
such date and terminating on the date of determination of liability hereunder.
SECTION 3
SECURITY INTEREST
SECTION 3.1. GRANT OF SECURITY INTEREST. In order to secure
prompt payment and performance of all Obligations, Borrower hereby grants to
Lender a continuing first-priority pledge and security interest in the
following intangible property of Borrower (the "Collateral"), whether now owned
or existing or hereafter acquired or arising and regardless of where located,
subject only to Permitted Liens. This security interest in the Collateral shall
attach to all Collateral without further action on the part of Lender or
Borrower. The Collateral shall consist of the following, subject in each case
only to Permitted Liens together with such third-party consents, lien waivers
and estoppel certificates as Lender shall reasonably require: All of
Borrower's present and future Accounts.
SECTION 4
SPECIFIC REPRESENTATIONS
SECTION 4.1. NAME OF BORROWER
The exact name, state law under which Borrower was organized,
prior legal names, current or prior trade names are set forth on Schedule 4.1.
SECTION 4.2. MERGERS AND CONSOLIDATIONS. Except as disclosed
on Schedule 4.2, no entity has merged into any of Borrower or been consolidated
with Borrower.
SECTION 4.3. PURCHASE OF ASSETS. Except as disclosed on
Schedule 4.3, no entity has sold substantially all of its assets to Borrower or
sold assets to Borrower outside the ordinary course of such seller's business
at any time in the past.
SECTION 4.4 CHANGE OF NAME OR IDENTITY. Borrower shall not
change its name, business structure or identity or use a new trade name without
prior notification to Lender or merge into or consolidate with any other
entity.
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SECTION 5
PROVISIONS CONCERNING ACCOUNTS
SECTION 5.1. OFFICE AND RECORDS OF BORROWER. Borrower's
chief executive offices are located at: 1300 West Walnut Hill Lane, Suite 275,
Irving, Texas. Borrower maintains all of it records with respect to Accounts
at 1300 West Walnut Hill Lane, Suite 275, Irving, Texas. Borrower has not at
any time within the past four (4) months maintained their chief executive
office or their records with respect to Accounts at any other location and
shall not do so hereafter except with the prior written consent of Lender.
SECTION 5.2. REPRESENTATIONS. Borrower represents and
warrants that each Account at the time of its assignment to Lender (a) will be
owned solely by Borrower, (b) will be for a liquidated amount maturing as
stated in Borrower's Books; (c) will be a bona fide existing obligation created
by the rendition of services to Account Debtors or their insured by Borrower in
the ordinary course of its business; and (d) will not be subject to any known
deduction, offset, counterclaim, return privilege, or other condition, except
as reflected on Borrower's Books. Borrower shall neither redate any invoices
nor reissue new invoices in full or partial satisfaction of old invoices.
Allowances, if any, as between Borrower and its customers will be on the same
basis and in accordance with the usual customary practices of Borrower as they
exist on the date of this Agreement.
SECTION 5.3. RETURNS AND REPOSSESSIONS. Borrower shall
notify Lender within five (5) business days of occurrence of all material
claims asserted by Account Debtors.
SECTION 5.4. BORROWING BASE REPORTS. Borrower shall on no
less than a monthly basis execute and deliver to Lender, in form and content
satisfactory to Lender, (i) a Borrowing Base report; (ii) a detailed aging of
Accounts; and (iii) a charges, collections and adjustment summary for the
month. Borrower shall, upon the request of Lender execute and deliver to
Lender an updated Borrowing Base report reflecting additional billings,
write-offs and deposits and all of Borrower's accounts receivable data in a
computer disc or tape format acceptable to Lender. On a monthly basis, and no
later than the 10th day of each month, Borrower shall submit to Lender (i) a
month-end Borrowing Base Report, (ii) an accounts receivable aging report as of
the last day of the preceding month, and (iii) charges, collections and
adjustments summary for the preceding month. Lender shall periodically review
Borrower's actual adjustments to cash receipts and write-offs, as well as
Borrower's payor profile. To the extent Borrower's adjustments, write-offs and
payor profile materially changes, Lender may, in its sole discretion, change
the Net Collectible Percentage attributable to each type of account by written
notice to Borrower of such change.
SECTION 5.5. COMPLIANCE CERTIFICATE. With each final
month-end Borrowing Base report which Borrower delivers to Lender, Borrower
also shall deliver to Lender a Compliance Certificate in the form of Exhibit
5.5 attached hereto, which Compliance Certificate shall be completed and signed
by an officer of Borrower.
SECTION 5.6. LENDER'S RIGHTS. Any officer, employee or agent
of Lender shall have the right, at any time or times hereafter, in the name of
Lender or its nominee (including Borrower), with prior reasonable notice to
Borrower,to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone or otherwise; and all reasonable costs thereof
shall be payable by Borrower to Lender. Lender, or its designee may at any
time after default by Borrower hereunder notify customers or Account Debtors
that Accounts have been assigned to Lender or of Lender's security interest
therein and after default by Borrower hereunder collect the same directly and
charge all reasonable collection costs and expenses to Borrower's account.
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SECTION 5.7. DISCLAIMER OF LIABILITY. Lender shall not be
liable to Borrower or any third person for the correctness, validity or
genuineness of any instruments or documents released or endorsed to Borrower by
Lender (which shall automatically be deemed to be without recourse to Lender in
any event) or for the existence, character, quantity, quality, condition, value
or delivery of any goods purporting to be represented by any such documents;
and Lender, by accepting a Lien on the Collateral or by releasing any
Collateral to Borrower, shall not be deemed to have assumed any obligation or
liability to any supplier or creditor of Borrower or to any other third party.
Borrower agrees to indemnify and defend Lender and hold it harmless in respect
to any claim or proceeding arising out of any matter referred to in this
Section 5.7.
SECTION 5.8. POST DEFAULT RIGHTS. If an Event of Default has
occurred and is continuing hereunder, no discount, credit or allowance shall be
granted or permitted by Borrower to any Account Debtor; provided, however,
that, notwithstanding the existence of an Event of Default, (i) Borrower may
continue to invoice and bill Account Debtors under discount, credit and
allowance arrangements that Borrower maintained in the ordinary course of
business prior to such Event of Default occurring, and (ii) Account Debtors
may, during the continuance of an Event of Default, utilize discount, credit
and allowance arrangements that Borrower extended to them in the ordinary
course of business. Lender may, after default by Borrower, settle or adjust
disputes and claims directly with Account Debtors for amounts and upon terms
that Lender considers advisable, and in such cases, Lender will credit
Borrower's account with only the net amounts received by Lender in payment of
such disputed Accounts, after deducting all Lender Expenses incurred in
connection therewith.
SECTION 5.9. ACCOUNTS OWED BY FEDERAL GOVERNMENT. If any
Accounts shall arise out of a contract with the United States of America or any
department, agency, subdivision or instrumentality thereof, Borrower shall
promptly notify Lender thereof in writing and take all other action requested
by Lender to protect Lender's Lien on such Accounts under the provisions of the
federal laws on assignment of claims.
SECTION 5.10. BUSINESS ACTIVITY REPORTS. Borrower has filed
and shall file all legally required notices and reports of its business
activities with all the appropriate taxing authorities and the appropriate
Governmental Authority of each jurisdiction in which Borrower is legally
required to file such a notice or report.
SECTION 6
PROVISIONS CONCERNING GENERAL INTANGIBLES
SECTION 6.1. CONTRACTS
(a) Schedule 6.1. is a true and complete list of all
material contracts and agreements to which Borrower is a party.
(b) Borrower shall not materially amend, modify or
supplement any contract or agreement included in the Collateral or waive any
provisions thereof other than in accordance with Borrower's standard business
practice, nor shall such standard business practice be materially changed
without Lender's consent, which shall not be unreasonably withheld.
(c) Borrower shall remain liable to perform all of its
duties and obligations under any contracts and agreements included in
Collateral to the same extent as if this Agreement had not been executed; and
Lender shall not have any obligation or liability under such contracts and
agreements by reason of this Agreement or otherwise.
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(d) Borrower need not pay any amount due under any
contract or agreement listed on Schedule 6.1, nor otherwise perform any action
required under the terms of any such contract or agreement, if such payment or
performance is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance
of such contest, and if Borrower establishes any reserve or the appropriate
provision required by GAAP and deposits with Lender cash or an acceptable bond
reasonably requested by Lender.
SECTION 7
OTHER PROVISIONS CONCERNING COLLATERAL
SECTION 7.1. FURTHER ASSURANCES. Borrower shall execute and
deliver to Lender, concurrent with Borrower's execution of this Agreement and
at any time or times hereafter at the request of Lender, all financing
statements, continuation financing statements, security agreements,
assignments, affidavits, reports, notices, schedules of Accounts, letters of
authority and all other documents Lender may reasonably request, in form
satisfactory to Lender,to perfect and maintain perfected Lender's Liens in the
Collateral as defined in Section 3.1 and in order to consummate fully all of
the transactions contemplated under the Loan Documents. Borrower hereby
irrevocably makes, constitutes and appoints Lender (and any of Lender's
officers, employees or agents designated by Lender) as Borrower's true and
lawful attorney with power to sign the name of Borrower on any of the
above-described documents or on any other similar documents that need to be
executed, recorded or filed in order to perfect or continue to be perfected
Lender's Liens in the Collateral.
SECTION 7.2. LENDER'S DUTY OF CARE. Lender shall have no
duty of care with respect to the Collateral except that Lender shall exercise
reasonable care with respect to the Collateral in Lender's custody. Lender
shall be deemed to have exercised reasonable care is such property is accorded
treatment substantially equal to that which Lender accords its own property of
if Lender takes such action with respect to the collateral as Borrower shall
request or agree to in writing provided that neither failure to comply with any
such request nor any omission to do any such act requested by Borrower shall be
deemed a failure to exercise reasonable care. Lender's failure to take steps
to preserve rights against any parties or property shall not be deemed to be
failure to exercise reasonable care with respect to the Collateral in Lender's
custody. All risk, loss, damage or destruction of the Collateral shall be
borne by Borrower.
SECTION 7.3. REINSTATEMENT OF LIENS. If, at any time after
payment in full by Borrower of all Obligations and termination of Lender's
Liens, any payments on Obligations previously made by Borrower or any other
Person must be disgorged by Lender for any reason whatsoever (including,
without limitation, the insolvency, bankruptcy, or reorganization of Borrower
or such other Person), this Agreement and Lender's Liens granted hereunder
shall be reinstated as to all disgorged payments as though such payments had
not been made, and Borrower shall sign and deliver to Lender all documents and
other items necessary to perfect all terminated Liens.
SECTION 7.4. LENDER EXPENSES. If Borrower fails, as required
by the terms hereof, (i) to pay any moneys (whether taxes, assessments,
insurance premiums or otherwise) due to third persons or entities, (ii) to make
any deposits or furnish any required proof of payment or deposit or (iii) to
discharge any Lien not permitted hereby, then Lender may, to the extent that it
determines that such failure by Borrower could have a material adverse effect
on Lender's interests in the Collateral, in its discretion and without 24 prior
notice to Borrower, make payment of the same, or any part thereof; provided
however, that Lender shall not obligated to give 24 hours notice and may
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make payments immediately if Lender, in its reasonable judgement determines
that such 24 hour notice might adversely impact its interest in the Collateral.
Any amounts paid or deposited by Lender shall constitute Lender Expenses, shall
become part of the Obligations, shall bear interest at the rate of eighteen
percent (18%) per annum, and shall be secured by the Collateral. Any payments
made by Lender shall not constitute (a) an agreement by Lender to make similar
payments in the future or (b) a waiver by Lender of any Event of Default under
this Agreement. Lender need not inquire as to, or contest the validity of, any
such expense, tax, security interest, encumbrance or Lien and the receipt of
the usual official notice for the payment of moneys to a governmental entity
shall be conclusive evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender
for all sums expended by Lender that constitute Lender Expenses, and Borrower
hereby authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
SECTION 7.5 INSPECTION OF RECORDS. During usual business
hours, Lender shall have the right to inspect Borrower's Books and records in
order to verify the amount or condition of, or any other matter relating to,
the Collateral and Borrower's financial condition and to copy and make extracts
therefrom. Borrower waives the right to assert a confidential relationship, if
any, it may have with any accounting firm or service bureau in connection with
any information requested by Lender pursuant to this Agreement and agrees that
Lender may directly contact any such accounting firm or service bureau in order
to obtain such information solely for Lender's own use or to effectuate the
purpose of this Agreement.
SECTION 7.6. WAIVERS. Except as specifically provided for
herein, Borrower waives demand, protest, notice of protest, notice of default
or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal
of any or all commercial paper, accounts, documents, instruments, chattel paper
and guaranties at any time held by Lender on which Borrower may in any way be
liable except as provided for in this Agreement.
SECTION 8
REPRESENTATIONS AND WARRANTIES
As of the date hereof Borrower hereby warrants and represents
to Lender the following:
SECTION 8.1. CORPORATE STATUS. Borrower is a corporation
validly existing and in good standing under the laws of the state of its
incorporation; and is qualified and licensed to do business and is in good
standing in any state in which the conduct of its business or its ownership of
property requires that it be so qualified or licensed, and has the power and
authority (corporate and otherwise) to execute and carry out the terms of the
Loan Documents to which it is a party, to own its assets and to carry on its
business as currently conducted.
SECTION 8.2. AUTHORIZATION. The execution, delivery, and
performance by Borrower of this Agreement and each other Loan Document have
been duly authorized by all necessary corporate or partnership action.
Borrower, has duly executed and delivered this Agreement and each other Loan
Document to which it is a party, and each of them constitutes a valid and
binding obligation of Borrower, as applicable, enforceable according to its
terms except as such enforceability may be limited by equitable principles and
by bankruptcy, insolvency or similar laws affecting the rights of creditors
generally.
SECTION 8.3. NO BREACH. The execution, delivery, and
performance by Borrower of this Agreement and each other Loan Document to which
they are a party (a) will not contravene any law or any governmental rule or
order binding on Collateral; (b) will not violate any provision of the articles
of incorporation, bylaws or partnership agreement, as applicable, of Borrower;
(c) will not violate any agreement or instrument by which Borrower, as
applicable, is bound; (d) do not require any notice to
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consent by any Governmental Authority; and (e) will not result in the creation
of a Lien on any assets of Borrower except the Lien to Lender granted herein.
SECTION 8.4. TAXES. All assessments and taxes, whether real,
personal or otherwise, due or payable by or imposed, levied or assessed against
Borrower or any of its property have been paid in full before delinquency or
before the expiration of any extension period; and Borrower has made due and
timely payment or deposit of all federal, state, and local taxes, assessments
or contributions required of it by law, except only for items that Borrower is
currently contesting diligently and in good faith and that have been fully
disclosed in writing to Lender.
SECTION 8.5. DEFERRED COMPENSATION PLANS. Borrower has made
all required contributions to all deferred compensation plans to which it is
required to contribute, and Borrower has no liability for any unfunded benefits
of any single-employer or multi-employer plans. Borrower is not and at no
time has been a sponsor of, provided, or maintained for any employees any
defined benefit plan.
SECTION 8.6. LITIGATION AND PROCEEDINGS. Except as set forth
on Schedule 8.6 attached hereto, there are no outstanding judgments against
Borrower or any of its assets and there are no outstanding judgments against
Borrower or any of its assets and there are no actions or proceedings pending
by or against Borrower before any court or administrative agency. Borrower has
no knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff and except as set forth in Schedule 8.6 hereto.
SECTION 8.7. BUSINESS. Borrower has all franchises,
authorizations, patents, trademarks, copyrights and other rights necessary to
advantageously conduct its business. They are all in full force and effect and
are not in known conflict with the rights of others. Borrower is not a party
to or subject to any agreement or restriction that is so unusual or burdensome
that it might have a material adverse effect on Borrower's business, properties
or prospects.
SECTION 8.8. LAWS AND AGREEMENTS. Borrower is in compliance
with all material agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Borrower is in material compliance with all laws applicable to it.
SECTION 8.9. OWNERSHIP OF ACCOUNTS. Prior to the Lender
making any Loan as set forth herein, the Borrower will be the sole owner of,
and have good and marketable title to the Accounts pledged as security for such
Loan.
SECTION 8.10. NO CONFLICT. The granting of a security
interest in the pledged Accounts to the Lender will not violate the terms or
provisions of any loan document or any other agreement to which the Borrower
then is a party or by which is bound.
SECTION 8.11. SECURITY INTEREST. After giving effect to each
Loan contemplated by this Agreement, the Lender will be the holder of a valid
perfected first priority security interest in the pledged Accounts. Accounts
pledged to the lender in connection with any Loan will be free and clear of all
liens.
SECTION 8.12. NO DEFAULTS. As of the date on which an
Account is pledged to the Lender pursuant to the terms hereof thereof shall
have been no default under such Account.
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SECTION 8.13. ORIGINATION. Each Account will have been
originated by the Borrower in the ordinary course of its business in accordance
with the Borrower's regular credit approval process and does not contravene any
laws, rules or regulations applicable thereto. No pledged Account will have
been selected on any basis which would have any adverse effect on the Lender.
SECTION 8.14. LEGALITY. No pledged Account will have been
originated in, or be subject to the laws of, any jurisdiction whose laws would
make the terms hereof or any transaction contemplated hereby unlawful.
SECTION 8.15. CONSENTS. No consent or approval is required
for the pledging of any Accounts to the Lender pursuant to the terms of this
Agreement, except for such consents or approvals as have been obtained.
SECTION 8.16. FINANCIAL CONDITION. All financial statements
and information relating to Borrower that have been or may hereafter be
delivered by Borrower to Lender are accurate and complete and have been
prepared in accordance with GAAP. Borrower has no material obligations or
liabilities of any kind not disclosed in that financial information, and there
has been no material adverse change in the financial condition of Borrower
since the date of the most recent financial statements submitted to Lender.
SECTION 8.17. HEALTH CARE LAWS
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and it and is in compliance in all material respects with all terms and
conditions of the required permits, licenses and authorizations, and is also in
compliance in all material respects with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice
of, any past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or threatened against Borrower, relating in
any way to Health Care Laws.
SECTION 8.18. CUMULATIVE REPRESENTATIONS. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements that
Borrower shall give, or cause to be given, to Lender, either now or hereafter.
SECTION 9
COVENANTS
SECTION 9.1. ENCUMBRANCE OF COLLATERAL. Borrower shall not
create, incur, assume or permit to exist any Lien on any Collateral now owned
or hereafter acquired by Borrower, except for Liens to Lender and Permitted
Liens.
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SECTION 9.2. BUSINESS. Borrower shall engage primarily in
business of the same general character as that now conducted by Borrower and/or
contemplated by Borrower and disclosed in writing at the time of closing.
SECTION 9.3. CONDITION AND REPAIR. Borrower shall maintain
in good repair and working order all properties used in their business and from
time to time shall make all appropriate repairs and replacements thereof.
SECTION 9.4. TAXES. Borrower shall pay all taxes,
assessments and other governmental charges imposed upon it or any of its assets
or in respect of any of its franchises, business, income or profits before any
penalty or interest accrues thereon, and all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums that
have become due and payable and that by law have or might become a Lien or
charge upon any of its assets, provided that (unless any material item or
property would be lost, forfeited or materially impaired as a result thereof)
no such charge or claim need be paid if it is being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted, if Lender
is notified in advance of such contest, and if Borrower establishes any reserve
or other appropriate provision required by GAAP. Borrower shall make timely
payment or deposit of all FICA payments and withholding taxes required of it by
applicable laws and will, upon request, furnish Lender with proof satisfactory
to Lender indicating that Borrower has made such payments or deposits.
SECTION 9.5. ACCOUNTING SYSTEM. Borrower at all times
hereafter shall maintain a standard and modern system of accounting in
accordance with GAAP, with ledger and account cards or computer tapes, disks,
printouts and records that contain information pertaining to the Collateral
that may from time to time be requested by Lender. Borrower shall not modify
or change its method of accounting or enter into any agreement hereafter with
any third-party accounting firm or service bureau for the preparation or
storage of Borrower's accounting records without said accounting firm's or
service bureau's agreeing to provide to Lender information regarding the
Collateral and Borrower's financial condition.
SECTION 9.6. QUARTERLY FINANCIAL STATEMENTS. Borrower shall
furnish Lender as soon as practicable but in no event later than forty-five
(45) days after the end of each of the first three quarterly fiscal periods of
each fiscal year with unaudited quarterly financial statements in form and
substance as required by Lender, including a balance sheet, an income statement
and a statement of cash flows, prepared in accordance with GAAP together with a
certificate executed by the chief financial officer of Borrower stating that
the financial statements fairly present the financial condition of Borrower as
of the dated and for the periods covered and that as of the date of such
certificate there has not been any violation of any provision of this Agreement
or the happening of any Event of Default or Unmatured Default hereunder.
SECTION 9.7. ANNUAL FINANCIAL STATEMENTS. Borrower shall
furnish Lender as soon as practicable but in no event later than ninety (90)
days after the close of each fiscal year commencing with fiscal 1996 with
audited annual financial statements, which financial statements shall be
prepared in accordance with GAAP and shall be certified without qualification
by an independent certified public accounting firm satisfactory to Lender.
With all financial statements, Borrower will also deliver a certificate of its
chief financial officer attesting that no Event of Default or Unmatured Default
under the Agreement has occurred and is continuing.
SECTION 9.8. Borrower shall maintain at all times during the
term hereof the following financial covenants, measured in accordance with
GAAP: (i) minimum Tangible Net Worth of
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$5,000,000, (ii) Debt to Equity Ratio of not greater than 3.0 to 1.0, (iii)
Interest Expense Coverage of not less than 2.0 to 1.0, and (iv) Current Ratio
of not less than 1.5 to 1.0.
SECTION 9.9. Borrower's Cash Flow Ratio shall not be less
than ten percent (10%) for two (2) consecutive reporting periods.
SECTION 9.10. FURTHER INFORMATION. Borrower shall promptly
supply Lender with such other information concerning its affairs as Lender may
reasonably request from time to time hereafter and shall promptly notify Lender
of any material adverse change in Borrower's financial condition and any
condition or event that constitutes a breach of or event that constitutes an
Event of Default under this Agreement. In addition, Borrower authorizes Lender
to contact credit reporting agencies concerning, Borrower's credit standing.
Borrower also authorizes Lender to utilize Borrower's name in Lender's
marketing materials.
9.11. ERISA COVENANTS. Guarantor or Borrower shall comply
with all applicable provisions of ERISA and all other laws applicable to any
deferred compensation plans with which Guarantor or Borrower is associated, and
shall promptly notify Lender of the occurrence of any event that could result
in any material liability of Borrower to any person to any person whatsoever
with respect to any such plan.
9.12. RESTRICTIONS ON MERGER, CONSOLIDATION, SALE OF ASSETS,
ISSUANCE OF STOCK, ETC. Without prior written consent of Lender, which consent
shall not be unreasonably withheld, Borrower shall not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets in any
transaction or series of related transactions (other than sales in the ordinary
course of business);
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
(d) acquire interests of any business in excess of Four
Million and no/100 Dollars ($4,000,000.00) in the aggregate in any calendar
year in any business (whether by purchase of assets, purchase of stock, merger
or otherwise); provided, however, that the restrictions under this clause (d)
shall not apply with respect to acquisitions made after the closing of
Borrower's secondary stock offering which is expected to raise approximately
Twenty-Five Million Dollars ($25,000,000) for Borrower, provided that such
secondary offering closed on or prior to June 30, 1997.
(e) become subject to any agreement or instrument which
by its terms would substantially restrict Borrower's right or ability to
perform any of its obligations to Lender pursuant to the terms of the Loan
Documents; or
SECTION 9.13. HEALTH CARE COVENANTS
(a) Borrower shall comply in all material respects with,
and shall obtain all permits required by, all Health Care Laws applicable to
Borrower.
(b) Borrower shall promptly furnish to Lender a copy of
any communication from any Governmental Authority concerning any possible
violation of any Health Care Laws or any
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occurrence of which Borrower would be required to notify any Governmental
Authority with jurisdiction over Health Care Laws.
SECTION 9.14. DISTRIBUTIONS. Borrower shall not make any
Distributions except as (i) set forth on Schedule 9.12 hereto, and (ii)
authorized by Lender, upon Borrower's request, which authorization shall not be
unreasonably withheld and which authorization shall not be deemed to authorize
any Distributions while an Event of Default is continuing or if such
Distribution would cause an Event of Default to occur.
SECTION 9.15. SUBORDINATE OBLIGATIONS. Borrower shall not
voluntarily prepay any principal (including the making of any sinking fund
payment), interest or any other amount in respect of Subordinate Obligations.
SECTION 9.16. AMENDMENTS. Borrower shall not amend any
provision of any Subordinate Obligation if such amendment would (i) affect any
of the subordination provisions thereof, (ii) advance the date of any required
payment or prepayment thereunder, (iii) make covenants therein more burdensome,
when considered in their entirety, to Borrower, (iv) reduce any default or
grace period therein provided, or (v) otherwise have a material adverse effect
on the interests of Lender except as required by law.
SECTION 10
EVENTS OF DEFAULT
An Event of Default shall be deemed to exist if any of the
following event shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or
interest or any other payment on the Note or any other Obligation when due and
payable, by acceleration or otherwise, and such failure shall continue for five
(5) business days after the payment is due;
(b) Borrower fails to observe or perform any covenant,
condition or agreement to be observed or performed pursuant to the terms hereof
or any other Loan Document to which it is a party and such failure is not cured
as soon as reasonably practicable and in any event within thirty (30) days
after written notice thereof by Lender;
(c) A court enters a decree or order for relief in
respect of Borrower in an involuntary case under any applicable bankruptcy,
insolvency, or other similar law then in effect, or appoints a receiver,
liquidator, assignee, custodian, trustee, or sequestrator (or other similar
official) of Borrower or for any substantial part of its property, or orders
the windup or liquidation of Borrower's affairs; or a petition initiating an
involuntary case under any such bankruptcy, insolvency, or similar law is filed
against Borrower and is pending for sixty (60) days without dismissal;
(d) Borrower commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law then in effect, makes
any general assignment for the benefit of creditors, fails generally to pay its
debts as such debts become due, or takes corporate action in furtherance of any
of the foregoing;
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(e) Final judgment for the payment of money on any claim
in excess of $50,000 is rendered against Borrower and remains undischarged for
twenty (20) days during which execution is not effectively stayed;
(f) Any guarantor of the Obligations revokes or attempts
to revoke its guaranty of any of the Obligations, or becomes the subject of an
insolvency proceeding of the type described in clauses (c) or (d) above with
respect to Borrower or fails to observe or perform any covenant, condition or
agreement to be performed under any Loan Document to which it is a party;
(g) Borrower makes any payment on account of any
Subordinate Obligations, other than payments specifically permitted by the
terms of such subordination or this Agreement;
(h) The Subordination arrangement with respect to any
Subordinate Obligations is terminated for any reason or the Person holding any
Subordinate Obligations asserts that the subordination arrangement with respect
to its Subordinate Obligations is terminated.
(i) Any Collateral or any part thereof is sold, agreed to
be sold, conveyed or allocated by operation of law or otherwise outside the
ordinary course of business;
(j) Borrower defaults under the terms of any Indebtedness
or lease involving total payment obligations of Borrower in excess of $50,000
and such default is not cured within the time period permitted pursuant to the
terms and conditions of such Indebtedness or lease, or an event occurs that
gives any creditor or lessor the right to accelerate the maturity of any such
indebtedness or lease payments and such default is not contested in good faith;
(k) Borrower is enjoined, restrained or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
(l) A judgment or other claim in excess of $100,000
becomes a Lien upon any or all of Borrower's assets, other than a Permitted
Lien;
(m) A notice of Lien, levy or assessment in excess of
$50,000 is filed of record with respect to any or all of Borrower's assets by
the United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal or other Government Authority; or
any tax or debt owing at any time hereafter to any one or more of such entities
becomes a Lien upon any or all of Borrower's assets and the same is not paid on
the payment date thereof, except to the extent such tax or debt is being
contested by Borrower as permitted in Section 8.4;
(n) There is a material impairment of the value of the
Collateral or priority of Lender's Liens on the Collateral;
(o) Any of Borrower's assets in excess of $200,000 or any
Collateral are seized, subjected to a distress warrant, levied upon or come
into the possession of any judicial officer;
(p) Any representation or warranty made in writing to
Lender by any officer of Borrower in connection with the transactions
contemplated in this Agreement is materially incorrect when made;
(q) If the aggregate dollar value of all judgments,
defaults, demands, claims and notices of Liens under clauses (e), (j), (k), (m)
and (n) hereof exceeds $200,000; or
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(r) Borrower shall fail to direct all receipts for
Accounts to the Blocked Account.
SECTION 11
REMEDIES
SECTION 11.1. SPECIFIC REMEDIES. Upon the occurrence of any
Event of Default:
(a) Lender may cease advancing money or extending credit
to or for the benefit of Borrower under this Agreement, under any other Loan
Document, or under any other agreement between Borrower and Lender.
(b) Lender may declare all Obligations to be due and
payable immediately, whereupon they shall immediately become due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by Borrower.
(c) Lender may set off against the Obligations all
Collateral, balances, credits, deposits, accounts, or moneys of Borrower then
or thereafter held with Lender, including amounts represented by certificates
of deposit.
(d) Lender may pay, purchase, contest or compromise any
encumbrance, charge or Lien that, in the opinion of Lender, appears to be prior
or superior to its Lien and pay all reasonable expenses incurred in connection
therewith.
(e) Lender may (i) notify Account Debtors to make payment
on Accounts directly to Lender, (ii) settle, adjust, compromise, extend or
renew Accounts, whether before or after legal proceedings to collect such
Accounts have commenced; (iii) prepare and file any bankruptcy proofs of claim
or similar documents against any Account Debtor; (iv) prepare and file any
notice, assignment, satisfaction, or release of Lien, UCC termination statement
or any similar document; (v) sell or assign Accounts, individually or in bulk,
upon such terms, for such amounts, and at such time or times as Lender deems
advisable; and (vi) complete the performance required of Borrower under any
contract or agreement to which Borrower is a party and out of which Accounts
arise or may arise.
(f) Lender may (i) endorse Borrower's name on all checks,
notes, drafts, money orders or other forms of payment of or security for
Accounts or other Collateral; (ii) sign Borrower's name on drafts drawn on
Account Debtors or issuers of letters of credit; and (iii) notify the postal
authorities in Borrower's name to change the address for delivery of Borrower's
mail to an address designated by Lender, receive and open all mail to addressed
Borrower, copy all mail, return all mail relating to Collateral, and overnight
all other mail to Borrower, at Borrower's expense; provided, however, that
Lender has agreed to cover such expense, with respect to the overnighting of
mail to Borrower relating to the Collateral, for thirty (30) days commencing
five (5) from such date that postal authorities have been notified.
SECTION 11.2. POWER OF ATTORNEY. Borrower hereby appoints
Lender (and any of Lender's officers, employees, or agents designated by
Lender) as Borrower's attorney, with power whether before or after the
occurrence of an Event of Default: (a) to endorse Borrower's name on any
checks, notes, acceptances, money orders, drafts or other forms of payment or
security that may come into Lender's possession; (b) to sign Borrower's name on
drafts against Accounts Debtors, on schedules and assignments of Accounts, on
verifications of Accounts, and on notices to Account Debtors; (c) to send
requests for verification of Accounts; (d) to execute UCC Financing Statements;
and (e) to do all
19
<PAGE> 20
things necessary to carry out this Agreement. The appointment of Lender as
Borrower's attorney and each and every one of Lender's rights and powers, being
coupled with an interest, are irrevocable as long as any Obligations are
outstanding. Lender agrees not to exercise the power granted in clause 11.2(b)
or 11.2(e) prior to the occurrence of an Event of Default and agrees not to
exercise the power granted in clause 11.2(d) prior to notification of Borrower
of its intent to do so, but such limitations do not limit the effectiveness of
such power of attorney at any time. Any person dealing with Lender shall be
entitled to rely conclusively on any written or oral statement of Lender that
this power of attorney is in effect. Lender may also use Borrower's stationery
in connection with exercising its rights and remedies and performing the
Obligations of Borrower.
SECTION 11.3. EXPENSES SECURED. All expenses, including
reasonable attorney fees, incurred by Lender in the exercise of its rights and
remedies provided in this Agreement, in the other Loan Documents or by law
shall be payable by Borrower to Lender, shall be part of the Obligations, and
shall be secured by the Collateral.
SECTION 11.4 EQUITABLE RELIEF. Borrower recognizes that in
the event Borrower fails to perform, observe, or discharge any of its
Obligations or liabilities under this Agreement, no remedy of law will provide
adequate relief to Lender, and Borrower agrees that Lender shall be entitled to
temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
SECTION 11.5 REMEDIES ARE CUMULATIVE. No remedy set forth
herein is exclusive of any other available remedy or remedies, but each is
cumulative and in addition to every other right or remedy given under this
Agreement or under any other agreement between Lender and Borrower or now or
hereafter existing at law or in equity or by statute. Lender may pursue its
rights and remedies concurrently or in any sequence, and no exercise of one
right or remedy shall be deemed to be an election. No delay by Lender shall
constitute a waiver, election or acquiescence by it.
SECTION 12
INDEMNITY
SECTION 12.1. GENERAL INDEMNITY. Borrower shall protect,
indemnify and defend and save harmless Lender and its directors, officers,
agents and employees from and against any and all loss, cost, liability
(including negligence, tort and strict liability), expense, damage, suits or
demands (including fees and disbursements of counsel) on account of any suit or
proceeding before any Governmental Authority which arises from the transactions
contemplated in this Agreement or otherwise arising in connection with or
relating to the Loan and any security therefor, unless such suit, claim or
damages are caused by the negligence or intentional malfeasance of Lender or
its directors, officer, agents or employees. Upon receiving knowledge of any
suit, claim or demand asserted by a third-party that Lender believes is covered
by this indemnity, Lender shall give Borrower timely notice of the matter and
an opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower shall survive
the termination of this Agreement and the repayment of the Note.
20
<PAGE> 21
SECTION 13
MISCELLANEOUS
SECTION 13.1. DELAY AND WAIVER. No delay or omission to
exercise any right shall impair any such right or be a waiver thereof, but any
such right may be exercised from time to time and as often as may be deemed
expedient. A waiver on one occasion shall be limited to that particular
occasion.
SECTION 13.2. COMPLETE AGREEMENT. This Agreement and the
Schedules are the complete agreement of the parties hereto and supersede all
previous understandings relating to the subject matter hereof. This Agreement
may be amended only by an instrument in writing that explicitly states that it
amends this Agreement and is signed by the party against whom enforcement of
the amendment is sought. This Agreement may be executed in counterparts, each
of which will be an original and all of which will constitute a single
agreement.
SECTION 13.3. SEVERABILITY; HEADINGS. If any part of this
Agreement or the application thereof to any Person or circumstance is held
invalid, the remainder of this Agreement shall not be affected thereby. The
section headings herein are included for convenience only and shall not be
deemed to be a part of this Agreement.
SECTION 13.4. BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of the respective legal representatives,
successors and assigns of the parties hereto; however, Borrower may not assign
any of its rights or delegate any of its Obligations hereunder without prior
consent of Lender which consent shall not be unreasonably withheld. Lender
(and any subsequent assignee) may transfer and assign this Agreement and
deliver the Collateral to the assignee, who shall thereupon have all of the
rights of Lender; and Lender (or such subsequent assignee who in turn assigns
as aforesaid) shall then be relieved and discharged of any responsibility or
liability with respect to this Agreement and said Collateral.
SECTION 13.5 NOTICES. Any notices under or pursuant to this
Agreement shall be deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, telecopy, or similar electronic medium to
the following address:
To Borrower: American HealthChoice, Inc.
1300 West Walnut Hill Lane, #275
Irving, Texas 75038
Attention: Joseph W. Stucki, D.C.
Telephone: (972) 751-1900
Telecopier: (972) 751-1901
To Lender: DVI Business Credit Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, CA 92660
Attention: Cynthia J. Cohn
Executive Vice President
Telephone: (714) 474-6100
Telecopier: (714) 474-6199
21
<PAGE> 22
Copies to: DVI Business Credit Corporation
500 Hyde Park
Doylestown, PA 18901
Attention: Melvin C. Breaux, Esquire
General Counsel
Telephone: (215) 230-2931
Telecopier: (215) 230-3537
Either party may change such address by sending notice of the change
to the other party; such change of address shall be effective only upon actual
receipt of the notice by the other party.
SECTION 13.6 GOVERNING LAW. ALL ACTS AND TRANSACTIONS
HEREUNDER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE
GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA,
WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES.
SECTION 13.7 WAIVER OF TRIAL BY JURY. LENDER AND BORROWER
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE RELATIONSHIP BETWEEN LENDER
AND BORROWER.
SECTION 13.8 SUBMISSION TO JURISDICTION. (a) BORROWER
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY CALIFORNIA OR FEDERAL
COURT SITTING IN ORANGE COUNTY, CALIFORNIA, OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT. BORROWER HEREBY AGREES THAT
SERVICE OF COPIES OF SUMMONS AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE
SERVED IN ANY ACTION OR PROCEEDING ARISING HEREUNDER MAY BE MADE BY MAILING OR
DELIVERING A COPY OF SUCH PROCESS BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH AT THE BEGINNING OF THIS
AGREEMENT.
(b) NOTHING IN THIS PARAGRAPH 13.8 SHALL AFFECT THE RIGHT OF
LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY
OF ITS PROPERTIES IN THE COURTS OF OTHER JURISDICTIONS TO THE EXTENT OTHERWISE
PERMITTED BY LAW.
(c) TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY ACQUIRE (i)
ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF CALIFORNIA OR ANY FEDERAL COURT
SITTING IN ORANGE COUNTY, CALIFORNIA OR FROM ANY LEGAL PROCESS OUT OF ANY SUCH
COURT (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, OR (ii) ANY OBJECTION TO THE LAYING OF THE VENUE OR OF AN
INCONVENIENT FORUM OF ANY SUIT, ACTION OR PROCEEDING, OF BROUGHT IN CALIFORNIA
OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA UNDER PROCESS SERVED IN
ACCORDANCE WITH SUBPARAGRAPH (a) ABOVE, BORROWER HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY OR OBJECTION IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE LOANS.
22
<PAGE> 23
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
by their duly authorized officers as of the date first above written.
LENDER:
DVI BUSINESS CREDIT CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
BORROWER:
<TABLE>
<S> <C> <C>
AMERICAN HEALTHCHOICE, INC. AHC PHYSICIANS CORPORATION, TEXAS
By: /s/ Dr. J.W. Stucki By: /s/ Dr. J.W. Stucki
----------------------------------------------------- ---------------------------------------------
Print Name: Dr. J.W. Stucki Print Name: Dr. J.W. Stucki
--------------------------------------------------- ---------------------------------------
Title: President Title: President
--------------------------------------------------- -----------------------------------------------
AHC PHYSICIANS CORPORATION, GEORGIA UNITED CHIROPRACTIC CLINIC UPTOWN, INC.
By: /s/ Dr. J.W. Stucki By: /s/ Dr. J.W. Stucki
----------------------------------------------------- ---------------------------------------------
Print Name: Dr. J.W. Stucki Print Name: Dr. J.W. Stucki
--------------------------------------------------- ---------------------------------------
Title: President Title: President
--------------------------------------------------- -----------------------------------------------
NEW ORLEANS CHIROPRACTIC CLINIC, INC. NATIONAL SPORTS & INJURY, INC.
By: /s/ Dr. J.W. Stucki By: /s/ Dr. J.W. Stucki
----------------------------------------------------- ---------------------------------------------
Print Name: Dr. J.W. Stucki Print Name: Dr. J.W. Stucki
--------------------------------------------------- ---------------------------------------
Title: President Title: President
--------------------------------------------------- -----------------------------------------------
TOTAL MEDICAL DIAGNOSTICS, INC. AHC CHIROPRACTIC CLINICS, INC.
By: /s/ Dr. J.W. Stucki By: /s/ Dr. J.W. Stucki
----------------------------------------------------- ---------------------------------------------
Print Name: Dr. J.W. Stucki Print Name: Dr. J.W. Stucki
--------------------------------------------------- ---------------------------------------
Title: President Title: President
--------------------------------------------------- -----------------------------------------------
</TABLE>
23
<PAGE> 24
EXHIBIT 2.02
SECURED PROMISSORY NOTE
DATED DECEMBER 30, 1996
FOR VALUE RECEIVED, the undersigned (collectively and individually
"Maker") jointly and severally hereby promise to pay to DVI Business Credit
Corporation or its assignee (the "Holder") or order,the principal sum of Two
Millions and 00/100 $2,000,000.00) or such amount thereof as may be from time
to time advanced hereunder, pursuant to the terms of that certain Loan and
Security Agreement dated as of the date hereof between Holder as Lender, Maker
as Borrower (the "Agreement"), with interest on the unpaid principal balance
from time to time outstanding until paid at the fluctuating rate of interest
announced publicly by Bank of America, NT&SA in San Francisco, California, from
time to time as its Prime Rate plus three percent (3%) per annum, computed on
the basis of a 360-day year and actual days elapsed, until paid. Interest
shall be payable on the first of each month this Note is outstanding in
accordance with the terms of the Agreement, with all unpaid principal and
interest due and payable in full on the second anniversary of the date hereof.
If any part of the interest due on this Note is not paid when due, it
shall be added to the principal amount of this Note and thereafter bear
interest at the rate provided above. If the specified interest rate shall at
any time exceed the maximum allowed by law, then the applicable interest rate
shall be reduced to the maximum allowed by law.
1. This Note shall be subject to prepayment or redemption in
whole or in part at any time without penalty or premium. Notwithstanding the
foregoing, the Agreement may not be terminated, and will not be terminated by
any prepayment, without payment of the termination fee required pursuant to
Section 2.7 of the Agreement.
2. Principal and interest shall be payable to Holder at 4041
MacArthur Blvd., Suite 401, Newport Beach, CA 92660, or such other place as the
Holder may, from time to time in writing, appoint.
3. This Note is made pursuant to, and secured by the Agreement.
This Note is also secured by any Security Documents referred to in the
Agreement. The Agreement and the Security Documents create a lien on and
security interest in, the personal property described therein ("Collateral").
The Agreement and the Security Documents shall hereinafter be collectively
referred to as the "Loan and Security Documents" and are hereby incorporated by
reference in and made a part of this Note.
4. The occurrence of any Event of Default under the Agreement
shall, at the election of the Holder, make the entire unpaid balance of the
principal amount of this Note and accrued interest immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or other notices or demands of any kind or
character.
5. Failure of the Holder to exercise the acceleration option of
paragraph 4 of this Note on the occurrence of any of the events enumerated
therein shall not constitute waiver of the right to exercise such option on the
subsequent occurrence of any of the events enumerated therein.
6. Principal and interest shall be payable in lawful money of the
United States of America which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment. Maker waives
presentment, demand for payment, notice of nonpayment, protest and notice of
protest, and all other notices and demands in connection with the deliver,
acceptance, performance, default or enforcement of this Note. Maker consents
to any and all assignments of this Note, extensions of time,
24
<PAGE> 25
renewals and waivers that may be made or granted by the Holder. Maker
expressly agrees that such assignments, extensions of time, renewals or waivers
shall not affect Maker's liability. Maker agrees that Holder may, without
notice to Maker and without affecting the liability of Maker, accept additional
or substitute security for this Note, release any security or any party liable
for this Note or extend or renew this Note.
7. If Maker shall fail to make any payment of interest or
principal, including the payment due upon maturity, when the same is due and
payable and such failure shall continue for five (5) business days after
nonpayment, a late charge by way of damages shall be immediately due and
payable. Maker recognizes that default by Maker in making the payments herein
agreed to be paid when due will result in the Holder incurring additional
expenses, in loss to the Holder of the use of the money due and in frustration
to the Holder in meeting its other commitments. Maker agrees that, if for any
reason Maker fails to pay any amount due under this Note when due, the Holder
shall be entitled to damages for the detriment caused thereby, but that it is
extremely difficult and impractical to ascertain the extent of such damages.
Maker therefore agrees that a sum equal to five cents ($.05) for each one
dollar ($1.00) of each payment which is not received within five (5) business
days after the date it is due and payable is a reasonable estimate of the said
damages to the Holder, which sum Maker agrees to pay on demand.
8. If action be instituted on this Note (including without
limitation, any proceedings for collection hereof in any bankruptcy or probate
matter or case), or if proceedings are commenced on or under any of the Loan
and Security Documents, Maker promises to pay the Holder all costs of
collection and enforcement including, without limitation, reasonable attorneys'
fees.
9. Any and all notices or other communications or payments
required or permitted to be given hereunder shall be effective when received or
refused if given or rendered in writing, in the manner provided in the
Agreement.
10. This Note shall inure to the benefit of the Holder's
successors and assigns. References to the "Holder" shall be deemed to refer to
the holder(s) of this Note at the time such reference becomes relevant.
11. If any term, provision, covenant, or condition of this Note is
held by a court of competent jurisdiction to be invalid, void, or unenforceable,
the rest of this Note shall remain in full force and effect to the greater
extent permitted by law and shall in no other way be affected, impaired or
invalidated.
12. Nothing contained herein or in the Loan and Security Documents
shall be deemed to prevent recourse to and the enforcement against Maker and
the Collateral of all liabilities, obligations and undertakings contained
herein and in the Loan and Security Documents.
13. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND MAKER AGREES TO SUBMIT TO THE JURISDICTION OF THE
STATE AND/OR FEDERAL COURTS IN THE STATE OF CALIFORNIA.
25
<PAGE> 26
MAKER:
<TABLE>
<CAPTION>
AMERICAN HEALTHCHOICE, INC. AHC PHYSICIANS CORPORATION, TEXAS
<S> <C>
By: /s/ Dr. J.W. Stucki By: /s/ Dr. J.W. Stucki
----------------------------------------------------- ---------------------------------------------
Print Name: Dr. J.W. Stucki Print Name: Dr. J.W. Stucki
--------------------------------------------------- ---------------------------------------
Title: President Title: President
------------------------------------------------------- ---------------------------------------------
AHC PHYSICIANS CORPORATION, GEORGIA UNITED CHIROPRACTIC CLINIC UPTOWN, INC.
By: /s/ Dr. J.W. Stucki By: /s/ Dr. J.W. Stucki
----------------------------------------------------- ---------------------------------------------
Print Name: Dr. J.W. Stucki Print Name: Dr. J.W. Stucki
--------------------------------------------------- ---------------------------------------
Title: President Title: President
------------------------------------------------------- ---------------------------------------------
NEW ORLEANS CHIROPRACTIC CLINIC, INC. NATIONAL SPORTS & INJURY, INC.
By: /s/ Dr. J.W. Stucki By: /s/ Dr. J.W. Stucki
----------------------------------------------------- ---------------------------------------------
Print Name: Dr. J.W. Stucki Print Name: Dr. J.W. Stucki
--------------------------------------------------- ---------------------------------------
Title: President Title: President
------------------------------------------------------- ---------------------------------------------
TOTAL MEDICAL DIAGNOSTICS, INC. AHC CHIROPRACTIC CLINICS, INC.
By: /s/ Dr. J.W. Stucki By: /s/ Dr. J.W. Stucki
----------------------------------------------------- ---------------------------------------------
Print Name: Dr. J.W. Stucki Print Name: Dr. J.W. Stucki
--------------------------------------------------- ---------------------------------------
Title: President Title: President
------------------------------------------------------- ---------------------------------------------
</TABLE>
26
<PAGE> 27
Schedule 4.1
BORROWERS
[Disclose the exact names, state law under which Borrowers were organized,
prior legal names, current or prior trade names.]
1) Same as signature sheet.
2) AHC Chiropractic Clinics, Inc. used prior trade name of United
Chiropractic Clinic.
27
<PAGE> 28
Schedule 4.2
MERGERS AND CONSOLIDATIONS
[Disclose Mergers and Consolidations.]
None
28
<PAGE> 29
Schedule 4.3
PURCHASES OF ASSETS
OUTSIDE ORDINARY COURSE OF BUSINESS
[Disclose all assets purchased outside of the ordinary course of business.]
None
29
<PAGE> 30
Schedule 6.1
CONTRACTS
[List all material Contracts.]
As related to intangible collateral:
1) Govest Management (see copy of agreement)
2) Sands Brothers & Co. Ltd., for public offering
30
<PAGE> 31
Schedule 8.6
LITIGATION AND PROCEEDINGS
[List outstanding judgments against Borrower or any of its assets, actions or
proceedings pending by or against Borrower, other threatened or imminent
actions against Borrower and governmental investigations.]
1) Wrongful Discharge alleged by former employee Diana Thompson
31
<PAGE> 32
Schedule 9.12
PERMITTED DISTRIBUTIONS
1. Amounts per $2,000,000 common stock and note private placement (see
attached agreement)
2. In connection with $300,000 loan from Mr. Robert Nihon (see attached
memo).
32
<PAGE> 1
EXHIBIT 21
Subsidiaries of American HealthChoice, Inc.
1. AHC Chiropractic Clinics, Inc., a Texas corporation
2. AHC Physicians Corporation, Inc., a Texas corporation
3. Total Medical Diagnostics, Inc., a Delaware corporation
4. Nationwide Sports and Injury, Inc., a Texas corporation
5. United Chiropractic Clinics of Uptown, Inc., a Louisiana corporation
6. New Orleans East Chiropractic Clinics, Inc., a Louisiana corporation
7. AHC Clinic Management, L.L.C., a Texas limited liability company
8. AHI Management, Inc., a Texas corporation
9. Diagnostic Services, Inc., a Texas corporation
10. Katy Sports Injury and Rehab, Incorporated, a Texas corporation
11. Pacific Chiropractic (San Pedro), Incorporated, d/b/a United
Chiropractic Clinic, a Texas corporation
12. Apple Chiropractic Clinic of Wurzbach, Incorporated, a Texas corporation
13. Valley Family Health Center, L.L.C., a Texas limited liability company
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 159,168
<SECURITIES> 0
<RECEIVABLES> 13,406,998
<ALLOWANCES> 5,480,389
<INVENTORY> 77,250
<CURRENT-ASSETS> 8,804,147
<PP&E> 2,046,812
<DEPRECIATION> 787,514
<TOTAL-ASSETS> 10,927,394
<CURRENT-LIABILITIES> 4,609,544
<BONDS> 0
0
0
<COMMON> 7,232
<OTHER-SE> 100,000
<TOTAL-LIABILITY-AND-EQUITY> 10,927,394
<SALES> 10,186,857
<TOTAL-REVENUES> 10,186,857
<CGS> 11,259,800
<TOTAL-COSTS> 13,059,800
<OTHER-EXPENSES> 1,363,287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,236,230)
<INCOME-TAX> (1,589,000)
<INCOME-CONTINUING> (2,647,230)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,647,230)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
