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FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal year ended August 31, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20554
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DYNACQ INTERNATIONAL, INC.
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(Name of Small Business Issuer in its charter)
NEVADA 76-0375477
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
10304 INTERSTATE 10 EAST, SUITE 369
HOUSTON, TEXAS 77029
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (713) 673-6432
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g)of the Act:
Common Stock - $.001 Par Value
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(Title of Class)
Check whether the issuer (1) has 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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no such 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.
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The issuer's gross revenues for the most recent fiscal year:
$10,980,369
As of December 10, 1998, there were 3,281,845 shares of the
registrant's common stock, $.001 par value, issued and outstanding, 1,010,626
of which having an aggregate market value of approximately $2,463,401 (based on
the last trade price of $2.44 as of December 10, 1998) were held by
non-affiliates of the registrant. In determining the number of shares held by
non-affiliates, shares held by officers, directors and the Company's majority
shareholder were excluded.
DOCUMENTS INCORPORATED BY REFERENCE
None
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Transitional Small Business Disclosure Format. Yes No X
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FORM 10-KSB
DYNACQ INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
PART I....................................................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS........................................................................1
ITEM 2. DESCRIPTION OF PROPERTY........................................................................7
ITEM 3. LEGAL PROCEEDINGS..............................................................................8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................8
PART II...................................................................................................................8
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......................................9
ITEM 7. FINANCIAL STATEMENTS..........................................................................13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................................13
PART III.................................................................................................................13
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.............................................13
ITEM 10. EXECUTIVE COMPENSATION........................................................................14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................................................15
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..............................................................16
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Dynacq International, Inc., a Nevada corporation incorporated on June
16, 1989 (the "Company"), is engaged in the business of providing home infusion
health care services and supplies to patients in their homes, the operation of
an outpatient surgical facility, the operation of a medical office complex, and
the management of physician practices, all located in the Houston metropolitan
area. In addition, in May 1998, the Company organized Vista Community Medical
Center, L.L.C., a Texas limited liability company ("Vista Medical") for the
purpose of operating a General Acute Care Hospital now under construction and
located adjacent to the "Vista Facility" (defined below), which is expected to
be complete in February 1999 (the "Hospital"). Unless otherwise indicated, all
references to the Company herein include its subsidiaries. See Note 1.B. of
Notes to Consolidated Financial Statements.
In July, 1992, the Company's current management acquired a controlling
interest in the common stock, $.001 par value of the Company (the "Common
Stock"), in a private placement and prior management resigned. Effective August
1, 1992, the Company commenced operations as a provider of health care services
and supplies to patients in their homes specializing in home infusion therapy.
Home infusion therapy is the administration to a patient of nutrients,
antibiotics or other medications whether intravenously or through a feeding
tube, usually as a continuation of treatment initiated in a hospital. The
Company's home infusion services include training patients and their care
givers, compounding prescriptions and conducting other pharmacy operations,
delivering supplies, providing certain nursing services, monitoring patient
compliance with the prescribed plan of care, monitoring patient outcome,
maintaining patient records, consulting with attending physicians, maintaining
equipment and processing reimbursement claims. While historically the Company's
core business has been home infusion therapy, the Company has taken several
steps during the past three fiscal years to diversify its operations and use of
assets, including (i) the acquisition of Vista Healthcare, Inc., a Texas
corporation ("Vista") described below in August 1994 which owns a 15,000 square
foot outpatient surgical facility located in Pasadena, Texas, (ii) the
formation of Doctors Practice Management, Inc., a Texas corporation ("DPMI") to
manage physician practices, (iii) the ownership and operation of a professional
building, and (iv) the ownership and operation of the Hospital currently under
construction.
Effective March 8, 1993, the Company's shareholders approved a reverse
split of the outstanding shares of the Company's Common Stock on the basis of
one share for every eight shares outstanding, with the par value of each share
remaining at $.001. The reverse split was recommended by the Board of Directors
because of its belief that the pre-split per share price level adversely
affected the marketability of the Company's Common Stock and that an increase
in the per share price was important to qualify for a listing on the National
Association of Securities Dealers, Inc. Automated Quotation System (NASDAQ). In
September 1993, the Company's Common Stock received its listing and began
trading on the NASDAQ Small Cap System under the symbol DYII. In February 1998,
the Company amended its Articles of Incorporation to effectuate a four (4) to
one (1) reverse stock split in order to increase the price of its Common Stock
to, among other things, maintain the listing of the Common Stock on the NASDAQ
Small Cap System and to attempt to enhance the acceptability and marketability
of the Common Stock.
On August 25, 1994, the Company completed the acquisition of
approximately 65% of the outstanding common stock of Vista in exchange for
approximately 5% of its Common Stock issued to 30 shareholders of Vista in
exchange for their shares of Vista common stock pursuant to an Exchange
Agreement dated July 15, 1994. Vista operates a 15,000 square foot medical
clinic and outpatient surgical center in Pasadena, Texas (the "Vista
Facility"). Vista provides a variety of surgeries, medical treatments and
laboratory services on an outpatient basis. Under the Company's control, Vista
continues to utilize its facilities and equipment in the same manner, however,
the Company expanded the services offered and purchased new equipment. Revenues
from the Vista Facility substantially increased in fiscal 1998 and it became
the Company's largest revenue producer, exceeding the combined revenues from
the Company's home infusion therapy business and revenues from the Company's
management of physician practices described below.
In September, 1994, the Company commenced construction of a 35,900
square foot medical office building adjacent to the Vista Facility which was
completed in 1995 at a total cost of approximately $1,925,000 (the "Office
Building"). Several of the offices in the Office Building are currently
utilized by physicians with whom the Company has management contracts through
its wholly-owned subsidiary DPMI. Offices are also leased to other physician
practices that are not subject to
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management agreements with DPMI. In March, 1994, the Company formed DPMI for
the purpose of providing (i) fee based management services to physicians'
groups, and (ii) assistance in consolidating medical providers into integrated
delivery systems. These systems are intended to build a concentrated critical
mass of primary care physicians, specialty physicians, clinics and outpatient
surgical centers. DPMI plans to offer participating medical providers health
care management agreements and management systems that include standards to
better manage costs, shared administrative and clinical services and individual
or shared office facilities.
DPMI began managing Vista in January 1996. It currently has agreements
to manage three (3) physician practices and it has a Management Agreement to
manage the Vista Facility.
THE HOME INFUSION HEALTH CARE MARKET
The Company's home infusion health care business principally involves
the administration of physician-prescribed nutrients, antibiotics or other
medications to patients in their homes, usually as a continuation of a
treatment program initiated in a hospital. The market for home infusion health
care has grown rapidly since its initial development in the late 1970's.
Management believes that the growth of this market is primarily attributable to
(i) increased cost containment efforts that have encouraged home health care,
(ii) medical advances that enable doctors to treat more illnesses through home
health care, and (iii) the desire of hospitalized patients to be treated in
their homes. The growth of the industry is also the result of improved delivery
technology that permits the treatment of more diseases at home and the growing
awareness and acceptance among physicians and third-party payers of home health
care as an alternative to hospital treatment.
Home health care is favorable for insurance companies because it is
much cheaper to pay for similar patient services performed by home health care
companies than by hospitals. The trend for insurance companies to pressure
hospitals and physicians to release patients to their homes to recover at the
earliest possible time to save cost is substantial. This enhances favorable
market growth for the home health care industry. The Company selects only
referral patients with proper adequate private insurance, with confirmation
from the insurance company of ability to pay, to ensure both profitability and
collectability of performed services and concentrates on two patient service
areas, Parenteral Nutrition Therapy and Antibiotic Therapy. Home health care is
not a capital intensive business and does not require high inventory levels. It
is a skilled labor intensive business that provides professional medical
services to patients with personal care.
PARENTERAL NUTRITION THERAPY. Parenteral nutrition therapy is prescribed for
individuals unable to eat or digest food due to a failure of their
gastrointestinal tracts. Parenteral nutrition is typically administered through
central vein catheters that are surgically implanted during hospitalization.
The Company formulates, compounds and dispenses solutions pursuant to a
physician's order. Solutions used in this therapy typically contain amino acids
(protein), dextrose (carbohydrate), lipids (fat), electrolytes, vitamins and
trace minerals. Some patients requiring this type of therapy periodically
require routine rehospitalization throughout their treatment. Some patients
may require therapy for the remainder of their life.
ANTIBIOTIC THERAPY. Antibiotic and anti-infection therapies are used to treat a
variety of infections, including osteomyelitis (bone infections), bacterial
endocarditis (heart valve infections), septicemia (blood infections), wound
infections, bone and joint infections and infections associated with cystic
fibrosis and diabetes. By intravenously administering antibiotics into the
bloodstream (as opposed to ingesting them orally), the effectiveness of the
medication is generally increased. Antibiotic therapy is also a significant
therapy for treating individuals suffering from Acquired Immune Deficiency
Syndrome ("AIDS"). Because of the gradual destruction of the immune system by
the AIDS virus, orally administered drugs typically become less effective
against opportunistic infections, and consequently antibiotics must be
introduced intravenously.
The decision to proceed with home infusion therapy is made jointly by
the patient, the attending physician and the Company. This decision involves
obtaining and evaluating information about the patient's medical history, home
environment and insurance, as well as discussing the patient's willingness and
ability to participate in the self-administration of home health care. After a
patient is referred to the Company, a pharmacist takes the prescription order
from the attending physician and Company personnel coordinate the delivery of
patient care tailored to the individual's specific needs.
Throughout the course of treatment, a company licensed pharmacist
compounds or supervises the preparation of all prescribed drugs, solutions and
related supplies and answers questions concerning the prescribed therapy and
the Company's services. In certain cases where the patient is incapable of
self-administering the therapy, a nurse is also present at each administration
of the therapy. Company nurses visit patients periodically to review training,
catheter placement and compliance with the patient care plan. The Company's
personnel are available to respond to patient needs 24 hours a day, seven days
a week.
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PHYSICIANS' PRACTICE MANAGEMENT
During fiscal 1998, DPMI had agreements to manage the medical
practices of three physician practices and the Vista Facility. Each physician
practice management agreement is called a "Full Service Facility and Management
Agreement" (the "Management Agreement") . The Management Agreements generally
require DPMI, at its expense, to: (i) act as the sole and exclusive agent of
the physician or physician group for the management and administration of
business functions and services related to the physicians' medical practice;
(ii) undertake marketing, billing, record keeping, collection, clerical
staffing and support services; (iii) provide physical office space, facilities
and equipment necessary for the physician's practice, including the repair and
maintenance thereof and all utilities and supplies related thereto including
licenses and permits; (iv) undertake the hiring, firing, selection, training
and supervision of all non-medical personnel; (v) prepare and maintain
accounting and financial records and patient files; and (vi) undertake other
management and administrative functions related to the foregoing. In
consideration of its services, DPMI receives a management fee ranging from 35%
to 65% of revenues generated by the physicians. DPMI attempts to negotiate
long-term (5 years or longer) noncancellable Management Agreements due to its
large initial costs in setting up and equipping fully staffed and functional
facilities for physicians. The Management Agreements may be terminated by the
non-defaulting party in the event of a breach by the defaulting party. DPMI and
the physicians each agree to indemnify the other for claims which may arise in
connection with the performance of their respective obligations. Pursuant to
the Management Agreements, DPMI is entitled to a fixed percentage of
collections from the physicians' practice and is obligated to pay certain fixed
categories of expenses which obligation is not limited in amount. To the extent
DPMI's share of collections is not sufficient to cover its expense obligations
under the Management Agreements, DPMI is obligated to pay the excess expenses
and is subject to losses under the Management Agreements.
OUTPATIENT SURGICAL FACILITY, OFFICE BUILDING AND HOSPITAL
The Company's Vista Facility, consisting of approximately 15,000
square feet, provides outpatient surgical facilities, x-ray diagnostic services
and full service laboratory testing to physicians and their patients. The Vista
Facility, Office Building and Hospital are located adjacent to each other.
Effective October 1, 1998, DPMI entered into a one (1) year Management
Agreement renewable for two (2) additional years for the Vista Facility which
entitles DPMI to 60% of the revenues generated by the facility in exchange for
comprehensive management services provided by DPMI. The Management Agreement
for the Vista Facility is similar in scope to the ones entered into by DPMI to
manage physician practices. The Office Building, consisting of approximately
35,900 square feet, is utilized by DPMI for the location of physician practices
under Management Agreements and for leasing space to physician practices which
are not under management with DPMI. The Hospital is currently under
construction and it is expected to be completed in February 1999. It will have
42 beds and consist of approximately 30,000 square feet. See "Item 2.
Description of Property."
BUSINESS GROWTH STRATEGY
Beginning in late fiscal 1994 and during fiscal 1995, the Company
commenced implementation of a new business strategy of diversifying from an
almost exclusively home infusion service provider into an integrated
medical/health services Company. The foundation of this strategy was the
acquisition of a majority interest in Vista in August 1994 and the completion
of the Office Building adjacent to the Vista Facility in April 1995. The
Company also formed DPMI to provide management services to medical practices.
DPMI provides office space and fee-based management services to client
physicians located in the Office Building and in other locations. Vista
provides outpatient surgical facilities, x-ray diagnostic services and full
service laboratory testing to physicians and their patients in the Vista
Facility. In fiscal 1998, the Company decided to build a 42-bed hospital
adjacent to its Vista Facility (the outpatient surgical center) and its Office
Building which is expected to be completed in February 1999. With the addition
of the Hospital, the Company will broaden the range of medical services it can
provide including major surgical cases which require hospitalization.
The Company intends to grow as a provider of health care services by
(i) expanding the business of its existing operations locally, (ii) acquiring
established health care providers, and (iii) opening new branch facilities in
selected local markets. The Company will periodically evaluate possible
acquisitions and suitable locations for new facilities. The Company does not
presently have any agreements, arrangements or understandings regarding any
acquisitions or the opening of additional facilities. The Company leased and
opened an additional facility in fiscal 1997 pursuant to a Management Agreement
for a medical practice. See "Item 2. Description of Property." The Company's
growth strategy is dependent in a large part on the ability of the Company to
attract and retain key management, marketing and operating personnel at the
local facility level. Such persons are in high demand and are often subject to
competing offers from other health care service companies and related
businesses.
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The Company's target markets are areas with major industrial companies
and middle class blue-collar workers, generally with strong union ties and with
superior insurance coverage. This population group has proven to be very open
to the type of health care center concept offered by the Company. The Company's
operations are in Pasadena, Texas, a petrochemical industry hub which provides
a stable patient base of insured patients. The Company anticipates growth
within a targeted area by purchasing or constructing an outpatient surgical
center and, if it is successful, adding a professional building onto a hospital
at the same location or nearby. It is anticipated that each hub area will
consist of a central core of outpatient surgical, diagnostic and laboratory
centers, infusion therapy facilities and specialized practices serving outlying
clusters of general practitioners. Subsequent alliances of physicians,
specialists and clinics are feasible in other areas around Houston, such as
Clear Lake, La Porte, Baytown, Deer Park, and other industrial/petrochemical
centers.
COMPETITION
The Company is one of many in the greater Houston metropolitan area
that provide medical practice management, outpatient surgical facilities,
professional buildings, hospitals or home infusion therapy. Several major
hospital organizations with greater financial resources are planning to or have
entered the Pasadena area (the Company's principal market) which will directly
compete with the Company's operations. Such competition could be particularly
acute with respect to the Company's outpatient surgical facility and the
Hospital and have an adverse effect on the ability of the Company to attract
and retain physician practices in the Office Building.
The home infusion health care therapy market is highly competitive and
management anticipates that competition, particularly for patient referrals,
will intensify in all metropolitan areas. The industry has been subject to
market consolidation in recent years and the Company believes that this trend
will continue. The Company currently competes with other home infusion therapy
companies, hospitals, physician groups and other health care organizations,
many of which operate on a regional or national basis and are larger and have
significantly greater resources than the Company. In the past two years, the
Company has experienced substantial pressure from insurance companies with
respect to the need for and the cost of home infusion therapy treatments. This
pressure has resulted in a declining patient base and reimbursable charges per
patient resulting in substantially lower revenues to the Company from home
infusion operations.
Presently, the Company operates only in the greater Houston
metropolitan area. However, the Company would expand its operations into other
markets through acquisitions if suitable acquisition candidates are identified
and the acquisition terms are acceptable to the Company.
With respect to the Company's health care operations, the primary
competitive factors are (i) quality of care, including responsiveness of
service and quality of professional personnel, (ii) the ability to establish
and maintain relationships with referring physicians, hospitals, health
maintenance organizations, clinics and nursing agencies, (iii) price, (iv)
breadth of services offered, and (v) general reputation with physicians, other
referral sources and potential patients. Management believes that the Company
competes successfully in all of these areas.
MARKETING AND SALES
With respect to the Company's home infusion business and its
outpatient surgical facility, the Company relies primarily on patient referrals
from physicians, including those officing in the Office Building. With respect
to home infusion therapy, these referral sources tend to be concentrated among
a limited number of physician specialists, allowing the Company to conduct a
directed selling effort. Primarily due to escalating pressures to contain
health care costs, insurance companies and other third-party payers are
participating to a greater extent in decisions regarding health care
alternatives. Consequently, management believes that such third-party payers
will be increasingly important in marketing the Company's services in the
future. Management will engage in traditional advertising in connection with
the opening of the Hospital, including newspaper, radio and billboard
advertising.
HEALTH CARE REGULATION
The federal government and the state of Texas regulate various aspects
of the Company's business. The Company's Vista Facility is licensed as a
pharmacy and is subject to federal and state laws and regulations governing
pharmacies. Federal laws require, among other things, that the Company's
facilities comply with rules relating to controlled substances. These rules
include an obligation to register with the Drug Enforcement Administration of
the United States Department of Justice and to meet certain requirements
concerning security, record keeping, inventory controls, prescription forms,
order forms and labeling.
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The Company's pharmacists and nurses also are subject to state licensing
requirements and laws regarding standards of professional conduct. Each nurse
and pharmacist used by the Company must have a valid license. Management
believes that the Company's operations comply in all material respects with
applicable pharmacy licensing requirements.
The health care industry is highly regulated at the federal and state
levels. The Company believes its business is in material compliance with
applicable law. The relationships between the Company and its affiliated
physician groups, however, are unique, and many aspects of these relationships
have not been the subject of judicial or regulatory interpretation. There can
be no assurance that a review of the Company's business by courts or by health
care, tax, labor or other regulatory authorities would not result in
determinations that could adversely affect the Company's operations or that the
health care regulatory environment will not change so as to restrict the
Company's existing operations or potential for expansion.
A federal statute (the "federal anti-kickback statute") prohibits the
offer or payment of remuneration, or the solicitation or receipt of
remuneration, to induce either (i) the purchase of any item or service
reimbursable in whole or in part by Medicare or certain state health care
programs (including Medicaid); or (ii) the referral of an individual for the
furnishing of any item or service reimbursable in whole or in part by Medicare
or certain state health care programs. Both criminal and civil penalties can be
imposed for violations of the federal-kickback statute, including exclusion
from participation in the Medicare and Medicaid programs. The Department of
Health and Human Services and law enforcement authorities are increasingly
scrutinizing arrangements between health care providers and referring
physicians to ensure that those arrangements do not constitute mechanisms for
paying for referrals. In addition, a number of states have adopted similar
legislation that applies to patients not covered by Medicare or Medicaid
programs. The Company does not believe that its business operations violate
federal or state anti-kickback statutes. Medicare and state health care
programs do not reimburse medical practices for management fees paid to the
Company, and the Company does not refer patients to the medical practices.
Nevertheless, because of the breadth of federal and state anti-kickback
statutes and the absence of court decisions interpreting their application to
arrangements such as those entered into by the Company, there can be no
assurance that the Company's activities will not be challenged by regulatory
authorities or that the Company's position will prevail if challenged.
Numerous legislative proposals have been introduced or proposed in the
U.S. Congress and in some state legislatures that would effect major changes in
the U.S. health care system nationally or at the state level. It is not clear
at this time what proposals, if any, will be adopted or, if adopted, what
effect, if any, such proposals would have on the Company's business. Certain
proposals, such as reducing Medicare and Medicaid, could adversely affect the
Company. There can be no assurance that currently proposed or future health
care legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on
the Company.
General business corporations (as opposed to professional corporations
which are wholly-owned by physicians) are generally not allowed to render
medical care. While the Company structures its operations to comply with
applicable laws concerning the corporate practice of medicine, there can be no
assurance that, given varying and uncertain interpretations of such laws, the
Company would be found to be in compliance with such laws. A determination that
the Company is in violation of applicable restrictions on the practice of
medicine could have a material adverse effect on the Company if the Company
were unable to restructure its operations to comply with applicable state
requirements.
RISKS INHERENT IN PROVISION OF MEDICAL SERVICES
The Company's operations involve the delivery of health care services
to the public and the Company is exposed to the risk of professional liability
claims. Claims of this nature, if successful, could result in damage awards to
the claimants in excess of the limits of any applicable insurance coverage
maintained by the Company or health care providers utilized by the Company or
those who utilize the Company's facilities, equipment and services. Insurance
against losses related to claims of this type can be expensive and varies
widely from state to state. The Company or its affiliated physician groups and
professional service providers maintain liability insurance in amounts and
coverages believed to be usual and customary. Nevertheless, successful
malpractice or other liability claims asserted against the medical care
providers or the Company could have a material adverse effect on the Company.
REDUCTIONS IN THIRD PARTY REIMBURSEMENTS
Health care providers typically bill various third party payers, such
as governmental programs (e.g., Medicare and Medicaid), private insurance plans
and managed care plans, for the health care services provided to their
patients. These third party payers are increasingly negotiating the prices
charged for medical services, pharmaceuticals and other supplies, with the
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goal of lowering reimbursement and utilization rates. Third party payers can
also deny reimbursement for medical services, pharmaceuticals and other
supplies if they determine that a treatment was not performed in accordance
with treatment protocols established by such payers or for other reasons. Loss
of revenues to the Company caused by cost containment efforts could have a
material adverse effect on the Company. Although the Company does not have any
contracts to provide health care services on a capitated or other risk sharing
basis, the Company anticipates that it will eventually offer its services to
payers in the future on a capitated or other risk sharing basis. To the extent
that patients or enrollees covered by a contract require more frequent or
extensive care than is anticipated by the Company, the revenue to the Company
derived from such contracts may be insufficient to cover the costs of the
services provided. Insufficient revenue under capitated or other risk sharing
contracts could have a material adverse effect on the Company.
INSURANCE
In recent years, physicians, hospitals and other participants in the
health care market have become subject to an increasing number of lawsuits
alleging malpractice, product liability or related legal theories, many of
which involve large claims and significant defense costs. With respect to its
home infusion health care business, the Company does not carry liability
insurance for any employee or contract representative. The Company requires
that all health care professionals, including registered nurses with whom the
Company contracts, carry personal professional liability insurance. However,
the Company does not require continuing proof of insurance, mandate policy
limits or deductibles or require that the Company be named as an additional
insured. Should one of the Company's agents or contracting health care
professionals commit a negligent or other liability producing act or omission
in the Company's home infusion operations, the patient could have a direct
claim against the Company which would be uninsured. Mr. Chiu Chan has in force
personal professional liability insurance with coverage limits of $1 million
per incident. He has not experienced difficulty in obtaining insurance in the
past and believes the current insurance coverage is adequate to provide for any
claims that may arise and related settlements, if any, involving him
personally. As the pharmacist in charge of home infusion therapy, any claims
would probably involve Mr. Chiu Chan and the Company and Mr. Chan's insurance
may apply to the extent the loss is related to his pharmacy services. The
Company may, however, be exposed to the extent Mr. Chiu Chan's insurance does
not apply or is insufficient to cover any losses for which the Company is
jointly liable. Management believes the Company has reasonable and customary
insurance coverage with respect to the remainder of its business operations
although the Company cannot provide any assurance that its insurance would
cover all losses to which the Company may be subject to.
EMPLOYEES
The Company and its subsidiaries employed approximately 48 full-time
and 5 part-time employees as of August 31, 1998. A number of other individuals
are utilized on an as needed contractual basis, with the number being dependent
on the patient load. The Company experienced a substantial decrease in the
number of its employees as a result of fewer physician management agreements.
The Company had approximately 75 employees for the fiscal year ended August 31,
1997. The Company expects to add approximately fifteen full-time employees in
connection with the opening of the Hospital.
EMPLOYEE BENEFIT PLANS
Effective August 1, 1995, the Board of Directors approved a 1995
Non-Qualified Stock Option Plan for consultants and non-employee directors. The
Board believes that the Plan will advance the long term interests of the
Company (i) by providing consultants and non-employee directors with the
opportunity to obtain an equity interest in the Company, (ii) by furthering the
identity of interests of participants in the plan with those of the
shareholders of the Company through the ownership and performance of the common
stock of the Company, and (iii) by permitting the Company to attract and retain
qualified consultants and non-employee directors. Under the terms of the Plan,
the Company may grant stock options in the Company's Common Stock to
consultants and non-employee directors of the Company and its subsidiaries. The
options granted under the Plan are not intended to qualify as "incentive stock
options" as that term is defined under Section 422A of the Internal Revenue
Code and, as such, the nonstatutory options granted under the Plan are not
entitled to special treatment under Section 422 of the Code.
Effective August 31, 1995, the Company's shareholders approved a 1995
Incentive Stock Option Plan. The 1995 Incentive Stock Option Plan was
recommended by the Board of Directors because of its belief that the Plan will
advance the interests of the Company by providing key employees, who have
substantial responsibility for the direction and management of the Company,
with additional incentive for them to promote the success of the Company by
increasing their proprietary interest in the success of the Company. It is
intended that options issued under the Plan will qualify as Incentive Stock
Options under
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Section 422A of the Internal Revenue Code. The Company granted options to
purchase 106,250 shares under the 1995 Incentive Stock Option to ten (10)
employees during fiscal 1998 at a purchase price of $1.38 per share.
HOSPITAL OPERATIONS
The Company has no experience with respect to the ownership and
operation of a hospital. The Company's Hospital is scheduled to open in
February 1999. The Hospital will be owned by the Company and managed by DPMI
and Vista Medical. The Company intends to lease the Hospital to Vista Medical
pursuant to a long-term lease for monthly rentals of approximately $35,000 per
month. Vista Medical will be owned 70% by DPMI and it is expected that an
outside investor group will own approximately 30% of Vista Medical. The Company
is funding the costs to construct and operate the Hospital. The Company cannot
provide any assurances that the operations of the Hospital will be successful
in the long-term or short-term. In the short-term, construction delays,
staffing, initial operating problems and low utilization could lead to
short-term losses and negative cashflow. In the long-term, the Company's
ability to manage the Hospital and competition will be key factors in the
success of the Hospital.
ITEM 2. DESCRIPTION OF PROPERTY
The Company commenced its health care operations in August 1992 and
leased 1,000 square feet of office space in East Houston for $600 per month. As
of March 1, 1993, the office space was expanded to a total of 1,915 square feet
and, accordingly, the monthly lease rate increased to $1,286. This lease
expired March 1, 1995 and is currently on a month-to-month basis. The lessor of
the office space is Capital Bank. One of the Company's directors is a director
of Capital Bank. Management believes that the lease rate being paid is
consistent with other commercial rates available in the East Houston area.
In August 1994, the Company consummated the acquisition of 65% of the
outstanding common stock of Vista, which owned the Vista Facility, an
outpatient surgical center in Pasadena, Texas consisting of a one story
building containing approximately 15,000 square feet. The Vista Facility is
subject to and collateralized by a note payable and deed of trust to Met Life
Capital. The note bears a fixed interest rate of 9.65%, requires monthly
installment payments of $19,533, and has a maturity date of September 1, 2002.
As of August 31, 1998, the balance was $782,472. The Company entered into a
Guaranty Agreement with Met Life Capital whereby the Company guaranteed 65% of
the outstanding balance of the mortgage loan. Management believes the facility
is adequately covered by insurance. The depreciation on the Vista Facility is
computed using the straight line method over thirty-nine years, furniture and
fixtures are depreciated over seven years, and equipment is depreciated over
five years. The property tax rate is about 3% of appraised value and the annual
real and personal property taxes are about $77,000. The Vista Facility is 100%
utilized as an outpatient surgical center and to provide laboratory and
diagnostic testing services. On September 1, 1998, Vista sold the Vista
Facility and the land on which the Vista Facility, the Office Building and
Hospital are located to the Company for a total purchase price of $1,400,000
payable pursuant to a promissory note of like amount, bearing interest at 8.5%
per annum and payable in eighty-four monthly installments of $22,171.08. In
addition, the Company obtained the agreement of Met Life Capital to obtain the
release of the minority shareholders of Vista from their personal guaranties.
In September 1994, the Company commenced construction of the Office
Building (adjacent to the existing Vista Facility described above) which was
completed in 1995. The total cost of the Office Building was approximately
$1,937,000, and was financed from working capital. The Office Building was
constructed as a professional office building for physician practices. There is
competition from several professional buildings in the surrounding area.
Management believes the Office Building is adequately covered by insurance. The
Office Building is comprised of two stories and contains approximately 35,900
square feet of space of which approximately 23,000 is utilized by physician
practices under the management of DPMI or is leased to other physicians not
under contract with DPMI. The remaining space is available for lease to
physicians or other third parties. A total of $707,000 has been spent for new
equipment and furnishings for the Office Building. All depreciation is
calculated on the straight line method, with the building being depreciated
over thirty-nine years, furniture and fixtures over seven years, and equipment
over five years. The property tax rate is approximately 3% of appraised value
and the annual real and personal property taxes are about $80,000. As of August
31, 1998, there were three physician practices under management with DPMI which
are located in the Office Building. Each physician practice utilizes more than
10% of the space in the building and comprises more than 10% of the management
fees payable to DPMI pursuant to the Management Agreements described below.
Revenues and income from the Office Building are derived, in part, from the
management fees received by DPMI under the Management Agreements, although the
Company does receive regular rental income from physicians who elect to rent
space in the building for their practices which are not under management with
DPMI. Pursuant to the Management Agreements which
7
<PAGE> 10
provide DPMI with a percentage of revenues from each physician's practice, DPMI
agrees to provide fully-equipped office space and other services. Given the
limited number of Management Agreements and lease agreements which provide
revenue to DPMI and the Company from the Office Building, the loss or
cancellation of any agreement would be material. If any Management Agreement or
lease agreement relating to space in the Office Building is canceled or
terminated, the Company believes it will be able to find additional physicians
or other tenants. The Office Building is not subject to any lien or mortgages
and is owned 100% by the Company.
On July 1, 1996, DPMI leased approximately 3,000 square feet of office
space from the City of Pasadena pursuant to a five (5) year lease (containing
an option for an additional five (5) years) which requires lease payments of
$7,200 annually. The property is located at 1001 East Shaw, Pasadena, Texas.
DPMI acquired the property for the location of a medical practice under a
Management Agreement. DPMI has invested approximately $124,000 for furniture,
fixtures and equipment at this location. The property is currently 100%
utilized for a physician's practice.
In the second quarter of fiscal 1998, the Company entered into a
construction contract for the Hospital which is expected to be completed in
February 1999. The total construction price is approximately $2,500,000 and the
equipment and furnishings are expected to cost approximately $1,000,000. The
Company intends to fund the construction price and the equipment and
furnishings from internally generated funds. However, if necessary, the Company
may borrow a portion of the needed funds to complete the Hospital and encumber
the Hospital with a first or second mortgage. The Company believes that
financing for all or a part of the Hospital would be available, if required.
The Hospital is located in Pasadena, Texas and is adjacent to the Office
Building and Vista Facility. It will have 42 beds, two surgical rooms, an
intensive care area, nurse station, kitchen and other facilities to operate as
a complete hospital.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In September 1993, the Company's Common Stock began trading on
NASDAQ's Small Capitalization Market under the symbol DYII. Prior to obtaining
the NASDAQ listing, the Company's Common Stock had traded in the
over-the-counter market on the pink sheets and on the NASD Electronic Bulletin
Board.
The following table sets forth the high and low closing bid prices for
the Company's Common Stock during each of the last eight fiscal quarters as
reported by the National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1998 Fiscal Year - Quarter Ended:
November 30, 1997 $ 3.00 $ 1.50
February 28, 1998 2.50 2.00
May 31, 1998 2.75 2.00
August 31, 1998 2.50 2.375
</TABLE>
8
<PAGE> 11
<TABLE>
<S> <C> <C>
1997 Fiscal Year - Quarter Ended:
November 30, 1996 $ 5.00 $ 2.70
February 28, 1997 4.50 2.70
May 31, 1997 3.50 2.00
August 31, 1997 4.00 1.00
</TABLE>
These quotations reflect inter-dealer prices, without retail markup,
mark-down or commission and may not represent actual transactions and are
adjusted to reflect the Company's four (4) to one (1) reverse stock split
effective February 1998.
As of November 4, 1998, the Company had approximately 149 shareholders
of record. This number does not include shareholders who hold the Company's
securities in nominee accounts with broker-dealer firms or depository
institutions or shares issued to employees of the Company subsequent to the
Company's fiscal year end. Including the shares issued to the Company's
employees and the beneficial owners of shares held in nominee accounts or
depository institutions, the Company believes it has in excess of 300
beneficial owners of its Common Stock.
The Company has not paid any cash dividends on its Common Stock and
intends to retain all earnings for the operation and expansion of its business.
The Company does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to the payment of cash dividends will
depend upon the Company's results of operations, financial condition and
capital requirements, as well as such other factors as the Company's Board of
Directors may consider. There are no contractual or other restrictions which
limit the Company's right to declare and pay dividends should the Board of
Directors elect to do so.
Vista Medical intends to offer up to 30% of its equity interests to an
outside investor group in a private placement under Section 4(2) of the
Securities Act of 1933, as amended, and pursuant to applicable state law
exemptions. It is expected that the investor group will be comprised of
individual investors, including physicians, who may form a limited liability
company to undertake the investment. Vista Medical expects to raise
approximately $360,000 from the sale of membership interests in the limited
liability company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company (including its predecessor) did not generate any revenues
from inception in 1983 through July 1992. New management and other
individuals/entities invested $2,000,000 in 1992 and the Company began to
generate revenues from home health care therapy in August 1992, the first month
of operations.
ANALYSIS OF OPERATIONS
The following discussion provides an analysis of the Company's results
of operations and reasons for material changes therein for the three years
ended August 31, 1998.
The Company recorded consolidated net income of $945,843 for the year
ended August 31, 1998, as compared to consolidated net loss of $1,059,195 in
fiscal 1997 and net income of $559,473 in 1996. There were no significant,
unusual or non-recurring items of income or expense during the three years
ended August 31, 1998, except for writeoffs in fiscal 1997 of uncollectible
notes in the amount of $776,922 and the writeoff of $371,736 in uncollectible
advances to a subsidiary. As discussed below, the Company's loss for fiscal
1997 includes the writeoff of loans previously made by the Company to various
physician groups. The Company does not expect to record further significant
writeoffs due to uncollectible loans in future years.
As a result of a significant increase in the Company's revenues and
expenses during fiscal 1997 relating to the Company's management of physician
practices and the recordation of physician practice revenues and expenses on a
combined or consolidated basis (see footnote 8 of Notes to Consolidated
Financial Statements), it is difficult to meaningfully compare on a
year-to-year basis the large differences in many of the expense categories.
9
<PAGE> 12
AUGUST 31, 1998 VS. AUGUST 31, 1997
For the fiscal year ended August 31, 1998, total consolidated revenues
increased by $1,208,420 to $10,980,369, a 12% increase. Of this amount,
revenues of $2,197,789 were recorded by DPMI in fiscal 1998 compared to
$5,188,381 in fiscal 1997 as a result of the Company's decision to limit its
management of physician practices and the termination or cancellation of five
(5) Management Agreements with physicians during fiscal 1997 and fiscal 1998.
The Company expects physician management revenues (and corresponding expenses)
to further decrease in fiscal 1999 as it reduces its business in the area of
physician management practice. The Company records revenues from the management
of physician practices on a combined or consolidated basis and reflects as
revenues all patient billings of the respective practices and expenses payments
to physicians and other physician practice costs.
Revenues attributable to Vista operations were $6,951,253 in fiscal
1998, compared to $3,058,704 in fiscal 1997, an increase of 127%. Revenues from
home infusion therapy were $1,831,327 in fiscal 1998 compared to $1,524,864 in
fiscal 1997, an increase of 20%, primarily as a result of higher recoverable
charges per day per patient.
Expenses for compensation and benefits to employees decreased by 22%
to $1,840,573 as a result of fewer employees needed by the Company to service
the decreased business associated with the management of physician practices by
DPMI. The number of employees employed by the Company and its subsidiaries
decreased from approximately 75 in fiscal 1997 to approximately 53 as of August
31, 1998. Expenses for contract payments to physicians decreased 58% to
$1,250,252 primarily as a result of fewer physician practices under management
during fiscal 1998. The Company's provision for uncollectible trade accounts
increased from $1,269,066 in fiscal 1997 to $2,240,258 in fiscal 1998 primarily
as a result of increased trade revenues resulting in corresponding increases
for uncollectible trade accounts. As a percentage of revenues, the Company's
provision for uncollectible trade accounts increased from 13% in fiscal 1997 to
20% in fiscal 1998. The Company expects its uncollectible trade accounts as a
percentage of revenues to remain relatively constant in the future at
approximately 20%. The Company recorded writeoffs for uncollectible loans in
fiscal 1998 of $149,698 as compared to $776,922 in prior years. The Company
does not expect to incur similar recurring writeoffs of notes receivable in
fiscal 1999 and does not intend to fund advances or loans to physician groups
in the future in connection with its management of physician practices.
Expenses for medical supplies decreased 18% to $1,051,194 associated with the
decreased revenues and business from the Company's physician management
practice.
General and administrative expenses increased 22% to $1,669,832
primarily as a result of increased operational activities at the Vista
Facility. Rent and other income increased from $23,847 in fiscal 1997 to
$195,359 in fiscal 1998 primarily as a result of additional rental income
received from outside physicians not under DPMI management.
The Company's physician management practice (exclusive of the Vista
Facility Management Agreement) and its home infusion division did not
significantly contribute to the Company's operating profit. Substantially all
of the Company's operating income of $1,760,754 was derived from the operations
of the Vista outpatient surgery clinic, primarily from the Vista Facility
Management Agreement. The future success of the Company is largely dependent on
successful operations at the Vista Facility and the Hospital upon commencement
of operations in the first quarter of fiscal 1999. The Company does not intend
to aggressively market its home infusion therapy services at this time
primarily because of reduced recoverable patient day rates being paid by
third-party payors. The Company will not continue to accept home infusion
patients if rates continue to decline. In the past two (2) years, the Company
has faced increasing pressure from insurance companies to justify the need for
continued home infusion therapy in some cases and the Company's charges
therefor. The Company expects these pressures to continue and to increase. With
respect to its physician's practice management services, the Company has yet to
establish a consistently successful operating history, particularly in view of
the writeoffs for uncollectible notes recorded in fiscal 1997. The Company does
not intend to pursue additional management agreements for physician practices
at this time.
10
<PAGE> 13
AUGUST 31, 1997 VS. AUGUST 31, 1996
For the fiscal year ended August 31, 1997, total consolidated revenues
increased by $2,240,954 to $9,771,949, a 30% increase. Of this amount, revenues
of $5,188,381 were recorded by DPMI in fiscal 1997 compared to $2,737,993 in
fiscal 1996 as a result of the Company's aggressive efforts in signing up
physician practices for management by DPMI. However, as a result of the
termination or cancellation of five (5) Management Agreements with physicians
during fiscal 1997 and subsequent to the year ended August 31, 1997, physician
management revenues (and corresponding expenses) decreased significantly during
fiscal 1998. The Company records revenues from the management of physician
practices on a combined or consolidated basis and reflects as revenues all
patient billings of the respective practices and expenses payments to
physicians and other physician practice costs.
Revenues attributable to Vista operations were $3,058,704 in fiscal
1997, compared to $3,025,249 in fiscal 1996, an increase of less than 1%.
Revenues from home infusion therapy were $1,524,864 in fiscal 1997 compared to
$1,767,753 in fiscal 1996, a decrease of 14 %, primarily as a result of fewer
patients and increasing cost and reimbursement constraints imposed by
third-party payors, resulting in lower recoverable charges per day per patient.
Costs and expenses relating to home infusion therapy declined
primarily as a result of the Company's decreased patient load. Expenses for
compensation and benefits to employees increased by 78% to $2,360,433 as a
result of additional employees hired by the Company primarily to service the
increased business associated with the management of physician practices by
DPMI. The number of employees employed by the Company and its subsidiaries
increased from approximately 42 in fiscal 1996 to approximately 75 as of August
31, 1997. Expenses for contract payments to physicians increased 78% to
$2,962,888 primarily as a result of the additional physician practices under
management during all of fiscal 1997. The Company's provision for uncollectible
trade accounts increased from $893,486 in fiscal 1996 to $1,269,066 in fiscal
1997 primarily as a result of increased trade revenues resulting in
corresponding increases for uncollectible trade accounts. As a percentage of
revenues, the Company's provision for uncollectible trade accounts increased
from 11.8% in fiscal 1996 to 13% in fiscal 1997. The Company expects its
uncollectible trade accounts as a percentage of revenues to remain relatively
constant or to increase. Due to payment non- performance on two (2) physician
loans, the Company incurred a charge for uncollectible notes of $776,922 in
fiscal 1997. No similar writeoffs for uncollectible loans have been recorded by
the Company in prior years. In addition, the Company incurred a writeoff
associated with an uncollectible advance to a subsidiary of $371,736. Together
the uncollectible note and advance writeoffs totaled $1,148,658 which writeoffs
substantially contributed to the Company's consolidated net loss for the year
before taxes and minority interest of $1,593,285. The Company does not expect
to incur similar recurring writeoffs in the future and will strictly limit or
curtail advances or loans associated with the management of physician
practices. Expenses for medical supplies increased 64% to $1,283,112 primarily
as a result of the need for additional supplies associated with the increased
revenues and business from the Company's physician management practice.
General and administrative expenses increased 24% to $1,369,233
primarily as a result of increased operational activities. Rent and other
income declined from $119,843 in fiscal 1996 to $23,847 in fiscal 1997
primarily as a result of the Company utilizing its Office Building for
physician practices under the Management Agreements which require the Company
to provide office space and the physicians are not separately charged for rent.
As discussed above, of the Company's consolidated loss of $1,593,285
before income taxes and minority interest in fiscal 1997, approximately
$1,148,658 is attributable to the Company's writeoffs of physician loans and
certain advances determined by the Company to be uncollectible. DPMI had a
small operating profit of approximately $4,400 exclusive of losses associated
with the physician loans. Operations from Vista resulted in an operating profit
of approximately $38,000 in fiscal 1997 compared to an operating profit of
approximately $190,000 in fiscal 1996. Vista incurred reduced operating profits
despite an increase in revenues, principally as a result of the increase in
management fees payable to DPMI from 28% to 38% effective September 1, 1996.
The Company's home infusion therapy operations resulted in an operating loss of
approximately $1,636,010 in fiscal 1997 compared to a small operating loss of
approximately $51,418 in fiscal 1996. The significant increased loss associated
with the Company's home infusion operations is primarily attributable to the
writeoffs of the uncollectible notes and advances of $1,148,658 which were
originally recorded as loans and advances from the home infusion therapy
division. In addition, revenues from home infusion therapies declined
significantly as a result of fewer patients and lower recoverable rates
associated with the Company's home infusion patients.
The Company faces certain general business risks with respect to all
of its operations. In addition to regulatory concerns and increasing
competition with respect to all of its operations, the Company's home infusion
therapy operations are subject to substantial risks because the Company serves
a relatively small number of patients. The Company's home infusion health care
11
<PAGE> 14
revenues decreased from $ 2,730,753 in fiscal 1995 to $1,524,864 in fiscal 1997
as a result of a significant decrease in the number of full-time patients from
approximately ten (10) in fiscal 1995 to an average of three (3) full-time
patients in fiscal 1997. The Company does not intend to aggressively market its
home infusion therapy services at this time primarily because of reduced
recoverable patient day rates being paid by third-party payers. The Company
will not continue to accept home infusion patients if rates continue to
decline. In the past two (2) years, the Company has faced increasing pressure
from insurance companies to justify the need for continued home infusion
therapy in some cases and the Company's charges therefor. The Company expects
these pressures to continue and to increase. With respect to its physician's
practice management services, the Company has yet to establish a consistently
successful operating history, particularly in view of the writeoffs for
uncollectible notes recorded in fiscal 1997. Revenues from the Vista Facility
increased slightly during fiscal 1997 due to increased patient referrals. The
Company expects, and will aggressively pursue, increased patient referrals for
the Vista Facility during fiscal 1998 and expects to record revenue and
operating profit increases.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained sufficient liquidity in fiscal 1998 and 1997 to
meet its business needs. The Company had working capital of $2,510,981 as of
August 31, 1998 and $1,824,162 as of August 31, 1997. The Company had net cash
provided by operating activities of $2,299,032 for fiscal 1998 as opposed to
$13,172 for fiscal 1997. As of August 31, 1998, the Company maintained a liquid
position evidenced by a current ratio of 2.53 to 1 and a total debt to equity
ratio of 0.47 to 1. The Company expects to have positive cash flow from
operations for fiscal 1998.
The Company is actively targeting opportunities to expand in the
outpatient surgical clinic markets by acquisition of existing facilities or the
construction of new facilities. The Company will be required to fund
approximately $3,500,000 to equip and construct the Hospital of which
approximately $400,000 has been paid. The Company expects to fund the balance
from cash- on-hand and internally generated funds. The Company believes it has
the ability to borrow funds if necessary to meet its capital needs. However,
there can be no assurance that the Company will have sufficient funds available
to meet all of its capital needs.
Management believes that available cash funds and funds generated from
operations will be sufficient for the Company to finance working capital
requirements for the foreseeable future and to meet its future payment
obligations on its long-term indebtedness of $954,144 as of August 31, 1998.
The Company expects the operations of the Hospital to have a
material effect on the Company's consolidated operating results. While the
Company believes the operating results of the Hospital will be successful in
the long-term, it can provide no such assurance at this time to its
Shareholders. In the short-term, expected operating results from the Hospital
could be negatively impacted by construction delays, start-up delays or
problems including staffing and equipment, low patient utilization
(particularly in the first year), licensing or regulatory delays or other
problems, which could have a material adverse effect on the Company's liquidity
and capital resources. In the long-term, the skill and experience of the
Hospital's management team and competition will play critical roles.
YEAR 2000 COMPLIANCE ISSUES. The Company is currently evaluating its
entire operation as a result of potential problems associated with Year 2000.
The Company's personnel are evaluating all areas for compliance issues and are
developing correction plans if necessary. Some internal areas and processes
being evaluated include initial charge entry through billing and collections;
accounts payable invoice receipt through processing and payment; bank
processing of receipts and disbursements; computer hardware and software
functionality; and time and/or date-sensitive office and medical equipment
functionality. At present, the Company does not anticipate any material
disruption in its operations or significant costs to be incurred to attain
compliance. There can be no assurance, however, that the Company will identify
or adequately assess all aspects of its business that may be affected. Due to
this uncertainly, a contingency plan will be developed as each area is
evaluated to minimize any negative impact to the Company. The Company is in the
process of soliciting information concerning the Year 2000 compliance status of
its payors (including the Medicare and Medicaid governmental programs),
suppliers, and customers. In the event that any of the Company's significant
payors, suppliers, or customers do not successfully and timely achieve Year
2000 compliance, the Company's business and/or operations could be adversely
affected.
INFLATION. Inflation has not significantly impacted the Company's
financial position or operations.
FORWARD-LOOKING INFORMATION. Information in this Annual Report on Form
10-K contains forward-looking statements and information relating to the
Company that are based on the beliefs of the Company's management, as well as
assumptions made by, and information currently available to the Company's
management. When used in this Annual Report on Form 10-K, words such as
"anticipate", "believe", "estimate", "expect", "intend", and similar
expressions, as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events, and are subject to certain risks,
uncertainties, and assumptions relating to the operations and results of
operations of the Company, competitive factors and pricing pressures, costs of
products and services, general economic conditions, and the acts of third
parties, as well as other factors described in this Annual Report on Form 10-K,
and, from time to time, in the Company's periodic earnings releases and other
reports filed with the Securities and Exchange Commission. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results
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<PAGE> 15
or outcomes may vary materially from those described herein as anticipated,
believed, estimated, expected, or intended, or the like.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is included in a separate
section of this Annual Report on Form 10-K beginning on Page F-1 and is
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table (and accompanying text) sets forth the names and
ages of all the directors and executive officers of the Company, all positions
and offices with the Company held by each person, each such person's term of
office as a director and business experience for the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Chiu Moon Chan 46 Chairman of the Board of Directors, Chief Executive Officer,
President and Secretary (July 1992-Present)
Philip Chan 47 Vice President - Finance and Treasurer/Director
(July 1992-Present)
Stephen L. Huber 48 Director (July 1992-Present)
Earl R. Votaw 72 Director (July 1992-Present)
Glenn Rodriguez 52 CEO, Vista Healthcare, Inc. (November 1995-Present)
</TABLE>
CHIU MOON CHAN is a registered pharmacist and since May 1978, has been
employed by health care service organizations in Houston, Texas. From March
1986 to May 1988, Mr. Chan was employed by the M.D. Anderson Cancer Center,
Houston, Texas. From June 1988 through September 1991, Mr. Chan operated his
own home infusion health care business in Houston, Texas as a sole
proprietorship. From October 1991 through July 1992, Mr. Chan was an executive
officer and employee of E.F.S.M., Inc. located in Houston, Texas, which is in
the home infusion health care business, specializing in Medicare and Medicaid
patients. Mr. Chan earned a Bachelor of Science degree in Pharmacy from the
University of Houston.
PHILIP CHAN was self-employed with his own consulting, accounting and
tax firm from September 1990 through 1992. From September 1989 to September
1991, he was the controller for a management corporation, Related Management
Corporations of Florida, located in Miami, Florida. From March 1986 to August
1989, he was in charge of the accounting department for Hamel and Associates, a
Houston, Texas accounting firm. Mr. Chan has earned advanced accounting degrees
from the University of Houston and is a CPA in the State of Texas.
Mr. Chiu Chan and Mr. Philip Chan are not related.
STEPHEN L. HUBER is a registered pharmacist and has earned a Bachelor
of Science degree in Hospital Pharmacy from the University of Houston. He
served as director of pharmacy patient care services at the University of Texas
M.D. Anderson
13
<PAGE> 16
Cancer Center from August 1986 to December 1991 when he was promoted to his
current position, Deputy Division Head for patient care services. Mr. Huber
joined M.D. Anderson in 1984 as assistant director of operations. He was a
director of pharmacy from May 1982 through August 1984 for Life Mark Pharmacy
Management.
EARL R. VOTAW earned a Bachelor of Arts degree from the University of
the Americas in Mexico City and a certificate of graduation from the Graduate
School of Mortgage Banking from Northwestern University of Chicago. Mr. Votaw
has served as a director since 1981 and as an executive officer since 1985 of
Jacinto City Bancshares, Inc. ("Jacinto"), a Houston-based bank holding
company, which is publicly held. He has also served since 1989 as an executive
officer and a director of JACI, Inc., a Delaware corporation, that is
wholly-owned by Jacinto. Capital Bank, a Texas chartered bank located in
Houston, Texas of which Mr. Votaw has served as president, chief executive
officer, and a director since 1979 is wholly owned by JACI, Inc. As of December
31, 1993, Mr. Votaw resigned all of his positions with Jacinto, JACI, Inc. and
Capital Bank, except his director position with Capital Bank, to pursue
retirement plans.
GLENN RODRIGUEZ earned a BBA in Accounting from Florida International
University in Miami, Florida, graduating in 1976. Mr. Rodriguez has served as
the CEO of Vista for the last three (3) years and for the prior two (2) years
served as the Chairman and CEO of Surgical Care Center of Texas, an outpatient
surgical center in Pasadena, Texas.
Each director holds office until the earlier of the election of his
successor at the next annual meeting of stockholders or his resignation or
removal.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely upon the Company's review of Forms 3, 4, and 5 filed by
the Company's officers and directors and persons who beneficially own 10% or
more of the Company's Common Stock and the written representations of such
persons, the Company is not aware that any of such persons failed to timely
file the foregoing forms during the last fiscal year, except for the failure by
Philip Chan to timely file a Form 4 or Form 5 to report options to acquire
20,000 shares under the Company's 1995 Incentive Stock Option Plan granted to
him on December 18, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth in summary form
the compensation received during each of the Company's last three completed
fiscal years by the Registrant's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME/PRINCIPAL POSITION FISCAL LONG-TERM
YEAR SALARY BONUS OTHER COMPENSATION
---- ------ ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Chiu Chan, CEO 1998 $ 80,000 $ -0- $ -0- $ -0-
1997 100,000 -0- -0- -0-
1996 160,000 -0- 6,010 -0-
</TABLE>
No other officer, director or employee of the COMPANY OR its
subsidiaries received total compensation in excess of $100,000 during the last
three fiscal years. The Company has no employment agreements with its
executives. Mr. Chiu Chan, Philip Chan, and Glenn Rodriguez devote 100% of
their time to the Company.
Pursuant to the Company's Incentive Stock Option Plan, options to
purchase 68,882 shares were granted on May 14, 1996, which number includes
39,402 options granted to Mr. Philip Chan. The remaining options were granted
to approximately ten (10) nonexecutive employees of the Company and its
subsidiaries. These options are exercisable at $3.75 per share and expire May
14, 2001. The Board of Directors also adopted a non-qualified stock option plan
in August 1996 for non-director employees and consultants, and a total of
43,750 options were granted to two (2) consultants during fiscal 1996 under
that plan. In addition, in December 1997, the Company granted ten (10)
employees options to purchase 106,250 shares in the aggregate at an exercise
price of $1.38 per share which expire December 18, 2002, including options for
20,000 shares issued to Philip Chan and 22,500 to Glenn Rodriguez.
14
<PAGE> 17
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Securities Percent of Total Options/
Underlying Options/SAR's SAR's Granted to
Name Granted Employees in Fiscal Year Exercise Price Expiration Date
---- ------------------------ ------------------------- -------------- ---------------
<S> <C>
[No options were issued to or exercised by an named executive officer in fiscal 1998]
</TABLE>
Directors of the Company do not receive any mandatory compensation for
their services as directors, although directors will be reimbursed for expenses
incurred in attending board meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth certain information with respect to the
beneficial ownership of shares held by directors, executive officers and
persons known to management to own more than 5% of the outstanding Common Stock
of the Company as of December 10, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES AND
TITLE OF CLASS OF BENEFICIAL OWNER NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
-------------- ------------------- ------------------------------ ----------------
<S> <C> <C> <C>
Common Stock Chiu Moon Chan 2,271,219(1) 69.21%
323 Wood Loop
Houston, Texas 77015
Common Stock Ella Chan 2,271,219(1) 69.21%
323 Wood Loop
Houston, Texas 77015
Common Stock Philip Chan 71,277(2) 2.17%
7930 Millbrook Drive
Houston, Texas 77095
Common Stock Glenn Rodriguez 31,062(3) 0.946%
10304 I10 East, Suite 369
Houston, Texas 77029
Common Stock Officers and Directors 2,373,558 72.32%
as a group (6)
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- -----------------------
(1) Includes (i) 1,695,547 shares held individually by Chiu Moon Chan,
(ii) 474,281 shares held in the name of Mr. Chan's spouse, and (iii) 101,938
shares held by two of Mr. Chan's minor children. Mr. Chan disclaims any
beneficial ownership of the shares held by his spouse and minor children. Mrs.
Chan disclaims any beneficial ownership of the shares held by her spouse and
minor children.
(2) Includes 39,402 shares which may be acquired by Mr. Philip Chan
pursuant to options granted to him in May 1996 exercisable at $3.75 and expiring
May 14, 2001 and 20,000 shares which may be acquired by Mr. Chan pursuant to
options granted to him on December 18, 1997, which are exercisable at $1.375 and
expire on December 18, 2002.
(3) Includes options to purchase 22,500 shares which are exercisable at
$1.375 and expire on December 18, 2002, which were granted on December 18, 1997.
15
<PAGE> 18
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits. The exhibits required by Item 601 of Regulation S-B are
included in this report commencing on page E-1 hereof which
contains a list of such exhibits. The list of exhibits and the
exhibits contained herein are incorporated into this part by
reference.
B. Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the fourth quarter of fiscal 1997.
16
<PAGE> 19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DYNACQ INTERNATIONAL, INC.
By: /s/ Chiu Moon Chan Date: December 14, 1998
--------------------
Chiu Moon Chan, Chairman of the Board
Chief Executive Officer, President and Secretary
In accordance with the Exchange Act, 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>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Chiu Moon Chan Chairman of the Board, December 14, 1998
-------------------------------- Chief Executive Officer,
Chiu Moon Chan President and Secretary
/s/ Philip S. Chan Vice President, December 14, 1998
-------------------------------- Chief Financial Officer,
Philip S. Chan Controller, and Director
/s/ Stephen L. Huber Director December 14, 1998
--------------------------------
Stephen L. Huber
/s/ Earl R. Votaw Director December 14, 1998
--------------------------------
Earl R. Votaw
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.
Not Applicable.
17
<PAGE> 20
DYNACQ INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1998
AND AUGUST 31, 1997
<PAGE> 21
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent public accountants F-2
Consolidated balance sheet as of August 31, 1998 F-3
Consolidated statements of operations for the years ended F-4
August 31, 1998 and 1997
Consolidated statements of changes in stockholders' equity for the F-5
years ended August 31, 1998 and 1997
Consolidated statements of cash flows for the years ended F-6
August 31, 1998 and 1997
Notes to consolidated financial statements F-8
</TABLE>
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Dynacq International, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of Dynacq
International, Inc. and its subsidiaries (the "Company") as of August 31, 1998,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended August 31, 1998 and 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
August 31, 1998, and the results of its operations and its cash flows for the
years ended August 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
Sugar Land, Texas WOOD, HARPER & ASSOCIATES, P.C.
November 30, 1998
<PAGE> 23
DYNACQ INTERNATIONAL, INC.
Consolidated Balance Sheet
August 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 2,413,257
Restricted short-term investments 30,000
Accounts receivable, net of allowance for doubtful accounts of $4,587,405 1,665,349
Inventories 29,608
Due from related party 15,856
-----------
Total current assets 4,154,070
Property and equipment, net 5,212,841
Other assets 245,145
-----------
Total assets $ 9,612,056
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 250,000
Accounts payable 187,817
Accrued liabilities 311,354
Income taxes payable 465,306
Deferred income taxes payable 186,000
Current maturities of long-term debt 242,612
-----------
Total current liabilities 1,643,089
Noncurrent liabilities:
Long-term debt, net of current maturities 954,144
Deferred income taxes 133,000
-----------
Total noncurrent liabilities 1,087,144
Commitments and contingencies
Minority interest 1,077,305
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued or outstanding --
Common stock, $.001 par value, 300,000,000 shares authorized;
3,606,628 shares issued 3,607
Additional paid-in capital 3,552,761
Retained earnings 2,874,049
Less treasury stock; 326,039 shares at cost (625,899)
-----------
Total stockholders' equity 5,804,518
-----------
Total liabilities and stockholders' equity $ 9,612,056
===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 24
DYNACQ INTERNATIONAL, INC.
Consolidated Statements of Operations
For the Years Ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues, net:
Infusion therapy $ 1,831,327 $ 1,524,864
Physician practice management 2,197,789 5,188,381
Clinic and outpatient surgical 6,951,253 3,058,704
--------------- ---------------
Total revenues, net 10,980,369 9,771,949
Costs and expenses:
Direct costs of infusion therapy revenues 408,074 263,983
Compensation and benefits 1,840,573 2,360,433
Contract payments to physicians 1,250,252 2,962,888
Provision for uncollectible trade accounts 2,240,258 1,269,066
Provision for uncollectible notes 149,698 776,922
Medical supplies 1,051,194 1,283,112
Depreciation and amortization 527,876 455,009
Rent and occupancy 81,858 185,978
Other general and administrative expenses 1,669,832 1,369,233
--------------- ---------------
Total costs and expenses 9,219,615 10,926,624
--------------- ---------------
Income (loss) from operations 1,760,754 (1,154,675)
--------------- ---------------
Other income (expense):
Rent and other income 195,359 23,847
Interest income 58,707 26,674
Uncollectible advances -- (371,736)
Interest expense (132,562) (117,395)
--------------- ---------------
Total other income (expense) 121,504 (438,610)
--------------- ---------------
Income (loss) before income taxes and minority interest 1,882,258 (1,593,285)
Provision (benefit) for income taxes 716,000 (573,000)
--------------- ---------------
Net income (loss) before minority interest 1,166,258 (1,020,285)
Minority interest in earnings (220,415) (38,910)
--------------- ---------------
Net income (loss) $ 945,843 $ (1,059,195)
=============== ===============
Basic earnings (loss) per common share $ 0.28 $ (0.30)
=============== ===============
Diluted earnings (loss) per common share $ 0.27 $ (0.30)
=============== ===============
Weighted average common shares-basic 3,432,005 3,540,950
=============== ===============
Weighted average common shares-diluted 3,467,542 3,540,950
=============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 25
DYNACQ INTERNATIONAL, INC.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Treasury Stock,
Common Stock at Cost
Shares Amount Shares Amount
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, August 31, 1996 14,235,136 $ 14,235 71,335 $ (57,322)
Net loss -- -- -- --
---------- ----------- ----------- -----------
Balance, August 31, 1997 14,235,136 14,235 71,335 (57,322)
---------- ----------- ----------- -----------
Restricted stock issued 191,280 191 -- --
Four-for-one reverse
stock split at par
value (10,819,788) (10,819) (53,501) --
Treasury stock acquired -- -- 308,205 (568,577)
Net income -- -- -- --
---------- ----------- ----------- -----------
Balance, August 31, 1998 3,606,628 $ 3,607 326,039 $ (625,899)
========== =========== =========== ===========
Additional
Paid-In Retained
Capital Earnings Total
----------- ----------- -----------
Balance, August 31, 1996 $ 3,452,130 $ 2,987,401 $ 6,396,444
Net loss -- (1,059,195) (1,059,195)
----------- ----------- -----------
Balance, August 31, 1997 3,452,130 1,928,206 5,337,249
----------- ----------- -----------
Restricted stock issued 89,812 -- 90,003
Four-for-one reverse
stock split at par
value 10,819 -- --
Treasury stock acquired -- -- (568,577)
Net income -- 945,843 945,843
----------- ----------- -----------
Balance, August 31, 1998 $ 3,552,761 $ 2,874,049 $ 5,804,518
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE> 26
DYNACQ INTERNATIONAL, INC.
Consolidated Statements of Cash Flow
For the Years Ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 945,843 $(1,059,195)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deprecation and amortization 527,876 455,009
Bad debt expense 2,240,258 1,269,066
Provision for uncollectible notes 149,698 776,922
Uncollectible advances -- 371,736
Deferred income taxes 61,000 (312,000)
Minority interest 220,415 38,910
Changes in operating assets and liabilities:
Accounts receivable (1,781,297) (1,273,671)
Income tax receivable 181,294 (181,294)
Inventories 2,071 (2,332)
Due from related party 944 28,357
Accounts payable (243,549) 231,914
Accrued liabilities (470,827) (78,140)
Income taxes payable 465,306 (252,110)
----------- -----------
Net cash provided by operating activities 2,299,032 13,172
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (535,512) (234,474)
Redemption of short-term investments 159,638 (9,638)
Decrease in other assets 26,780 27,103
----------- -----------
Net cash used in investing activities (349,094) (217,009)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt -- 190,000
Principal payments on long-term debt (227,070) (278,399)
Acquisition of treasury stock (113,577) --
Purchase of minority interests (38,377) --
----------- -----------
Net cash used in financing activities (379,024) (88,399)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,570,914 (292,236)
Cash and cash equivalents at beginning of year 842,343 1,134,579
----------- -----------
Cash and cash equivalents at end of year $ 2,413,257 $ 842,343
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE> 27
DYNACQ INTERNATIONAL, INC.
Consolidated Statements of Cash Flow
For the Years Ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Supplemental cash flow disclosures:
Cash paid during year for:
Interest $ 126,220 $ 106,849
Income taxes $ 8,400 $ 185,191
Noncash investing and financing activities:
Property and equipment financed by note payable $ -- $ 60,000
Treasury stock acquisition financed by note payable $ 455,000 $ --
The Company purchased certain tangible and intangible assets for a
consideration which included stock and the assumption of certain debts as
follows:
Fair value of assets acquired $ 153,300 $ --
Liabilities assumed $ (63,300) $ --
Stock issued in connection with acquisition $ (90,000) $ --
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
<PAGE> 28
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A. BUSINESS AND ORGANIZATION
Dynacq International, Inc. (the "Company") is engaged in the business
of providing home infusion health care services and supplies to
patients in their homes, the operation of an outpatient surgery
facility, the operation of a medical office complex, and the
management of group physician practices, all located in the Houston
metropolitan area.
The Company was incorporated under the laws of the State of Utah on
September 16, 1983, as Rujo, Inc. On January 14, 1987, the
shareholders of the Company approved the change of name of the Company
to Jackson Brothers Industries, Inc. The Company merged into a Nevada
corporation of the same name on June 16, 1989, pursuant to a
share-for-share exchange of stock. On January 12, 1992, the
shareholders of the Company again approved a change of corporate name
to Dynacq International, Inc., elected directors of the Company and
approved a plan of recapitalization whereby authorized capital was
increased to an aggregate of 55,000,000 shares of stock, comprised of
50,000,000 Common Shares and 5,000,000 Preferred Shares.
On July 28, 1992, the Company completed the sale of 2,812,500 shares
of its "restricted" common stock to several investors for a total
purchase price of $2 million. As part of this recapitalization of the
Company, the authorized number of common shares was increased from 50
to 300 million and three holders of "restricted" stock returned a
total of 309,375 shares to the Company's treasury.
In February 1993, the Company became the beneficial owners of all of
the outstanding common stock of Lucky China International Limited, a
Hong Kong-chartered corporation, whose corporation name has since been
changed to Dynacq (Asia), Limited ("Asia"). There are two shares
outstanding. One share is held in the name of the Company and the
other share is held in the name of Mr. Kwong Chung Wai, as a nominee
for the Company. On April 13, 1995, Mr. Wai accepted an appointment as
Director of Asia. During 1995, Asia disposed of substantially all of
its assets and ceased its operations.
Effective March 8, 1993, the Company's shareholders approved a reverse
split of the outstanding shares of the Company's common stock on the
basis of one share for every eight shares outstanding, with the par
value of each share remaining at $.001. The reverse split was
recommended by the Board of Directors because of its belief that the
pre-split per share price level adversely affected the marketability
of the Company's common stock and that an increase in the per share
price was important to qualify for a listing on the National
Association of Securities Dealer, Inc. Automated Quotation System
(NASDAQ). In September 1993, the Company's common stock received its
listing and began trading on the NASDAQ Small Cap system under the
symbol DYII.
In August 1994, the Company consummated the acquisition of
approximately 65% of the outstanding stock of Vista Healthcare, Inc.
("Vista"), which operates a medical clinic and outpatient surgical
center in Pasadena, Texas. The Company issued 179,093 shares of its
common stock in a transaction valued at $1,289,461. This acquisition,
which was accounted for as a purchase, resulted in the recording of
excess costs over net assets acquired totaling $230,717. In 1994, the
Company commenced construction of a new medical office building
(adjacent to the Vista facility) which was completed in 1995 at a
total cost of approximately $1,925,000. Several of the existing
physician-minority shareholders of Vista have relocated their offices
to the new facility.
In September 1994, the Company formed Doctors Practice Management,
Inc. ("DPMI") to provide fee based practice management services to
physicians and to assist in consolidating medical providers into
integrated delivery systems.
F-8
<PAGE> 29
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
In May 1998, DPMI organized Vista Community Medical Center, L.L.C.
("Vista Medical"), a Texas limited liability company, for the purpose
of operating a General Acute Hospital (the "Hospital"). The Hospital
is presently under construction and is located adjacent to the Vista
medical clinic and outpatient surgical center in Pasadena, Texas. On
July 1, 1998, DPMI executed a subscription agreement for a 70%
membership interest in Vista Medical.
In November 1997, Aso Medical, Inc. ("ASO") was formed as a wholly
owned subsidiary of DPMI to provide billing and related services to
physicians. ASO's operations were insignificant during 1998.
Effective January 15, 1998, the Company's shareholders approved a
reverse split of the outstanding shares of the Company's Common Stock
on the basis of one share for every four shares outstanding, with the
par value of each share remaining at $.001. The reverse split was
recommended by the Board of Directors because of its belief that the
post-split per share price will enhance the acceptability and
marketability of the Company's common stock by the financial community
and investing public. Additionally, management believed that the
reverse split would result in the Company's common stock having a
minimum bid price in excess of $1.00 per share and would, therefore,
enable the Company to maintain the listing of its common stock on the
Nasdaq SmallCap Market.
B. CONSOLIDATED STATEMENTS
The accompanying financial statements present the consolidated
accounts of Dynacq International, Inc., a Nevada corporation, and its
wholly owned and majority owned subsidiaries. Accordingly, the
consolidated financial statements include all of the assets,
liabilities, income, expenses, and cash flows for these companies. All
significant intercompany transactions and balances have been
eliminated. In addition, all references in the consolidated financial
statements and related footnotes to number of shares, except shares
authorized, per share amounts, stock option data and market prices of
the Company's common stock have been restated to reflect the
four-for-one reverse stock split approved by the Company's
shareholders effective February 10, 1998.
C. REVENUE RECOGNITION
The Company recognizes revenue from the performance of medical
services in the period in which such services are provided.
Substantially all of the Company's revenues are derived from claims
filed under major medical policies, workers' compensation policies,
Medicare or Medicaid, or personal injury claims. Allowances for
discounts on services or adjustments for non-covered costs and
expenses are recognized in the period in which the related revenues
are earned. Allowances for doubtful accounts are determined by
management based upon historical experience and an assessment of the
circumstances applicable to individual accounts.
D. STOCK-BASED COMPENSATION
The Company accounts for employee stock options under the provisions
APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25)
and has adopted the "disclosure only" alternative described in
Statement of Financial Accounting Standards No. 123, "Accounting for
the Stock-Based Compensation" ("SFAS 123"), which requires proforma
disclosure of compensation expense using fair value based method of
accounting for stock-based compensation plans.
F-9
<PAGE> 30
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
E. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of
three months or less as cash equivalents. At August 31, 1998, cash
equivalents were composed primarily of investments in money market
funds and certificates of deposits.
F. RESTRICTED SHORT-TERM INVESTMENTS
In connection with the Company's Pledge-Security Agreement with a
financial institution (Note 10), the Company has restricted and
pledged as collateral one of its highly liquid interest bearing
deposits, with a maturity of one year. The short-term investment is
being held to maturity and its carrying value approximates its current
value.
G. INVENTORIES
Inventories are valued at the lower of cost or market with
substantially all stated at the first-in, first-out (FIFO) method.
H. PROPERTY AND EQUIPMENT
Land, buildings and improvements, furniture, fixtures and equipment
are stated at cost. Ordinary maintenance and repairs are charged to
income as incurred. Expenditures which extend the physical or economic
life of the assets are capitalized and depreciated. Gains or losses on
the disposition of assets sold are recognized in income and the
related asset and accumulated depreciation accounts are adjusted
accordingly.
Construction in progress represents the cost of material purchases and
construction costs, including interest capitalized, if applicable,
during construction, for a General Acute Hospital to be located
adjacent to the Vista facility in Pasadena, Texas. During 1998,
capitalized interest was insignificant.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets ranging from 3 to 39 years. No
depreciation is recorded on construction in progress until the asset
is placed in service. The Company provides tax depreciation using
various accelerated methods in conformity with the provisions of
applicable tax law.
I. OTHER NON-CURRENT ASSETS
Excess costs over net assets acquired from the Vista acquisition are
amortized on a straight-line basis over a period of 14 years. Loan
origination fees are amortized on a straight-line basis over the terms
of the related debt.
J. IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its property and equipment and unamortized
intangible assets whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The Company estimates
the future cash flows expected to result from operations and if the
sum of the expected undiscounted future cash flows is less than the
carrying amount of the long-lived asset, the Company recognizes an
impairment loss by reducing the unamortized cost of the long-lived
asset to its estimated fair value. To date the Company has not
recognized any significant impairment on long-lived assets.
F-10
<PAGE> 31
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
K. ADVERTISING COSTS
The Company expenses advertising costs as incurred. Amounts expended
for the years ended August 31, 1998 and 1997, were approximately
$293,500 and $51,000, respectively.
L. INCOME TAXES
The Company utilized Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (SFAS 109), which requires that
deferred tax liabilities or assets be recognized for differences
between the income tax basis and the financial reporting basis of
assets and liabilities and are measured using the enacted marginal tax
rates currently in effect when the differences reverse. The Company's
principal differences giving rise to deferred income taxes are
accounts receivable, reserve for bad debts, accounts payable, accrued
liabilities, and accumulated depreciation. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes also
are recognized for operating losses that are available to offset
future taxable income.
M. EARNINGS PER COMMON SHARE
Earning per common share for the years ended August 31, 1998 and 1997,
are presented in accordance with the provisions of Statement of
Financial Accounting Standards No. 128 Earnings Per Share (SFAS 128).
SFAS 128 replaced the presentation of primary and fully diluted
earnings per share (EPS), with a presentation of basic EPS and diluted
EPS. Under SFAS 128, basic EPS excludes dilution for common stock
equivalents and is computed by dividing income or loss available to
common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. For the
year ended August 31, 1998, diluted common and common equivalent
shares outstanding includes 35,537 of common share equivalents,
consisting of stock options, determined under the treasury stock
method. Common equivalent shares, consisting of stock options, are
excluded from the diluted loss per share computation for fiscal 1997
because the effect would be antidilutive.
N. ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that effect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the balance sheet. Actual results could
differ from those estimates.
Accounts receivable and revenues in the health care industry are
subject to possible third party payor adjustments. Management
periodically reviews such estimates and it is reasonably possible that
management's assessment of recoverability of accounts receivable may
change based on actual results and other factors.
F-11
<PAGE> 32
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
O. PROSPECTIVE ACCOUNTING CHANGES
The Financial Accounting Standards Board (FASB) has issued SFAS No.
130, Reporting Comprehensive Income, which establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information,
which requires that public business enterprises report certain
information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements
report certain information about their products and services, the
geographic area in which they operate, and their major customers. The
Company is not required to adopt and does not currently plan to adopt
SFAS No. 130 or SFAS No. 131 until its fiscal year ending August 31,
1999. The Company does not expect any significant disclosures will be
necessary when SFAS No. 130 or SFAS No. 131 are adopted.
NOTE 2. VISTA HEALTHCARE, INC.
On August 25, 1994, the Company completed the acquisition of
approximately 65% of the common stock of Vista in a transaction
accounted for as a purchase. Accordingly, the accompanying financial
statements reflect the results of operations of Vista for the period
subsequent to August 25, 1994. During 1995, the Company sold a portion
of its investment in Vista to certain affiliates for $80,000 cash.
During 1996, Vista repurchased a portion of its common stock from
certain affiliates for $134,958 and resold $20,000 of this stock to an
affiliated Physician. During 1997, the remaining treasury stock was
sold to the Company at Vista's cost of $114,958. During 1998, the
Company purchased 1.45% of the common stock of Vista for $11,600 cash.
Net assets purchased in excess of costs incurred have been included in
consolidated operations. As of August 31, 1998, the Company owned
approximately 68% of the outstanding common stock of Vista.
NOTE 3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
At August 31, 1998, property and equipment consisted of the following:
<S> <C>
Land $ 252,589
Buildings and improvements 4,423,932
Construction in progress 395,911
Furniture and fixtures 142,663
Equipment 2,276,560
Automobile 24,125
-----------
7,515,780
Less, accumulated depreciation (2,302,939)
Net property and equipment $ 5,212,841
===========
</TABLE>
Vista's existing physical facility is pledged as collateral on a long-term
mortgage to a financing company in the amount of $788,472 as of August 31,
1998. In connection with its 1994 acquisition of approximately 65% interest in
Vista, the Company has guaranteed 65% of the outstanding balance of this
long-term mortgage.
For the years ended August 31, 1998 and 1997, depreciation expense was $449,728
and $433,954, respectively.
F-12
<PAGE> 33
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 4. OTHER NON-CURRENT ASSETS
In connection with the acquisition of Vista, excess costs over net assets
acquired totaling $230,717 was incurred. This amount is being amortized over a
period of fourteen years on a straight-line basis beginning August 25, 1994.
For the years ended August 31, 1998 and 1997, amortization expense was $16,480
for each period.
NOTE 5. NOTES PAYABLE
Notes payable consists of a 6.50% short-term note due to a physician group for
which the Company provides management services.
NOTE 6. LONG-TERM DEBT
<TABLE>
<CAPTION>
At August 31, 1998, long-term debt consisted of the following:
<S> <C>
Note payable to a former shareholder, payable in
monthly installments of $10,007, including interest
at 11.50%, through December 2002, uncollateralized. $ 408,284
Note payable to a financing company payable in
monthly installments of $19,533, including interest
at 9.65%, through September 2002, collateralized by
land and guaranteed by certain minority
stockholders of Vista. 788,472
-----------
1,196,756
Less, current maturities (242,612)
----------
$ 954,144
===========
</TABLE>
The aggregate principal payments on long-term debt subsequent to August 31,
1998, are as follows:
<TABLE>
<CAPTION>
Year ending August 31,
<S> <C> <C>
1999 $ 242,612
2000 268,657
2001 297,522
2002 329,512
Thereafter 58,453
----------
Total $1,196,756
==========
</TABLE>
F-13
<PAGE> 34
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES
The provision for income tax expense (benefit) consisted of the following at
August 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current tax expense (benefit):
Federal $ 604,000 $(261,000)
State 51,000 --
--------- ---------
Total current 655,000 (261,000)
Deferred tax expense (benefit):
Federal 61,000 (312,000)
--------- ---------
Total $ 716,000 $(573,000)
========= =========
</TABLE>
Deferred taxes arise primarily due to the Company's filing of its income tax
return on a cash basis, the use of accelerated methods of computing
depreciation for tax purposes, and the use of the specific charge-off method
for tax reporting. The components of the provision (benefit) for deferred
income taxes, at August 31, were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Applicable to:
Cash basis of accounting for
federal income tax purposes. $ 819,000 $ 124,500
Difference in methods of
computing depreciation for tax
and financial reporting purposes
and other. 19,000 (7,500)
Use of reserve for bad debts for
financial reporting and specific
charge-off method for tax reporting. (785,000) (410,000)
Other 8,000 (19,000)
--------- ---------
$ 61,000 $(312,000)
========= =========
</TABLE>
Significant components of the Company's deferred tax liabilities and assets, at
August 31, 1998, were as follows:
<TABLE>
<CAPTION>
Current Noncurrent
------- ----------
<S> <C> <C>
Deferred tax liabilities:
Basis in property and equipment $ -- $ (133,000)
Receivables (2,125,000) --
Deferred tax assets:
Payables and other 154,000 --
Reserve for bad debts 1,786,000 --
Other (1,000) --
----------- -----------
Net liability $ (186,000) $ (133,000)
=========== ===========
</TABLE>
F-14
<PAGE> 35
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES (CONTINUED)
The following table reconciles the Federal statutory income tax rate and the
Company's effective income tax rate:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Provision for income taxes at federal
statutory rate 34.0% 34.0%
State tax provision, net of federal
benefits 2.7 --
Other differences 1.3 2.0
---- ----
Effective tax rate 38.0% 36.0%
==== ====
</TABLE>
NOTE 8. RELATED PARTY TRANSACTIONS
The Company leases to its President his personal residence at a monthly rate of
$1,400. Total rent income for the years ended August 31, 1998 and 1997, was
$16,800 for each year. The amount due for rent for the year ended August 31,
1998 is included in current assets as due from related party.
Due to the legislative requirements concerning the practice of medicine in the
state of Texas, the Company has entered into agreements with various
Professional Associations and individual doctors (the "Physicians") for the
services of physicians.
The Physicians provide services to third parties and after covering the costs
associated with the Physicians, remit proceeds to the Company for management
services. The structure of the agreements between the Company for its clinic
and the Physicians require that all income be paid to the Company for
management services or to the physicians for compensation. The accompanying
financial statements reflect transactions with the Physicians on a basis as if
the Company and Physicians were "combined" or "consolidated" as revenues
reflect all clinic revenues billed to patients and expenses reflect
compensation incurred to the Physicians.
While the Company intends to maintain its management services to physicians,
its primary focus will be on increasing the patient volume and profitability of
the Vista clinic and outpatient surgical center.
NOTE 9. CAPITAL STOCK
Pursuant to an Asset Purchase Agreement dated October 22, 1997, the Company
issued 45,000 shares of restricted common stock valued at $90,000. This
issuance was valued at fair market value based upon management's estimation of
the open market closing price. In exchange for the restricted common stock, the
Company assumed liabilities of $63,300 and received tangible and intangible
property with a fair value of $153,300. In addition to the restricted common
shares, the Company granted a two-year option to purchase an additional 37,500
restricted shares of common stock at $2.00 per share. Through August 31, 1998,
no shares were issued under the option agreement which expires October 22,
1999.
On February 26, 1998, the Company agreed to buy back 287,500 shares of common
stock for $517,500 or $1.80 per share. A cash payment of $62,500 was made, and
the balance of $455,000 is to be repaid pursuant to an unsecured promissory
note in sixty (60) monthly installments of $10,007 each including accrued
interest at an annual interest rate of 11.50%.
F-15
<PAGE> 36
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 9. CAPITAL STOCK (CONTINUED)
STOCK OPTIONS
Effective August 1, 1995, the Board of Directors approved and reserved 250,000
shares of its common stock for a 1995 Non-Qualified Stock Option Plan for
consultants and non-employee directors. Under the terms of the Plan, the
Company may grant stock options in the Company's common stock to consultants
and non-employee directors of the Company and its subsidiaries at no less than
the fair market value of the stock at the date of grant. Under the Plan, the
options become exercisable no earlier than six (6) months from date of grant
and expire on the date of the consultant's termination or the non-employee
directors' resignation. During 1996, the Company granted 43,750 options, all of
which are exercisable, at exercise prices per share ranging from $5.00 to
$6.50. There were no options granted, exercised, forfeited, or expired during
the year ended August 31, 1998.
Effective August 31, 1995, the Company's shareholders approved a 1995 Incentive
Stock Option Plan. The 1995 Incentive Stock Option Plan reserves 250,000 shares
of the Company's common stock for option grants to key employees at no less
than the fair market value of the stock at the date of grant. Under the Plan,
the options generally become exercisable cumulatively, beginning one year after
the date granted. During 1996, the Company reserved 68,882 shares for option
grants at an exercise price of $3.76. The share options outstanding became
exercisable in fiscal 1997, and expire through fiscal 2001. During 1998, the
Company reserved 106,250 shares for option grants at an exercise price of
$1.375. The share options outstanding become exercisable in fiscal 1999, and
expire through fiscal 2003. There were no options exercised, forfeited, or
expired during the year ended August 31, 1998.
The Company has not recorded compensation expense pursuant to the grants of its
options under APB 25. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS 123, the
Company's net earnings and net earnings per common share would not be
materially different than those reported in the accompanying consolidated
financial statements.
NOTE 10. COMMITMENTS AND CONTINGENCIES
PLEDGE-SECURITY AGREEMENT
In connection with the acquisition of Vista on August 25, 1994, the Company
issued 179,093 shares of its common stock in exchange for approximately 65% of
the outstanding common stock of Vista owned by approximately 30 individual
stockholders and/or related entities. Simultaneous with the closing of this
acquisition, fifteen of the Vista stockholders pledged a total of 103,820
shares of the Company's stock to a local bank as collateral for individual
loans aggregating $730,000. The proceeds from these loans were contributed to
the capital of Vista.
The Company entered into a Pledge-Security Agreement with the lending bank
whereby the Company has granted the bank a limited security interest in, and
has pledged certain cash funds contained in the Company's account at the bank.
The Company's liability is limited to the shortfall, if any, calculated by
taking the difference between (1) 130% of the dollar amount of the outstanding
loan balance (including principal and interest) attributed to a particular
Vista shareholder and (2) the value of the Company's shares pledged by that
Vista shareholder, such value to be based upon the quoted value of shares of
the Company's common stock as published by NASDAQ. The dollar amount of the
bank's security interest in funds on deposit will be adjusted upward or
downward every 90 days.
Upon default by one of the Vista shareholders in payment on his/her loan, the
bank has the option to exercise a right of offset with respect to the funds on
deposit or proceed to foreclose upon its security interest, but only to the
extent, if any, of a shortfall as described above.
F-16
<PAGE> 37
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
As of August 31, 1998, total Company shares pledged as collateral was 16,241
for individual loans aggregating $29,047. As of November 30, 1998, the value of
the Company's stock, as defined above, was approximately $2,000 more than 130%
of the aggregate balance of the remaining loans to these individuals. To the
best of management's knowledge, all of the individual loans were current and
the bank has not advised the Company that any of the loans were in default.
LEASES
The Company leases certain of its facilities and equipment under operating
leases with net aggregate future lease payments of $19,800 at August 31, 1998,
payable as follows:
<TABLE>
<CAPTION>
Year ending August 31,
<S> <C> <C>
1999 $ 7,200
2000 7,200
2001 5,400
-------
Total $19,800
=======
</TABLE>
Rent expense related to its facilities and equipment leases, for the years
ended August 31, 1998 and 1997, was $8,438 and $19,521, respectively.
The Company also leases corporate office space under an operating lease on a
month-to-month basis. Rent expense for its corporate leases was $15,432 for
each of the years ended August 31, 1998 and 1997.
In addition, the Company pays certain operating leases on behalf of the
physicians being managed by Doctors Practice Management, Inc. For the years
ended August 31, 1998 and 1997, total physicians' operating lease expenses were
$57,990 and $151,025, respectively.
Total rent expenses, including those physicians' operating leases paid by the
Company, for the years ended August 31, 1998 and 1997, was approximately
$81,860 and $186,000, respectively.
CONSTRUCTION
The Company has commitments for the construction of a fully licensed and
certified General Acute Hospital (the "Hospital") which will be adjacent to the
Vista facility in Pasadena, Texas. Total costs associated with the construction
and furnishing of the Hospital are expected to be approximately $3,650,000. The
Hospital is expected to be operational in February 1999.
LITIGATION
In March 1997, the Company filed a civil lawsuit against one of the Physicians
for which the Company provided management services, seeking repayment of
advances of $110,000 owed to the Company pursuant to a Revolving Credit
Agreement and Security Agreement executed between the parties in July of 1996.
In April 1997, the Physician filed a counterclaim against the Company and the
Company's president seeking alleged damages in excess of $500,000. In May 1997,
the Company and the Company's president filed a response denying allegations
made in the counterclaim. In November 1998, the matter was tried and resulted
in a $200,000 judgement favorable to the Company. All claims against the
Company were resolved and dismissed. In the opinion of management, the
Company's allowance for doubtful accounts, which was provided to cover any
potential loss in 1997, is still appropriate as collection of the judgement, if
any, is uncertain at this time.
F-17
<PAGE> 38
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In October 1998, the Company filed a civil lawsuit claiming breach of contract
of the Asset Purchase Agreement dated October 22, 1997 (Note 9). On October 29,
1998, a Compromise, Settlement and Mutual Release Agreement was entered into
whereby the Company agreed to pay $118,000 in exchange for the return of 45,000
shares of restricted common stock, the cancellation of the option to acquire
37,500 restricted shares of common stock and the transfer of approximately
$57,849 of the original $63,300 of liabilities assumed. The settlement's effect
on the Company is the purchase, subsequent to August 31, 1998, of 45,000
treasury shares for approximately $60,200.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
OTHER RISKS
The Company maintains insurance for worker's compensation, automobile, general
liability, property loss, and medical malpractice claims. Management does not
believe the Company's exposure to medical malpractice is significant, and is
not aware of any pending or potential claims against the Company.
NOTE 11. SUPPLEMENTARY INFORMATION
At August 31, 1998, the detail of certain balance sheet accounts was as
follows:
<TABLE>
<CAPTION>
Accounts receivable:
<S> <C>
Trade $ 6,070,615
Other 182,139
-----------
6,252,754
Less, allowance for doubtful accounts (4,587,405)
-----------
$ 1,665,349
===========
Other assets:
Excess costs over net assets acquired,
net of accumulated amortization of $66,191 $ 164,526
Note receivable, net of allowance
of $616,922 --
Other 80,619
-----------
$ 245,145
===========
Accrued liabilities:
Compensation to Physicians $ 128,050
Interest expense 50,482
Wages and payroll taxes 32,860
Ad valorem taxes 42,113
Other 57,849
-----------
$ 311,354
===========
</TABLE>
F-18
<PAGE> 39
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
NOTE 12. CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has financial instruments which are exposed to concentrations of
credit risk; they consist primarily of cash investments and trade accounts
receivable. The Company routinely maintains cash and temporary cash investments
at certain financial institutions in amounts substantially in excess of FDIC
insurance limits; however, management believes that these financial
institutions are of high quality and the risk of loss is minimal. As is
customary in the health care business, the Company has trade accounts
receivable from various private insurers, and the balance due from a particular
insurer at any point in time may be in excess of the allowance for doubtful
accounts. The Company does not request collateral from its customers and
continually monitors its exposure for credit losses and maintains allowances
for anticipated losses. The trade receivables from private insurers is normally
in excess of 90% of the total trade receivables at any point in time.
The carrying amounts of cash and cash equivalents, short-term investments,
receivables, notes payable and accounts payable approximate fair value due to
the short-term maturities of these instruments. The carrying amounts of the
Company's long-term borrowings, at August 31, 1998, approximate their fair
value.
F-19
<PAGE> 40
INDEX TO EXHIBITS
All Exhibits listed below are incorporated by reference and are included
herewith unless otherwise noted by asterisk(s) next to the Exhibit No.
(2.1.)* Stock Sale Agreement, dated July 21, 1992, pertaining to a change
in control of Dynacq International, Inc. (the "Company") which was
previously filed in and is incorporated herein by this reference
to, the Company's Registration Statement on Form 10, No. 0-20554.
(2.2.)* Exchange Agreement by and among the Company, Vista Healthcare,
Inc. ("Vista") and certain Vista shareholders which was previously
filed in, and is incorporated by this reference to, the Company's
Current Report on Form 8-K, dated August 4, 1994.
(3.0)* Articles of Incorporation, filed June 16, 1989, which were
previously filed in, and are hereby incorporated by reference to
the Company's Registration Statement on Form 10, No. 0-20554.
(3.1.)* Amendment to Articles of Incorporation, filed February 12, 1992,
which was previously filed in, and is hereby incorporated by
reference to, the Company's Registration Statement on Form 10, No.
0-20554.
(3.2.)* Amendment to Articles of Incorporation, filed July 20, 1992, which
was previously filed in, and is hereby incorporated by reference
to, the Company's Registration Statement on Form 10, No. 0-20554.
(3.3.) Amendment to Articles of Incorporation filed February 10, 1998.
(3.4.)* Bylaws (amended August 1, 1995) which were previously filed in and
are hereby incorporated by reference to the Company's Amended Form
10-K for fiscal 1995 dated May 1, 1996, File No. 0-20554.
(10.1.)* Pledge-Security Agreement between the Company and Capital Bank
dated July 20, 1994, which was previously filed in and
incorporated by this reference to, the Company's current Report on
Form 8-K, dated August 4, 1994, No. 0-20554.
(10.2.)* Guaranty Agreement between the Company and Metlife Capital
Corporation dated July, 1994, which was previously filed in and is
hereby incorporated by reference to, the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 1993.
(10.3.)** Security Agreement dated July 18, 1996, between Vista and Capital
Bank.
(10.4.)** 1995 Incentive Stock Option Plan for Employees and Employee
Directors
(10.5.)** 1995 Non-Qualified Stock Option Plan for Consultants and
Non-Employee Directors.
(10.6.)** 1995 Stock Option Agreement between the Company and Philip S.
Chan.
(10.7.)** Full Service Facility and Management Agreement between DPMI and
JCW Medical Associates, P.A. dated May 1, 1996.
E-1
<PAGE> 41
(10.8.)** Full Service Management Agreement between DPMI and Ping S. Chu,
M.D., dated March 1, 1996.
(10.9.)** Promissory Note dated November 15, 1996, from JCW Medical
Associates, P.A. payable to the Company in the principal amount of
$666,922.22, bearing interest at 8% per annum and payable in 180
monthly installments.
(10.10.)** Security Agreement dated May 1, 1996, by JCW Medical Associates,
P.A. to DPMI.
(10.11.)** Credit Agreement dated May 1, 1996, between JCW Medical
Associates, P.A. and DPMI.
(10.12.)** Revolving Credit Note from JCW Medical Associates, P.A. to DPMI
dated April 1, 1996 for $675,000.
(10.13.)** Credit Agreement dated April 1, 1996, between R.S. Arora, M.D., as
Borrower, to DPMI as Lender, for advances up to $100,000.
(10.14.)** Security Agreement dated April 1, 1996, by R.S. Arora M.D. as
Grantor to DPMI as Lender.
(10.15.)** Revolving Credit Note dated April 1, 1996, in the principal amount
of $100,000 from R.S. Arora, M.D. to DPMI.
(10.16.)** $100,000 Revolving Credit Note dated July 1, 1996, from Houston
Physical Medicine Associates, M.D., P.A. to DPMI.
(10.17.)** Credit Agreement dated July 1, 1996, between Houston Physical
Medicine Associates, M.D., P.A. and DPMI
(10.18.)*** Full Service Facility and Management Agreement dated October 1,
1996 by and between Milton Kirkwood, D.O. and DPMI.
(10.19.)*** Asset Purchase Agreement and Bill of Sale dated October 22, 1997
by and between Medtek Management, Inc. and DPMI.
(10.20.)*** Asset Purchase Agreement dated November 13, 1997 by and among
DPMI, Kirkwood Medical Associates, P.A., Milton E. Kirkwood, D.O.,
Ron Kirkwood, D.O., and John Kirkwood, D.O.
(10.21.)*** Lease Agreement effective July 1, 1996 by and between DPMI as
Tenant and the City of Pasadena as Landlord relating to 3,000
square feet of office space in Pasadena, Texas.
(10.22.)*** Lease Agreement dated November 1, 1997 by and between DPMI as
Landlord and Kirkwood Medical Associates as Tenant relating to
approximately 9,200 square feet of office space located at 4301A
Vista Road, Pasadena, Texas.
(10.23.)*** Amendment No. 1 effective September 1, 1996 to the Full Service
Management Agreement between DPMI and Ping S. Chu, M.D. dated
March 1, 1996.
(10.24.)*** Amendment No. 1 effective September 1, 1996 to Full Service
Facility and Management Agreement between DPMI and JCW Medical
Associates, P.A. dated May 1, 1996.
E-2
<PAGE> 42
(10.25.)*** $60,000.00 Promissory Note dated November 30, 1996, of the
Company, payable to JCW Medical Associates, P.A.
(10.26.)*** $190,000.00 Promissory Note dated January 31, 1997, of DPMI,
payable to JCW Medical Associates, P.A.
(10.27.) Stock Option Agreement for Philip Chan dated effective December
18, 1997.
(10.28.) Stock Option Agreement for Glenn Rodriguez dated effective
December 18, 1997.
(10.29.) Letter Agreement regarding pharmaceutical services between Vista
and the Company dated effective September 1, 1998.
(10.30.) Office/Surgical Care Center Lease Agreement dated September 1,
1998, between the Company as Landlord and Vista as Tenant.
(10.31.) Management Support and Marketing Agreement dated October 1, 1998,
by and between DPMI and Ultramed, L.C.
(10.32.) Full Service Management Agreement dated October 1, 1998, by and
between DPMI and Vista
(10.33.) Real Estate Lien Note dated September 1, 1998, in the principal
amount of $1,400,000.00 from the Company to Vista.
(10.34.) Warranty Deed with Vendor's Lien from Vista to the Company dated
September 1, 1998, relating to 4.5799 acres of land in Pasadena,
Texas.
(10.35.) Deed of Trust dated September 1, 1998 from the Company regarding
4.5799 acres of land in Pasadena, Texas.
(10.36.) AIA Construction Contract dated April 13, 1998, by and between the
Company and Beck Ford Construction, Inc. for construction of the
Hospital for approximately $2,500,000.
(21.0) Listing of subsidiaries of the Company
(27.) Financial Data Schedule.
- --------------------------
** All Exhibits denoted with double asterisks were filed with the
Company's Annual Report on Form 10-K for the fiscal year ended August
31, 1996, Commission File No. 0-20554.
*** All Exhibits denoted with triple asterisks were filed with the
Company's Annual Report on Form 10-K for the fiscal year ended August
31, 1997, Commission File No. 0-20554.
E-3
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
DYNACQ INTERNATIONAL, INC.
Philip Chan hereby certifies that:
1. He is the Vice President and the Assistant Secretary of Dynacq
International, Inc., a Nevada corporation (the "Corporation").
2. Article IV, Section 1, of the Corporation's Articles of
Incorporation is hereby amended to read in its entirety as follows:
ARTICLE IV
Capitalization
Section 1. Authorized Capital. The total number of
shares of all classes which the Corporation shall have the
authority to issue shall be 305,000,000 shares, of which
300,000,000 shall be Common Shares, $.001 par value per
share, and 5,000,000 shall be Preferred Shares, $.01 par
value per share. At 5:00 p.m. on February 10, 1998 (the
"Effective Date"), all issued and outstanding Common Shares
of the Corporation shall be combined at the rate of one (1)
share for each four (4) shares outstanding (the "Reverse
Stock Split"). In connection with the Reverse Stock Split, no
fractional shares shall be issued and all fractional shares
shall be increased to the next higher whole number of shares.
The par value and the authorized number of the Corporation's
Common Shares shall not be changed by the Reverse Stock Split
and shall remain at 300,000,000 authorized shares, $.001 par
value. As a result of the Reverse Stock Split, the total par
value amount for the Corporation's Common Shares outstanding
shall decrease 75% on the Effective Date and the
Corporation's amount of additional paid in capital with
respect to its outstanding Common Shares will be increased by
75% on the Effective Date.
With the foregoing exception, the Articles of Incorporation shall
remain unchanged.
3. The foregoing amendment to the Articles of Incorporation of the
Corporation has been duly and unanimously approved by the Board of Directors of
the Corporation as required by the Nevada Revised Statutes, effective as of
January 15, 1998.
4. In accordance with Section 78.320 of the Nevada Revised Statutes,
the foregoing amendment was duly approved by the required action of the
Corporation's shareholders by written consent effective January 15, 1998. As of
said date, the number of shares entitled to vote on the foregoing amendment was
14,415,136 Common Shares. The number of Common Shares consenting
<PAGE> 2
to the amendment with respect to the Reverse Stock Split was 9,084,877 shares,
representing 63% of the issued and outstanding voting stock of the Corporation
as of said date.
Executed this 9th day of February 1998.
/s/ Philip Chan
--------------------------------------
Philip Chan, Vice President and
Assistant Secretary
STATE OF TEXAS )
)
COUNTY OF HARRIS )
SUBSCRIBED AND SWORN to before me this 9th day of February, 1998, by
Philip Chan, as Vice President and Assistant Secretary of Dynacq International,
Inc.
Witness my hand and official seal.
/s/ Lauri Smith
--------------------------------------
Notary Public
In and For the State of Texas
<PAGE> 1
EXHIBIT 10.27
STOCK OPTION AGREEMENT FOR
1997 INCENTIVE STOCK OPTION PLAN FOR
EMPLOYEES AND EMPLOYEE DIRECTORS
OF
DYNACQ INTERNATIONAL, INC.
The parties to this Agreement are DYNACQ INTERNATIONAL, INC., a Nevada
Corporation (the "Company") and PHILIP CHAN (the "Participant").
GRANT OF OPTION
The Company hereby grants to Participant the right, privilege, and
option to purchase up to 80,000 (EIGHTY THOUSAND) shares of common stock of the
Company at a purchase (grant) price of $11/32 per share, in accordance with the
terms and conditions of the 1995 Incentive Stock Option Plan for Employees and
Employee Directors approved by the Company's Board of Directors on August 31,
1995 (the "Plan"). The Plan, a copy of which is attached hereto, is
incorporated herein by this reference.
1. Notice of Exercise. Subject to the provisions set forth in
Paragraph 8 of the Plan, any option granted under this Agreement
may be exercised at any time and from time to time in whole or in
part by written notice delivered to the Company. Such notice
shall state the number of shares being exercised and shall
specify a date, not more than (10) days from the date of such
notice, as the date on which full payment for the option price
for the number of shares specified shall be made thereof at the
principal office of the Company. Upon receipt of payment, the
Company shall instruct its transfer agent to issue such shares
provided that if any law or regulation requires the Company to
take action with respect to the shares specified in the notice,
before the issuance thereof, then the date of delivery of such
shares shall be extended for the period necessary to take such
action which may include registration of the stock under
applicable law.
2. No Shareholder Rights. The Participant acknowledges that he has
no rights as a shareholder with respect to shares for which the
option has not been exercised, and the Participant shall have no
rights with respect to such shares unless otherwise conferred
hereby.
3. Option Rights and Holding Period. The options granted hereunder
shall be fully vested and exercisable by the Participant one year
from the Effective Date hereof. The option rights herein are
exercisable for the full amount or for any part hereof from time
to time during the period of five (5) years from the Effective
Date hereof and only by each participant.
<PAGE> 2
4. Nontransferability. No option hereby shall be transferable other
than by Will or by the laws of descent and distribution. No
option or interest therein may be transferred, assigned, pledged,
or hypothecated by the Participant during the lesser of (1) five
years from the Effective Date hereof, or (2) his lifetime, by
operation of law or otherwise, or be made subject to execution,
attachment, or similar process.
5. Effective Date. The Effective Date of this Agreement shall be
December 18, 1997.
6. Acknowledgement. The undersigned Participant has read and
understands this Agreement and the law and the terms and
conditions of the Plan and hereby agrees to be bound by all of
the terms and conditions thereof.
COMPANY:
DYNACQ INTERNATIONAL, INC.
By: /s/ Chiu Chan
------------------------------
Title: President & Chairman
PARTICIPANT:
/s/ Philip Chan
--------------------------------
<PAGE> 1
EXHIBIT 10.28
STOCK OPTION AGREEMENT FOR
1997 INCENTIVE STOCK OPTION PLAN FOR
EMPLOYEES AND EMPLOYEE DIRECTORS
OF
DYNACQ INTERNATIONAL, INC.
The parties to this Agreement are DYNACQ INTERNATIONAL, INC., a Nevada
Corporation (the "Company") and GLENN RODRIGUEZ (the "Participant").
GRANT OF OPTION
The Company hereby grants to Participant the right, privilege, and
option to purchase up to 90,000 (NINETY THOUSAND) shares of common stock of the
Company at a purchase (grant) price of $11/32 per share, in accordance with the
terms and conditions of the 1995 Incentive Stock Option Plan for Employees and
Employee Directors approved by the Company's Board of Directors on August 31,
1995 (the "Plan"). The Plan, a copy of which is attached hereto, is
incorporated herein by this reference.
1. Notice of Exercise. Subject to the provisions set forth in
Paragraph 8 of the Plan, any option granted under this Agreement
may be exercised at any time and from time to time in whole or in
part by written notice delivered to the Company. Such notice
shall state the number of shares being exercised and shall
specify a date, not more than (10) days from the date of such
notice, as the date on which full payment for the option price
for the number of shares specified shall be made thereof at the
principal office of the Company. Upon receipt of payment, the
Company shall instruct its transfer agent to issue such shares
provided that if any law or regulation requires the Company to
take action with respect to the shares specified in the notice,
before the issuance thereof, then the date of delivery of such
shares shall be extended for the period necessary to take such
action which may include registration of the stock under
applicable law.
2. No Shareholder Rights. The Participant acknowledges that he has
no rights as a shareholder with respect to shares for which the
option has not been exercised, and the Participant shall have no
rights with respect to such shares unless otherwise conferred
hereby.
3. Option Rights and Holding Period. The options granted hereunder
shall be fully vested and exercisable by the Participant one year
from the Effective Date hereof. The option rights herein are
exercisable for the full amount or for any part hereof from time
to time during the period of five (5) years from the Effective
Date hereof and only by each participant.
<PAGE> 2
4. Nontransferability. No option hereby shall be transferable other
than by Will or by the laws of descent and distribution. No
option or interest therein may be transferred, assigned, pledged,
or hypothecated by the Participant during the lesser of (1) five
years from the Effective Date hereof, or (2) his lifetime, by
operation of law or otherwise, or be made subject to execution,
attachment, or similar process.
5. Effective Date. The Effective Date of this Agreement shall be
December 18, 1997.
6. Acknowledgement. The undersigned Participant has read and
understands this Agreement and the law and the terms and
conditions of the Plan and hereby agrees to be bound by all of
the terms and conditions thereof.
COMPANY:
DYNACQ INTERNATIONAL, INC.
By: /s/ Chiu Chan
----------------------------------
Title: President & Chairman
PARTICIPANT:
/s/ Glenn Rodriguez
-------------------------------------
<PAGE> 1
EXHIBIT 10.29
DYNACQ INTERNATIONAL, INC.
10304 Interstate 10 East, Suite 369 Tel: 713-673-6432
Houston, Texas 77029 Fax:713-673-1966
LETTER AGREEMENT
This LETTER AGREEMENT is entered into and effective as of the 1st day
of September, 1998 and continuing until August 31, 1999 (not withstanding the
date of actual execution) by and between DYNACQ INTERNATIONAL INC. and VISTA
HEALTHCARE INC.
WITNESSETH
Dynacq International Inc. agrees to provide, through its licensed
pharmacist, Chiu Moon Chan, as it has in the past, services including but not
limited to the following:
1. Pharmaceutical services for the benefit of Vista Healthcare Inc.
and Ambulatory Surgical Care facility;
2. Inventory Control;
3. Storage of pharmaceuticals;
4. Distribution of pharmaceuticals;
5. Satisfaction all local, state and federal licensing requirements.
Vista Healthcare Inc. agrees, as follows:
1. To pay Dynacq International Inc., in advance, Fifty Thousand
Dollars ($50,000.00) annually for pharmaceutical services from
Dynacq International Inc.;
2. That Vista Healthcare Inc. has not paid for these services for
the contract years ending August 31, 1995 and August 31, 1998,
and therefore agrees to pay One Hundred Thousand Dollars
($200,000.00) upon execution of this agreement.
IN WITNESS WHEREOF, Dynacq International Inc. and Vista Healthcare
Inc. have executed this agreement this 1st day of October 1998, but effective
as of the date first written above.
Vista Healthcare, Inc. Dynacq International, Inc.
By: /s/ Glenn Rodriguez By: /s/ Philip Chan
--------------------------- ------------------------------
Glenn Rodriguez Philip Chan
President Vice President
<PAGE> 1
EXHIBIT 10.30
OFFICE/SURGICAL CARE CENTER LEASE AGREEMENT
THE STATE OF TEXAS
COUNTY OF HARRIS
This Lease, dated September 1, 1998, and entered into by and between the
Landlord and Tenant identified hereinbelow.
1. DEFINITIONS AND BASIC PROVISIONS.
1.1 Parties and Addresses. The parties hereto and their respective
addresses are as follows:
(1) Landlord: Dynacq International, Inc.
(2) Landlord's Address: 4301A Vista, Pasadena, Texas 77504
(3) Tenant: Vista Healthcare, Inc.
(4) Tenant's Address: 4301 Vista, Pasadena, Texas 77504
(5) Tenant's Taxpayer Identification Number: 76-0557790
1.2 Defined Terms. The following terms shall be deemed to be defined
terms of this Lease for all purposes. Each of the following definitions and
basic provisions shall be construed in conjunction with and limited by the
reference thereto in other provisions of this Lease:
(1) Fixed Minimum Rent: $ 39.00 per net rentable square foot
annually, for the Terms hereof, payable $ 45,000.00 per month, due on the first
day of each month, for the primary term.
(2) Leased Premises: Those certain premises known as 4301 Vista,
Pasadena, Texas 77504, containing approximately 14,000.00 square feet of net
rentable area, as herein defined. The Leased Premises are substantially
reflected on the attached Floor Plan and being located in the Building.
(3) Commencement Date: September 1, 1998.
(4) Term: the period beginning on the commencement date and
continuing for 12 months, and any extensions or renewals thereof agreed to in
writing by Landlord and Tenant.
(5) Rent: All Fixed Minimum Rent and Additional Rent.
(6) Additional Rent: All rent and other sums payable hereunder
from Tenant to Landlord, other than Fixed Minimum Rent.
(7) Base Year: The Calendar Year 1997.
(8) Operating Expenses: All expenses, costs and disbursements (but
not replacement of capital items nor specific costs billed to and paid by
specific tenants, except as
<PAGE> 2
otherwise hereinafter provided) of every kind and nature which Landlord shall
pay or become obligated to pay because of or in connection with the ownership,
management, maintenance and operation of the Building, the Common Areas and
related facilities, including but not limited to the following:
(i) Compensation, fees, wages and salaries of all contractors
(including property management companies) or employees engaged in the operation
management and/or maintenance, or access control, and any personnel who may
provide traffic relating to ingress and egress to and from the parking areas to
the adjacent public streets; all taxes, insurance and benefits relating to
contractors or employees providing these services shall be included;
(ii) All supplies, tools, equipment and materials used in
operations and maintenance.
(iii) costs of all utilities, including but not limited to,
the cost of water and power, heating, lighting, air conditioning and
ventilating, telephone, cable TV, garbage removal, and said other utilities as
are required for the operation of the Building.
(iv) costs of all maintenance and service agreements and the
equipment therein, including, but not limited to, access control service,
window cleaning and elevator maintenance;
(v) cost of all insurance, including, but not limited to, the
cost of casualty and liability insurance;
(vi) costs of repairs and general maintenance;
(vii) amortization of the costs of installation of capital
improvements that reduce operating costs or which may be required by
governmental authority; such costs to be amortized over such reasonable period
as Landlord shall determine with a return on capital at the then current
interest rate on the unamortized balance or at such higher interest rate as may
have been paid by Landlord on funds borrowed for the purpose of constructing
such capital improvements;
(viii) Landlord's central accounting and audit costs; and
(ix) all other costs and expenses which would generally be
regarded as operating and maintenance costs and expenses.
(9) Escalations: The dollar amount by which the Operating Expenses
exceed the actual Building Operating Expenses for the calendar year 1997.
(10) Pro Rata Share: .95 percent (95%).
(11) Permitted Use: General Ambulatory Surgical Care, provided
such use is granted only to Tenant, and complies with all laws, ordinances and
statutes.
(12) Parking Spaces: as needed for the staff and patients of
Tenant.
(13) Floor Plan: The outline of the Leased Premises as depicted in
Exhibit "B" attached hereto and made a part hereof for all purposes.
<PAGE> 3
(14) Interior of the Leased Premises: Standard office front and
entrance (including without limitation, all plate glass and exterior doors),
all of the interior wall framing, floors and floor covering. ceiling and
interior staining and finishes, all interior doors and hardware, all interior
electrical conduits and appurtenances, mechanical machinery and equipment, all
interior electrical fixtures, interior plumbing and plumbing fixtures, Tenants'
trade fixtures, and all other parts in the interior of Lease Premises.
(15) Building: The building in which the Leased Premises are
situated, being generally known as Vista Healthcare Partners, located at 4301
Vista, Pasadena, Texas 77504.
(16) Common Area: Those parts of the Building and the Land and
related facilities designated by Landlord from time to time for the common use
of all Tenants, including among other facilities, parking areas, sidewalks,
landscaping, curbs, loading areas, private streets and alleys, automobile
entrances, exits and driveways, entranceways, open (enclosed or otherwise),
lighting facilities, drinking fountains, public toilets, signs, service areas,
common utility lines, pipes, and/or conduits, and the like.
(17) Land: The lot, tract or parcel of land upon which the
Building is situated, in Harris County, Texas as more particularly described by
metes and bounds on Exhibit "A" attached hereto and made a part hereof for all
purposes, plus any contiguous parcels or strips of land which currently are
owned by Landlord or leased to Landlord by lease agreement or easement, and are
used in connection with or service the Building or any part thereof.
(18) Security Deposit: The sum $45,000.00 to be deposited by
Tenant with Landlord, and held by Landlord pursuant to the terms hereof.
(19) Late Charge: $0.05 per each dollar overdue, per month.
(20) Lease: This Office/Surgical Center Lease Agreement.
(21) Expiration Date: The last day of the Term hereof, which date
is contemplated as being August 31, 1999.
(22) Broker (s): None
2. GRANTING CLAUSE. In consideration of the Rent reserved and the covenants and
agreements herein contained on the part of the Tenant to be observed and
performed, Landlord hereby demises, lets and leases unto Tenant, and Tenant
hereby rents from Landlord, the Leased Premises.
3. RENT.
3.1 Fixed Minimum Rent. Tenant promises and agrees to pay to Landlord
for the original Term of this Lease, at the Landlord's Address or at such other
place designated by Landlord, without any prior demand therefor and without any
deduction or setoff, the Fixed Minimum Rent. The Fixed Minimum Rent shall be
paid by Tenant paying to Landlord the Monthly Minimum Rent Payment on or before
the first day of each month during the Term hereof. A monthly Minimum Rent
Payment for any fractional month at the beginning or the end of the Term shall
be prorated based upon the actual number of days in such month. It is agreed
that, notwithstanding anything to the contrary, the Leased Premises are leased
for the Fixed Minimum Rental for the original Term hereof, payable at the time
of the making of this Lease
<PAGE> 4
and that the provisions herein contained for the payment of same in Monthly
Minimum Rent Payments are for the convenience of Tenant only, and that, upon
default in the payment of any such Monthly Minimum Rent Payment, as herein
allowed, the whole of the Fixed Minimum Rental reserved for the whole of the
Term herein provided for and then remaining unpaid shall, at the option of
Landlord, become due and payable upon notice and demand. Landlord expressly
reserves the right to apply the payment of Fixed Minimum Rent to any items of
non-rent that are not paid by Tenant.
3.2 Escalations.
(1) In addition to the Fixed Minimum Rent as specified herein,
Tenant agrees to pay to Landlord as Additional Rent its Pro Rata Share of the
Escalations.
(2) Tenant's Pro Rata Share of Operating Expenses for the
remainder of the calendar year after the Commencement Date and for each
subsequent calendar year shall be estimated by Landlord, and written notice
thereof shall be given to Tenant. Upon receipt of said written notice from
Landlord, the estimated Escalations shall be due and payable as herein
provided. For any such remainder of the calendar year after the Commencement
Date, Tenant agrees to pay Landlord each month, at the same time the Monthly
Minimum Rent Payment is due, an amount equal to the amount of such estimated
monthly Pro Rata Share of Escalations for the remainder of such calendar year;
and during each calendar year thereafter Tenant agrees to pay Landlord each
month, at the same time the Monthly Minimum Rent Payments are due, an amount
equal to one-twelfth (l/12th) of the estimated annual Pro Rata Share of
Escalations due. Landlord agrees to limit Tenants pro rata share of Common Area
Maintenance and Insurance Charges, excluding Taxes, to ten (10) percent per
year.
If any portion of Operating Expenses increase during a calendar year, Landlord
may revise the estimated Escalations during such year by giving Tenant written
notice to that effect, and thereafter Tenant agrees to pay Landlord, in each of
the remaining months of such year, an additional amount equal to the amount of
such annual increase in the estimated Pro Rata Share of Escalations divided by
the number of months remaining in such year.
(4) After the end of each calendar year, Landlord shall prepare
and deliver to Tenant a statement showing Tenant's Pro Rata Share of the total
amount of Escalations. Within ten (10) days after receipt of the aforementioned
statement, Tenant agrees to pay Landlord the remaining amount owed by Tenant.
However, if Tenant has paid more than its Pro Rata Share of the actual
Escalations, Landlord shall either pay to Tenant within a reasonable time the
amount of such excess, or at Landlord's option, apply such excess to any sums
due or to become due from Tenant to Landlord.
(5) Notwithstanding anything herein to the contrary, in no event
will the Fixed Minimum Rental provided for in this Lease ever be reduced.
3.3 Payment For Other Services. Tenant agrees to pay Landlord as
Additional Rent all charges for any services, goods, or materials furnished at
Tenant's request which are not required to be furnished by Landlord under this
Lease, immediately upon demand, plus an administrative fee not to exceed
fifteen percent (15%) of the cost of the requested services, good or materials.
<PAGE> 5
3.4 Late Charge. If any Rent payment is not received by Landlord on or
before the 10th day of the month, the Late Charge shall be due and payable (in
addition thereto). Said Late Charge is for the purpose of reimbursing Landlord
for the extra costs and expenses incurred in connection with the handling and
processing of such late payment.
4. SECURITY DEPOSIT. Landlord hereby acknowledges receipt from Tenant of the
Security Deposit, which sum is to be held by Landlord as security for the full
and faithful performance by Tenant of all the terms, covenants and conditions
of this Lease to be kept and performed by Tenant during the Term hereof. If
Tenant defaults with respect to any provision of this Lease, including but not
limited to the provisions relating to the payment of Rent, Landlord may (but
shall not be required to) use, apply or retain all or any part of the Security
Deposit for the payment of any Rent or any other sum in default, or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of said deposit is so used or
applied Tenant shall, on demand, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount, and Tenant's
failure to do so shall be a default under the Lease. Landlord shall not be
required to keep the Security Deposit separate from its general funds and may
commingle said deposit with any other funds. Tenant shall not be entitled to
interest on said deposit. It is expressly understood that the Security Deposit
shall not be considered an advance payment of Rent or a measure of Landlord's
damages in the event of default by Tenant. If Tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the Security
Deposit or any balance thereof shall be returned to Tenant (or, at Landlord's
option, to the last approved assignee of Tenant's interest under this Lease)
within thirty (30) days following the expiration of the Lease Term. In the
event Landlord transfers its interest in the Leased Premises during the Lease
Term, Landlord may assign the Security Deposit to the transferee and thereafter
shall have no further liability for the return of such deposit.
5. COMMON AREAS
5.1 Parking Facilities and Other Common Areas. During the Term of this
Lease, Tenant shall be entitled to the nonexclusive use (in common with others
entitled thereto) of the Common Areas. Subject to the terms of this Lease and
any parking rules of Landlord, the Parking Spaces shall be provided to Tenant
located in parking areas provided by Landlord for the common parking of all
tenants of the Building. All Common Areas which Landlord elects or is obligated
to provide and maintain shall at all times be subject to the exclusive control
and management of Landlord, and Landlord shall have the right form time to time
to establish, modify and enforce rules and regulation with respect to all such
facilities and areas so provided by Landlord. Landlord shall have the right, in
its sole discretion, to change the number, to restripe and redesign, to
relocate or modify the entrances and exits to and from the parking areas and
parking spaces, and to provide additional entrances and exits if Landlord so
elects. Further, Landlord reserves the right to change from time to time the
dimensions and location of the Common Areas as well as the location,
dimensions, identity and type of any facilities and improvements located
thereon and to construct additional building or additional stories on the
Building or other improvements on the Land, and to eliminate facilities and
improvements (other than the Building) from the Land Tenant shall not conduct,
solicit business or display merchandise on or within the Common Areas, or
distribute handbills therein, or take any action
<PAGE> 6
which would interfere with the rights of other persons to use the Common Areas.
Landlord may temporarily close any part of the Common Areas for such periods of
time as Landlord deems necessary to prevent the public from obtaining
prescriptive rights or to make repairs or alterations.
5.2 Parking Regulations. Landlord shall have the right to maintain and
operate lighting facilities on all of the parking areas and to police all of
the parking and other Common Areas, including, without limitation, the right to
discourage non-tenant parking, to designate and regulate parking areas, and to
do and perform such other acts with respect to said Common Areas as in the
judgement of Landlord or Landlord's counsel may be legally necessary to prevent
a dedication thereof to the public.
5.3 Revocable License. All Common Areas and facilities not within the
Leased Premises, which Tenant may be permitted to use and occupy, are to be
used and occupied under a revocable license, and if the amount of such areas be
diminished, Landlord shall not be subject to any liability nor shall Tenant be
entitled to any compensation or diminution or abatement or Rent, nor shall such
diminution of such areas quality and shall be in accordance with the then
existing federal, state and local regulations regarding health and safety, and
shall be approved in writing by Landlord prior to installation. All such
repairs and replacements of the Interior of the Leased Premises made by Tenant
in and to the Leased Premises pursuant to this Section shall constitute a part
of the fee estate remainder subject to this Lease, and Tenant's rights, title
and interest therein shall be limited to its right of possession and use
pursuant to the provisions of this Lease and subject to all of the terms and
provisions hereof. If Tenant shall neglect and/or fail to observe, keep or
perform any of its obligations to maintain and repair and Leased Premises in
the time and manner provided in this Article and if such neglect and/or failure
shall continue for ten (10) days after notice thereof, Landlord shall have the
right to perform said maintenance and repairs. In the event Landlord does so
perform Tenant's responsibilities for said maintenance and repairs, Landlord
shall furnish Tenant a statement of the actual cost thereof, plus an
administration fee not to exceed fifteen percent (15%) of the actual costs,
which statement shall be immediately payable by Tenant.
6. MAINTENANCE AND REPAIRS.
6.1 Landlord's Obligations. Landlord shall maintain and repair at its
own cost and expense throughout the Term of this Lease, the Structural parts of
the Building, provided, however, in the event of damage to said Structural
Parts which results from an actual or attempted entrance to, or exit from the
Lease Premises for any unlawful purpose by tenant, tenant shall bear the entire
cost of such maintenance and repair. Landlord shall further provide or cause to
be provided maintenance of the Common Areas, plumbing, air conditioning
systems, elevators (if any), and fire protection sprinkler systems (if any).
6.2 Tenants' Obligations. Tenant shall maintain and repair at its own
cost and expense the Interior of the Leased Premises. All maintenance and
repairs shall be done with materials and equipment of good quality and shall be
in accordance with the existing federal, state, and local regulations regarding
health and safety, and shall be approved in writing by landlord prior to
installation. All such repairs and replacements of the Interior of the Leased
Premises made by tenant in and to the Leased Premises pursuant to this Section
shall constitute a
<PAGE> 7
part of the fee estate remainder subject to this lease, and tenants' rights,
title and interest therein shall be limited to its right of possession and use
pursuant to the provisions of this Lease and subject to all of the terms and
provisions hereof. If Tenant shall neglect and/or fail to observe, keep or
perform any of its obligations to maintain and repair and Leased Premises in
the time and manner provided in this Article and if such neglect and/or failure
shall continue for ten (10) days after notice thereof, landlord shall have the
right to perform said maintenance and repairs, landlord shall furnish Tenant a
statement of the actual cost thereof, plus an administration fee not to exceed
fifteen percent (15%) of the actual costs, which statement shall be immediately
payable by Tenant.
7. TAXES ON TENANT'S PROPERTY. Tenant shall be responsible for and shall pay,
before same becomes delinquent, all federal, state, county, and local taxes
levied or assessed upon any and all of Tenants' interest hereunder and upon any
and all personal property of any kind owned by or placed in, on or about the
Leased Premises by tenant during the term of this Lease, and all taxes and
assessments on trade fixtures, furniture, and all sales, excise and other taxes
on Tenant's business shall be paid entirely by Tenant. If any such taxes for
which Tenant is liable are levied or assessed against Landlord or Landlord's
property, or if the assessed value of Landlord's property is increased by
inclusion of personal property, furniture or fixtures placed by Tenant in the
Leased Premises, Tenant shall pay to Landlord upon demand that part of such
taxes for which Tenant is primarily liable hereunder.
8. TAXES ON REAL PROPERTY. Tenant agrees, as part of the additional rent, to
pay all taxes and assessments and governmental charges whether federal, state,
county or municipal, and whether they be by taxing districts or authorities
presently taxing the Land or by others, subsequently created or otherwise, and
any other taxes and assessments attributable to the Land, Building, Common
Areas or related facilities, or the operation thereof.
9. INSURANCE.
9.1 Hold Harmless. Tenant covenants and agrees to indemnify and save
Landlord harmless from and against any and all costs, liability or expense
arising out of any claims of any person or persons on account of any occurrence
in, upon or at the Leased Premises, or resulting from the occupancy or use
thereof by Tenant, or by any person or persons holding or using the Leased
Premises thereunder, occasioned in whole or in part by reason of the improper
and/or lack of control and supervision throughout the Common Areas of property
owned or controlled by Tenant, or by reason of the use or misuse of the parking
area or any other Common Areas by Tenant or by any person or persons holding or
using the Leased Premises, or any part thereof, under Tenant, including without
limitation, Tenant's clients, invites, agents, contractors, employees,
servants, subtenants, assignees or licensees, and without limiting the
generality of the foregoing, Tenant further covenants and agrees to indemnify
and save Landlord harmless from and against any penalty, damage or charge
incurred or imposed by reason of any violation of law or ordinance by Tenant or
any person or persons holding under Tenant or using the Leased Premises or the
Building or Common Areas, and from any cost, damage or expense arising out of
the death
<PAGE> 8
of or injury to any person or persons holding under Tenant or using the Lease
Premises or the Building or Common Areas and from any cost, damage or expense
arising out of the death of or injury to any person or persons holding under
tenant or using the Leased Premises, or any part thereof, or any part of the
Building or Common Areas. In case any action or claim to which Landlord is
entitled to indemnification shall be brought or asserted in any way against
Landlord or Tenant, Tenant shall immediately notify Landlord of the same and
shall furnish Landlord with all relative information. Landlord shall be
entitled, at Tenant's expense, to participate in, and to the extent that it
wishes, to assume the defense thereof.
9.2 Tenant's Liability Insurance. Tenant agrees to maintain in force
during the Term of this Lease a policy or policies of comprehensive public
liability insurance, including property damage, written by one or more
responsible insurance companies approved by Landlord and licensed to do
business in Texas, which insurance companies shall be rated not less than A+8
by Best Guide Rating, insuring Tenant and naming as additional named insureds,
Landlord, Landlord's property management company as agent, and such other
persons, firms, or corporations as are designated by Landlord, against loss of
life, bodily injury and property damages in which the limit of public liability
shall be not less than ONE MILLION AND NO/100 DOLLARS ($ 1,000,000.00) single
limit bodily injury and in which the limit of property damage liability shall
be not less than FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00). Each
such policy shall be noncancellable for any cause without first giving Landlord
ten (10) days prior written notice. Subject to all of the foregoing, the
insurance coverage required to be furnished by Tenant pursuant to this Section
may be in the form of a blanket policy covering all of Tenant's operations.
9.3 Tenant's Fire Insurance. Tenant agrees to maintain in force during
the Term of this Lease a policy or policies of fire and extended coverage
insurance in the case of fire sprinkler leakage, malicious mischief, vandalism
and other extended coverage perils, for the full insurable replacement value of
all additions and of all office furniture, office equipment, merchandise, and
other items of Tenants' property within or on the Leased Premises.
9.4 Tenant's Workers Compensation. Tenant agrees to maintain in force
during the Term of this Lease workers compensation and employers liability
insurance with a waiver or subrogation endorsement, inform and amount
satisfactory to Landlord.
9.5 Evidence of Insurance. A copy of each such policy or a certificate
of such insurance required to be maintained by Tenant shall be delivered to
Landlord upon the Commencement Date of this Lease and annually thereafter upon
the first day of each Lease Year throughout the Term of this Lease. If Tenant
fails to procure said insurance or deliver to Landlord, such evidence thereof,
Landlord may procure same and Tenant shall reimburse Landlord for the cost
thereof immediately upon demand.
9.6 Landlord's Liability Insurance. Landlord agrees to maintain in
force during the Term of this Lease a policy or policies of comprehensive
public liability insurance, including property damage, written by one or more
responsible insurance companies licensed to do business in Texas and insuring
Landlord against loss of life, bodily injury and/or property damage with
respect to the Common Areas and the operation of the Building, the policy
limits of which to be in amount satisfactory to Landlord. In addition, Landlord
may maintain in force such umbrella policy or policies of public liability
insurance as Landlord, in its sole discretion, may deem appropriate. Landlord's
failure to procure any such insurance shall not invalidate this Lease or lessen
Tenant's liability hereunder.
<PAGE> 9
9.7 Landlord's Fire Insurance. NONE. Tenant agrees to procure and keep
in effect during the original and any extended Term of this Lease a policy or
policies of fire and extended coverage insurance covering the Building,
including rent abatement, vandalism and malicious mischief coverage, written by
an insurance company authorized to do business within the State of Texas, and
in an amount deemed satisfactory to Landlord. Such insurance shall provide
protection against losses so insured against for the sole and exclusive benefit
of Landlord. The full amount of any proceeds payable thereunder shall be
payable to Landlord, and Tenant shall not be entitled to, and shall have no
interest in, such proceeds or any part thereof. Tenant is advised to procure
such insurance as Tenant deems appropriate to protect its interest.
9.8 Waiver of Subrogation. To the extent permitted by the laws and
insurance regulations of the State of Texas, the respective parties hereto
hereby waive and release any and all claims, demands and causes of action which
each might have against the other party, either for damage to or loss of any
part of the Leased Premises or of any adjoining premises belonging to Landlord,
arising from perils ordinarily insured against under a standard fire and
extended coverage insurance policy issued in the State of Texas, regardless of
whether such damage or loss is occasioned by the negligence of the respective
parties, or either of them, their agents, servants or employees.
10. UTILITIES AND SERVICES. Provided Tenant is not in default of any term,
condition or covenant of this Lease, Tenant agrees to furnish or cause to be
furnished to the Leased Premises gas, water (for drinking, cleaning and
lavatory purposes only), and electricity during the term of this Lease. Tenant
shall furnish tempered and refrigerated water at those points of supply
designated by Landlord in the Common Areas, heated and refrigerated air
conditioning in season (at temperatures, in amounts and at times considered by
Landlord to be standard or in compliance with any governmental regulations;
such service after hours, on Saturday afternoons, Sundays and holidays will be
furnished only upon the prior written request of Tenant who shall bear the
entire cost thereof). Tenant shall furnish janitorial service, in the manner
and to the extent deemed standard by Landlord during the periods and hours as
such services are normally furnished to all tenants. Tenant shall not hinder
the work of the Building Maintenance personnel. Landlord shall furnish routine
maintenance, painting and lighting service for all Common Areas in the manner
and to the extent deemed by Landlord to be standard. Tenant will pay all
telephone charges. Landlord shall not be liable in damages or otherwise for
failure, stoppage or interruption of any such service nor shall the same be
construed as an eviction of Tenant, work an abatement of Rent, or relieve
Tenant from the operation of any covenant or agreement set forth herein; but in
the event of any failure, stoppage or interruption thereof not caused by Tenant
or Tenant's agents, employees, contractors, clients or invites, Landlord shall
use reasonable diligence to resume service promptly. Notwithstanding anything
hereinabove to the contrary, Landlord reserves the right from time to time to
make reasonable modifications to the above standards for services and
utilities.
11. EXPANSION. Landlord and Tenant covenant and agree as follows:
<PAGE> 10
(1) Landlord reserves the right to make changes in and to alter
the Building, automobile parking areas, and other Common Areas, and this right
shall include the right to elevate or multipledeck or to provide underground
parking facilities. This may mean all or a portion of Tenants view may be
blocked, and if such occurs, Tenant consents to same without any right to
compensation. In no event shall Landlord be required to maintain any specific
parking building ratio for any automobile parking areas.
(2) With respect to any premises adjoining or adjacent to the
Building which Landlord may now own or henceforth acquire, by deed, easement
contract, license or otherwise Landlord expressly reserves unto itself, its
successors and assigns, the right (but Landlord, its successors and assigns
shall have no obligation) to develop, dedicate, finance, improve, lease,
manage, operate and/or convey the adjoining or adjacent premises, or any part
thereof, for whatever use or purpose Landlord or Landlord's successors or
assigns shall deem appropriate, including, without limitation, the use thereof
for expansion of the Building; and this Lease shall not be construed to limit
Landlord's rights, or to restrict the use of said adjoining or adjacent
premises or any part thereof. The foregoing provisions of this paragraph shall
not be construed to give Tenant any rights in common areas within any of the
adjoining or adjacent premises, including without limitation, any rights in the
parking areas that might be provided in adjoining or adjacent premises.
(3) No such permitted change, alteration, addition to or
consolidation of the Building, including without limitation, the performance of
all construction and/or excavation required thereof, shall invalidate this
Lease or affect Tenants' obligation under any provision hereof and tenant
agrees to ratify and approve the modified Building Plan, if any, in writing.
Tenant expressly waives all claims for inconvenience, interruption and/or loss
of Tenants' business or other damage due to such permitted change, alteration,
addition or consolidation, unless caused by gross negligence by the Landlord.
12. PROPERTY OBLIGATIONS
12.1 Tenant's Property. Landlord shall not be liable for any damage to
or loss of personal property placed in or about the Leased Premises by Tenant
or Tenant's agents, employees, clients, guests, invites or others, resulting
from fire, theft, explosion, flood, windstorm or other casualty caused by Acts
of God or by the acts or omissions of other occupants of other space in the
Building or caused by operations during construction of any public or quasi
public work. All property kept or stored within the Leased Premises shall be
kept or stored at the risk of Tenant only, and Tenant shall hold Landlord
harmless from any claims arising out of damage to the same, including
subrogation claims by Tenant's insurer, if any, unless such damage shall be
caused by the gross negligence of Landlord.
12.2 Tenant Fixtures, Alterations and Personal Property. Tenant shall
not make or allow to be made any alterations or physical additions in or to the
Lease Premises without the prior written consent of Landlord. Upon Tenant's
receipt of Landlord's written approval and upon Tenant's payment to Landlord of
the fee prescribed by Landlord (which fee shall be in consideration for the
work of Landlord and its employees and representatives and the reviewing of the
plans and specifications), Tenant may proceed to the construction of the
approved alterations, but only so long as they are in strict compliance with
the plans and specifications and
<PAGE> 11
with the provisions of this Section. All alterations shall be made at Tenant's
expense, either by Tenant's contractors which have been approved in writing by
Landlord, or at Landlord's option, by Landlord's contractors on terms
reasonably satisfactory to Tenant, including a fee of ten percent (10%) of
Landlord's actual cost of the work to cover Landlord's overhead. None of
Tenant's construction, alterations or improvements shall (i) alter the exterior
appearance of the Building in any manner, (ii) adversely affect the structure
or safety of the Building or any portion thereof, (iii) fail to comply with all
building, safety, fire and other codes and governmental and insurance
requirements, or (iv) fail to be completely promptly and in a good and
workmanlike manner. All trade fixtures be installed by Tenant shall be new or
completely reconditioned. At Landlord's option any such approved additions,
alterations, improvements and/or fixtures furnished or installed by Tenant
which are sufficiently affixed or annexed to the Leased Premises so as to
become a part thereof, other than unaffixed movable trade fixtures, shall upon
the expiration or earlier termination of this Lease, become the property of
Landlord; or in the alternative, Landlord may require Tenant to remove said
additions, alterations, improvements and/or fixtures, as well as all unaffixed
movable trade fixtures and operating equipment of Tenant, upon the expiration
or earlier termination of this Lease, and thereafter Tenant will restore the
Leased Premises to the condition they were in upon delivery of possession
thereto under this Lease, reasonable wear and tear only expected. Any damage to
the Leased Premises caused by such installation and/or removal of Tenant's
fixtures and equipment shall be repaired at Tenant's sole cost and expense. The
provisions of this Section shall expressly survive the expiration or earlier
termination of this Lease.
12.3 Liens. Tenant shall neither permit nor suffer an involuntary lien
to be filed or affixed against the Building, the Leased Premises, the fee
simple title of the Land or any leasehold estate therein or any part thereof,
and shall not voluntarily grant any lien or security interest therein. In the
event any such involuntary or voluntary lien, including without limitation,
mechanic's lien and tax lien, is filed and/or affixed against the Building, the
Leased Premises the fee simple title of the Land or any leasehold estate
therein, or any part thereof, or against any fixtures, equipment, furnishings
therein or all types of work and improvements comprising the Interior of the
Leased Premises (which when completed shall constitute a part of the fee estate
remainder subject to the terms and provisions of this Lease) and Tenant has not
caused the same to be released and discharged of record within ten (10) days
after notice thereof, same shall constitute a default hereunder. Upon such
default, in addition to any other remedies available to Landlord herein,
Landlord may release and discharge of such lien, Tenant shall repay to Landlord
immediately upon demand as Additional Rent hereunder all such sums disbursed or
deposited by Landlord. Nothing contained herein, however, shall imply any
consent or agreement on the part of Landlord or anyone holding under Landlord
to subject Landlord's interest to liability under any mechanic's or other lien
law, regardless of whether the performance or the furnishing of such work,
labor, services or materials to Tenant or anyone holding under Tenant shall
have been consented to by Landlord.
13. SUBORDINATION/ATTORNMENT.
13.1 Subordination. Tenant covenants and agrees promptly upon request
of Landlord to execute and deliver, in a recordable form provided by Landlord,
an acknowledgment of the subordination of this Lease to any mortgage, deed of
trust, security agreement or other lien
<PAGE> 12
or encumbrance resulting from any method of financing or refinancing, presently
or henceforth placed upon the Land and/or the Building and any future expansion
thereof or additions thereto, and to all advances of money or other value
heretofore or hereafter made upon the security thereof.
13.2 Collateral Assignment by Landlord. Subject to the foregoing
provisions of this Article, Landlord reserves the right, without notice to or
consent of Tenant, to assign this Lease and/or any and all Rent hereunder as
security for the payment of any mortgage loan, deed of trust loan, or other
method of financing or refinancing.
13.3 Attornment. In the event any such mortgage is foreclosed, or in
the event of the exercise of the power of sale under any such deed of trust,
Tenant shall consider the purchaser and the foreclosure trustee's sale shall to
be the Landlord hereunder, and Tenant will attorn to the purchaser and will
recognize the purchaser as the owner and Landlord under this Lease.
14. USE AND OPERATION
14.1 Use of Leased Premises. The Leased Premises shall be used and
occupied by Tenant solely for the Permitted Use and Tenant expressly agrees
that no use shall be made or permitted or acts done by Tenant and/or any
agents, employees, subtenants, or assignees of Tenant, which shall increase the
existing rate of insurance coverage or cause cancellation of such insurance
coverage. Tenant shall not (i) permit any objectionable or unpleasant odors to
emanate from the Leased Premises; nor place or permit any radio, television,
loudspeaker or amplifier on the roof or outside of the Leased Premises or where
the same can be seen or heard from outside the Leased Premises; (ii) place any
antenna, awning or other projection on the exterior of the Leased Premises;
(iii) take any other action which would constitute a nuisance or would disturb
or endanger other tenants of the Building or unreasonably interfere with their
use of their respective premises; or (iv) do anything which would tend to
injure the reputation of the Building.
14.2 Name of Business. Tenant promises and agrees to conduct the
business above described in and upon the Leased Premises under the Trade Name,
and Tenant shall not change such name without the prior written consent of
Landlord, which consent shall not be unreasonably withheld.
14.3 Suitability of Premises. Tenant warrants to Landlord that it has,
prior to the execution hereof, fully inspected the Leased Premises, the
building (including common areas), the property and all items related thereto,
and that it has made, performed, obtained and received all studies,
inspections, reports, diagnoses and tests that Tenant desires relative to the
Leased Premises the building (including common areas), the property and all
items related thereto and Tenant's proposed business use of the Leased
Premises. Tenant understands and agrees that it is accepting the Leased
Premises the building (including common areas), the property and all items
related thereto in its present "AS-IS", "WHERE-IS" condition, "WITH ALL FAULTS"
and without any warranty or guarantee whatsoever. Tenant warrants that it used
all due diligence in conducting all studies inspections, diagnoses and tests on
the Leased Premises the building (including common areas), the property and all
items related thereto that Tenant deemed necessary or appropriate. Tenant
acknowledges that Landlord has not made and
<PAGE> 13
does not make, and Landlord hereby disclaims, any and all warranties, express
or implied, which in any way relate to the Leased Premises the building
(including common areas), the property and all items related thereto or the
condition thereof, including without limitation any implied warranty of
suitability or habitability. Tenant further understands that Landlord has
relied upon Tenant's having made all inspections Tenant desired prior to
leasing the Leased Premises from Landlord, and that but for such inspections by
Tenant, Landlord would not have leased the Leased Premises to Tenant.
Additionally, the parties agree that the obligation of Tenant to pay all rental
and other sums hereunder provided to be paid by Tenant, and the obligation of
Landlord to perform Landlord's other covenants and duties hereunder constitutes
independent, separate and unconditional obligations to be performed at all
times provided for hereunder, save and except only when an abatement thereof or
reduction therein is expressly provided for herein and not otherwise. It is
agreed that in the event Landlord commences any proceedings against Tenant for
nonpayment of rental or any other sum due and payable by Tenant hereunder,
Tenant shall not interpose any counterclaim or other claim against Landlord of
whatever nature or description in any such proceedings; and in the event Tenant
interposes any such counterclaim or other claim against Landlord in any such
proceeding, Landlord and Tenant stipulate and agree that, in addition to any
other lawful remedy of Landlord, upon motion of Landlord, such counterclaim or
other claim asserted by Tenant shall be severed out of the proceedings
instituted by Landlord and Landlord may proceed to final judgment separately
and apart from and without consolidation with or reference to the status of
such counterclaim or any other claim asserted by Tenant.
14.4 Operation of Business. Tenant shall operate all of the Leased
Premises during the entire Lease Term using sound business practices, due
diligence and efficiency. Tenant shall provide, install and at all times
maintain in the Leased Premises all suitable furniture, fixtures, equipment and
other personal property and such personnel as may be necessary for the conduct
of Tenant's business therein in a businesslike manner.
15. SIGNS/ADVERTISING.
15.1 Signs. No signs of any kind or nature, symbol or identifying mark
shall be put on the Building, the Land, the Common Areas, nor within the
Premises so as to be visible from the Common Areas or exterior of the Building,
without prior written approval of Landlord. All signs or lettering shall
conform in all respects to the sign and/or lettering criteria established by
Landlord. Landlord agrees to provide Tenants name on the directory board.
15.2 Advertising of Tenant. No advertising medium originating from
within the Leased Premises shall be utilized by Tenant which can be heard or
experienced outside the Leased Premises, including, without limiting the
generality of the foregoing, flashing lights, searchlights, loudspeakers,
phonographs, radios and television. Tenant shall not display, paint, place or
cause to be placed, any handbills, bumper stickers or other advertising devices
on any vehicle parked in the parking area of the Building, whether belonging to
Tenant, Tenant's agent, or to any other person. Tenant shall not distribute, or
cause to be distributed, any handbills or other advertising devices within the
Building or Common Areas.
16. ASSIGNING, MORTGAGING, SUBLETTING.
<PAGE> 14
16.1 Prohibitions. Tenant shall not transfer, assign, sublet, enter
into any license or concession agreements, change ownership or hypothecate this
Lease or the Tenants' interest into the Leased Premises nor permit the
occupancy or use of any part thereof, without first procuring the written
consent of the Landlord. Any assignment, mortgage, pledge, hypothecation,
encumbrance, subletting or license of this Lease, the leasehold estate hereby
created, or the Leased Premises or any portion thereof, either voluntary or
involuntary, whether by operation of the law or otherwise, without the prior
written consent of the Landlord first had and obtained therefor, shall be null
and void, at the option of the Landlord, and Landlord may declare a default and
exercise all remedies available to Landlord under this Lease or at law.
16.2 Refusal of Consent. Without in any way limiting Landlord's right
to refuse to give such consent for any other reason or reasons, Landlord
reserves the right to refuse to give such consent unless Tenant remains fully
liable during the unexpired Term of this Lease and Landlord further reserves
the right to refuse to give such consent if, in Landlord's sole discretion and
opinion, the quality of Landlord's operation is or may be in any way adversely
affected during the term of the proposed new tenant is less than that of the
Tenant as of the date hereof.
16.3 Conditions to Consent. Landlord may condition its consent to any
assignment or subletting (i) upon Tenant's agreement to termination of this
Lease and simultaneous creation of a new lease between Landlord and the
proposed successor, and upon Tenant's giving its unconditional guaranty of such
new lease in form and substance satisfactory to counsel for Landlord, or (ii)
upon Tenant's agreement simultaneously with the execution of any sublease or
assignment approved by Landlord, to name Landlord its agent for purposes of
collection of rental from the sublessee approved by Landlord under any such
sublease or assignment (in order to enable Landlord to maintain its collection
and other relationships).
16.4 Reimbursement of Fees. Tenant agrees to reimburse Landlord for
Landlord's reasonable attorney's fees incurred in conjunction with the
processing and documentation of any such requested transfer, assignment,
subletting, licensing or concession agreement, change of ownership or
hypothecation of this Lease or Tenant's interest of ownership or hypothecation
of this Lease or Tenant's interest in and to the Leased Premises, as well as in
conjunction with any modification of this Lease.
16.5 Transactions Consented To. Each transfer assignment, subletting,
lease, concession agreement and hypothecation to which there has been consent
shall be by an instrument in writing in form satisfactory to Landlord and shall
be executed by the transferor, assignor, sublessor, licensor, concessionaire,
hypothecator or mortgagor and the transferee, assignee, sublessee, licensee,
concessionaire or mortgagee in each instance, as the case may be, and each
transferee, assignee. sublessee, licensee, concessionaire or mortgagee shall
agree in writing for the benefit of the Landlord herein to assume, to be bound
by, and to perform the terms, covenants and conditions of this Lease to be
done, kept and performed by the Tenant. One (or more, if required by Landlord)
executed copy of such written instrument shall be delivered to Landlord.
Failure to first obtain in writing Landlord's consent or failure to comply with
the provisions of this Article shall operate to prevent any such transfer,
assignment, subletting, license, concession agreement or hypothecation from
becoming effective.
<PAGE> 15
16.6 Excess Rental. If the rental due and payable by any assignee or
subtenant under any such permitted assignment or sublease (or a combination of
the rental payable under such assignment or sublease plus any bonus or other
consideration therefor or any payment incident thereto) for the Leased Premises
(or any portion thereof) exceeds the rent payable under this Lease for the
Leased Premises (or any portion thereof), Tenant shall be bound and obligated
to pay to Landlord all such excess rental and other excess consideration within
ten (10) days following receipt thereof by Tenant from such assignee or
subtenant, as the case may be.
17. WASTE, NUISANCE, APPLICABLE LAWS.
17.1 Waste and Nuisance. Tenant shall not commit or suffer to be
committed any waste in or upon the Leased Premises and shall not commit or
suffer to be committed therein any nuisance or other act or thing which may
disturb the quiet enjoyment of any other tenant in the Building, or which may
disturb the quiet enjoyment of any person within the immediate vicinity of the
Building.
17.2 Tenant's Compliance with Laws. Tenant shall, at Tenant's sole
cost and expense, comply with all the requirements of all federal, state,
county, municipal and other applicable authorities, now in force or which may
hereafter be in force.
17.3 Landlord's Compliance with Laws. Landlord shall, at Landlord's
sole cost and expense, comply with all the requirements of all federal, state,
county, municipal and other applicable authorities, now in force or which may
hereafter be in force.
18. DESTRUCTION.
18.1 Notice of Loss. Tenant shall give immediate notice to Landlord in
the event of fire or other accidents or casualties within the Leased Premises
or in or around the Building, and such other notice as prescribed by the fire
and extended coverage insurance policy required herein to be carried thereon,
and further, Tenant shall give immediate notice to Landlord of any defect in
any of the fixtures or equipment located within the Leased Premises or in or
around the building.
18.2 Premises Useable. In the event the Leased Premises shall be
damaged by fire or other casualty, but shall not be rendered wholly or
partially unusable, regardless of the time remaining in the Term of this Lease,
Landlord may elect either (i) to cause such damage to be repaired, and the
Fixed Minimum Rent shall not be reduced or abated unless the repairs are
delayed beyond ninety (90) days after commencement of such repairs, and
thereafter, only if Landlord is not diligently pursuing such repairs, and then
only to the extent as may be equitable based upon the amount of damage, or (ii)
to give Tenant written notice within sixty (60) days following the date of such
occurrence of its intention to terminate this Lease. Should Landlord decide to
make repairs, the Landlord agrees to commence repairs promptly after the damage
occurs.
18.3 Premises Unusable. If the Leased Premises shall be rendered
partially or wholly unusable, Landlord may elect either (a) to cause such
damage to be repaired and the Fixed Minimum Rent shall be reduced in proportion
to Tenant's loss of effective use of the Leased Premises during such repair, or
(b) to give Tenant written notice within sixty (60) days following the date of
such occurrence of its intention to terminate this Lease.
<PAGE> 16
18.4 Building Damaged. In the event all or part of the Building, other
than the Leased Premises, shall be damaged or destroyed by fire or other
casualty, and regardless of the time remaining in the original and any extended
Term of this Lease, Landlord at its sole discretion may elect either (a) to
cause such damage to be repaired or (b) to terminate this Lease by giving
Tenant written notice within sixty (60) days following the date of such
occurrence of its intention to terminate this Lease. Neither Fixed Minimum Rent
nor any other sums due hereunder shall be abated or reduced.
18.5 Scope of Repair. In the event Landlord elects or shall be
obligated to repair or restore any damage or destruction as aforesaid, the
scope of the work shall be limited to the shell of the Building and Lease
Premises. Landlord shall not be required to make repairs or replacements of any
panels. decoration, trade fixtures, railings, floor covering, partitions or
other parts of the Interior of the Leased Premises or any other property
installed or placed in the Leased Premises.
18.6 Commencement of Repairs. Anything to the contrary herein
notwithstanding, Landlord shall not be required to commence repairs and/or
restoration prior to the expiration of sixty (60) days following the occurrence
or the receipt by Landlord of the insurance proceeds covering said damage,
whichever event shall first occur, provided, however, that if said repairs
and/or restoration are not commenced at the end of such sixty (60) day period,
unless commencement is prevented by an act beyond Landlord's control, Tenant
may give Landlord thirty (30) days prior written notice of intent to terminate.
If Landlord shall within said thirty (30) day period commence such repairs
and/or restoration, the notice of intent to terminate shall cease to be
operative and shall become without force and effect.
19. CONDEMNATION.
19.1 Total Taking. If all of the Leased Premises should be taken for
any public or quasi public use under any governmental law, ordinance or
regulation or by right of eminent domain or by private purchase in lieu
thereof, then this Lease shall terminate and the Rent shall be abated during
the unexpired portion of the Term, effective on the date physical possession is
taken by the condemning authority.
19.2 Partial Taking. If any part (but not all) of the Building, Common
Areas or the Leased Premises should be so taken, Landlord may terminate this
Lease if Landlord, in its sole discretion, so elects. Any election to terminate
this Lease in accordance with this provision shall be evidenced by written
notice of termination to Tenant within thirty (30) days after the date physical
possession is taken by the condemning authority. If this Lease is not so
terminated, the Fixed Minimum Rent payable hereunder during the unexpired
portion of the term shall be reduced in proportion to the area of the Leased
Premises taken, effective on the date physical possession is taken by the
condemning authority.
19.3 Award. All compensation awarded for any taking (or the proceeds
of private sale in lieu thereof) of the Building, the Leased Premises or the
Common Areas shall be the property of Landlord and Tenant hereby assigns its
interests in any such award to Landlord
20. QUIET ENJOYMENT. So long as Tenant shall pay all Rent and other payments
due hereunder and shall observe and perform all of the covenants on Tenant's
part to be observed and performed hereunder, and Tenant is not in default
hereunder, Tenant shall peaceably and
<PAGE> 17
quietly hold and enjoy the Leased Premises (including easement rights) for the
entire Term hereof without interruption by Landlord or person or persons
lawfully or equitably claiming by, through or under Landlord, subject,
nevertheless, to all of the terms and provisions of this Lease and to the
reservations, encumbrances and limitations affecting the title to the premises
upon which the Building is situated.
21. DEFAULT AND REMEDIES.
21.1 Default. The following events shall be deemed to be the events of
default by Tenant under this Lease:
(1) Tenant shall fail to pay any installment of the Fixed Minimum
Rent or any Additional Rent hereunder within five (5) working days of due date
when due.
(2) Tenant shall fail to comply with any term, provision or
covenant of this lease, other than the payment of any sums due Landlord,
including but not limited to, the Fixed Minimum Rent or any Additional Rent,
shall not cure such failure within thirty (30) days after written notice
thereof of Tenant (or such shorter notice period as may be provided elsewhere
in this Lease for specific events of default).
(3) Tenant or any guarantor of Tenants' obligations hereunder
shall become insolvent in any chapter of the United States Bankruptcy Code, or
shall make a transfer in fraud of creditors, or shall make an assignment for
the benefit of creditors.
(4) Tenant or any guarantor shall file a petition under any
section or chapter of the United States Bankruptcy Code, or under any similar
law or statute of the United States or any state thereof; or Tenant shall be
adjudged bankrupt or insolvent as defined in any chapter of the United States
Bankruptcy Code in proceedings filed against Tenant or any guarantor of
Tenant's obligations under this Lease.
(5) A receiver or trustee shall be appointed for the Leased
Premises or for all or substantially all of the assets of Tenant or any
guarantor and such receiver or trustee shall not be discharged within thirty
(30) days following such appointment.
(6) Tenant shall desert or vacate or shall commence to desert or
vacate the Leased Premises or any substantial portion of the Leased Premises,
or shall discontinue operations therein, or shall remove or attempt to remove,
without the prior written consent of the Landlord, all or a substantial portion
of Tenant's equipment, fixtures, furniture or other personal property.
(7) If Tenant or any guarantor, or any general partner of Tenant
or any guarantor, is an entity of any type, the sale, transfer, change or
hypothecation of fifty percent (50%) or greater of the ownership interest of
Tenant or any guarantor or any general partner.
(8) The discovery by Landlord that any financial statement given
by Tenant or any of its assignees, subtenants or successors interest, or any
guarantor of Tenant's obligations hereunder to Landlord, was materially false.
21.2 Remedies.
(1) Upon the occurrence of any event of default hereunder, and
notwithstanding the fact that the termination or cancellation of this Lease by
Landlord may substantially interfere with the ability of Tenant to conduct a
non-liquidation proceeding under any chapter of the United States Bankruptcy
Code, Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever:
<PAGE> 18
(i) Terminate this Lease, in which event Tenant shall
immediately surrender the Leased Premises to Landlord, and if Tenant fails to
do so, Landlord may, without prejudice to any other remedy which he may have
for possession or arrearages in Rent, enter upon and take possession of the
Leased Premises and expel or remove Tenant and any other person who may be
occupying said Leased Premises or any part thereof, without being liable for
prosecution or any claim for damages therefor; and/or
(ii) Enter upon and take possession of the Leased Premises
and expel or remove Tenant and any other person who may be occupying said
Premises or any part thereof, without being liable for prosecution or any claim
for damages therefor, and if Landlord so elects, relet the Leased Premises on
such terms as Landlord may deem advisable and receive rental therefor.
(2) Pursuit of any of the foregoing remedies shall not preclude
pursuit of any other remedies herein provided or provided by law, nor shall
pursuit of any other such remedy constitute a forfeiture or waiver of any Rent
or other sums due to Landlord hereunder or of any damages accruing to the
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default. In determining the amount of
loss or damage which Landlord may suffer by reason of termination of this Lease
or the deficiency arising by reason of any reletting by Landlord as above
provided, allowance shall be made for the expense of repossession and any
repairs or remodeling undertaken by Landlord following repossession.
(3) Exercise by Landlord of any one or more remedies hereunder
granted or otherwise available shall not be deemed to be an acceptance of
surrender of the Premises by Tenant, whether by agreement or by operation of
law it being understood that such surrender can be effected only by the written
agreement of Landlord and Tenant. No removal or other exercise of dominion by
Landlord over the property of Tenant or others at the Leased Premises shall be
deemed unauthorized or constitute a conversion. Tenant hereby consenting, after
any event of default, to the aforesaid exercise of dominion over Tenant's
property within the Building. All claims for damages by reason of such reentry
and/or repossession and/or alteration of locks or other security devices are
hereby waived, as are all claims for damages by reason of any distress warrant,
forcible detainer proceedings, sequestration proceedings or other legal
process. Tenant agrees that any reentry by Landlord may be pursuant to judgment
obtained in forcible detainer proceedings or other legal proceedings, as
Landlord may elect and Landlord shall not be liable in trespass or otherwise
period (after deducting expenses incurred by Landlord as provided herein). In
no event shall Tenant be entitled to any excess of any rental obtained by
reletting over and above the Rent herein reserved. Actions to collect amounts
due by Tenant as provided in this Paragraph may be brought from time to time,
on one or more occasions, without the necessity of Landlord's waiting until
expiration of the Lease Term.
<PAGE> 19
(4) In the event Landlord elects to terminate this Lease by reason
of event or default, then notwithstanding such termination, Tenant shall be
liable for and shall pay to Landlord, at Houston, Texas, the sum of all Rent,
Addition Rent and other indebtedness accrued to the date of such termination,
plus, as damages, an amount equal to the present value of the Rent and any and
all other sums reserved hereunder for the remaining unexpired portion of the
Lease Term (had the Lease not been so terminated by Landlord)I, less the then
present value of the then fair rental value of the Leased Premises.
(5) In the event Landlord elects to repossess the Leased Premises
without terminating the Lease, then Tenant shall be liable for and shall pay to
Landlord at Houston, Texas, all Rent and other indebtedness accrued to date of
such repossession, plus all Rent and any ant all other sums required to be paid
by Tenant to Landlord during the remainder of the Lease Term until the date of
expiration of the Term, diminished by any net sums thereafter received by
Landlord through reletting the Premises during Period (after deducting expenses
incurred by Landlord as provided herein). In no event shall Tenant be entitled
to any excess of any rental obtained by reletting over and above the Rent
herein reserved. Actions to collect amounts due by Tenant as provided in the
Paragraph may be brought from time to time, on one or more occasions, without
necessity of Landlord's waiting until expiration of the Lease Term.
(6) In the event of termination or repossession of the Leased
Premises for an event of default, Landlord shall have an obligation to attempt
to relet the Leased Premises, or any portion thereof, and to collect after
reletting; and in the event of reletting Landlord may relet the whole or any
portion of the Leased Premises for any period, to any tenant, and for any use
and purpose. Should Landlord choose to relet the Leased Premises, or any
portion thereof, for the remainder of the Term provided for herein, and if the
rental received through reletting does not at least equal the Rent provided for
herein, Tenant shall pay and satisfy the deficiency between the amount of the
Rent so provided for and that received through reletting, including, but not
limited to, the cost of renovating, altering, and decorating for a new
occupant. Further, Tenant shall not in any event ever be entitled to any excess
rental and other sums provided for herein, and the same shall belong solely to
Landlord. Nothing herein shall be construed as in any way denying Landlord the
right, in the event of abandonment of said Premises or other breach of this
Lease by Tenant, to treat the same as an entire breach and at Landlord's option
to terminate this Lease and/or immediately seek recovery for the entire breach
of this Lease and any and all damages which Landlord suffers thereby.
(7) If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligation to do so and without thereby waiving such default, may make such
payment and/or remedy such other default for the account of Tenant (and enter
the Leased Premises for such purpose), and thereupon Tenant shall be obligated
and hereby agrees, to pay Landlord, upon demand, all costs, expenses and
disbursements (including reasonable attorneys' fees) incurred by Landlord in
taking such remedial action.
(8) In the event of the breach or the attempted or threatened
breach of any covenant or provision contained in this Lease by Tenant, Landlord
shall have, in addition to all other remedies provided it hereunder or by law
or equity, the right to obtain an injunction prohibiting such breach or
attempted breach without the necessity for proof of inadequacy of legal remedy,
irreparable harm or probable right of recovery.
<PAGE> 20
(9) In the event of any default by Landlord. Tenant's exclusive
remedy shall be an action for damages (Tenant hereby waiving the benefit of any
laws granting it a lien upon the property of Landlord and/or upon rental due
Landlord), but prior to any such action Tenant will give Landlord written
notice specifying such default with particularity, and Landlord shall thereupon
have thirty (30) days in which to cure any such default. Unless and until
Landlord fails to so cure any default after such notice, Tenant shall not have
any remedy or cause of action by reason thereof. All obligations of Landlord
hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of its
possession of the Building and not thereafter.
21.3 Waiver of Notices. Notwithstanding anything to the contrary
contained herein, if Tenant has received two (2) notices of default hereunder
during the Term hereof, then all future notices of default which would
otherwise be required hereunder are expressly waived by Tenant, and it is
agreed that Landlord may immediately exercise any of its remedies hereunder
without any notice whatsoever to Tenant.
21.4 Quarterly Payments. Notwithstanding anything to the contrary
contained herein, if Tenant has committed two or more events of default
hereunder in any one Lease Year, and Landlord has elected to allow Tenant to
subsequently cure its default and remain in possession hereunder, Landlord
shall nonetheless have the option to require Tenant to pay all Fixed Minimum
Rent in quarter-annual installment, in advance of each such quarterly period,
such quarterly periods to be designated by Landlord. Such option shall be in
addition to and cumulative of any and all other rights and remedies of Landlord
hereunder.
21.5 Expenses/Attorneys' Fees. In the case of an event of default
hereunder, Tenant shall also be liable for and shall pay to Landlord, at
Pasadena, Texas, in addition to any sum provided to be paid above: broker's
fees incurred by Landlord in connection with reletting the whole or any part of
the Premises; the costs of removing and storing Tenant's or other occupant's
property; the costs of repairing, altering remodeling or otherwise putting the
Premises into condition acceptable to a new tenant or tenants; and all
reasonable expenses incurred by Landlord in enforcing Landlord's rights or
remedies, including reasonable attorney fees and court costs.
21.6 Limitation on Landlord's Personal Liability. Tenant specifically
agrees to look solely to Landlord's interest in the Building for the recovery
for any judgement from Landlord, it being agreed that Landlord, its agents,
employees, shareholders, officers, directors, and partners, shall never be
personally liable hereunder for anything whatsoever.
22. ACCESS. Landlord or its agents shall have the right to enter the Leased
Premises at all reasonable times, and whenever necessary because of
emergencies, to inspect the same, and to make such repairs, replacements,
alterations, improvements or additions as Landlord may deem necessary or
desirable, including alterations, repairs, improvements or additions to the
space adjacent to Leased Premises and/or to the Building, without the same
constituting an eviction of Tenant in whole or in part, and the Rent reserved
shall in no way abate while said repairs, replacements, alterations,
improvements or additions are being made, by reason of loss
<PAGE> 21
or interruption of Tenant's business or otherwise. During the ninety (90) days
prior to the expiration of the original or any extended Term of this Lease,
Tenant shall permit the Landlord to exhibit the Leased Premises to prospective
tenants and to place notices upon the Leased Premises advertising "For Lease".
Landlord may, at any time, exhibit the Leased Premises to prospective
purchasers, and place notices, upon the Building or the Leased Premises
advertising "For Sale."
23. SURRENDER AND REMOVAL OF PROPERTY.
23.1 Surrender of Premises. Promptly upon the expiration or earlier
termination of the Term of this Lease, Tenant shall surrender the Leased
Premises in the same condition as they were in upon delivery of possession
thereto under this Lease, reasonable wear and tear and damage by unavoidable
casualty or Act of God only excepted. Further, Tenant shall surrender all keys
to the Leased Premises at the place then fixed for the payments of Fixed
Minimum Rent due hereunder. All items of work and improvements comprising the
Interior of the Leased Premises, shall constitute a part of the fee estate
remainder subject to this Lease, notwithstanding that Tenant may construct or
cause to be constructed all or any part of said improvements or may contribute
to the cost thereof, and notwithstanding that Tenant may or might be required
to maintain, repair and/or replace same or some part thereof pursuant to some
other provisions in this Lease. Subject to the provisions of this Section,
Tenant shall remove all of Tenant's trade fixtures, operation equipment and
other personal property before surrendering the Leased Premises as aforesaid
and shall repair at Tenant's expense any damage to the Leased Premises caused
thereby.
23.2 Failure to Remove Property. If Tenant shall neglect to remove
Tenant's personally as herein provided, Landlord shall have the right (i) to
remove said property and cause it to be stored in a public warehouse or
elsewhere, at the cost of and for the account of Tenant, or (ii) in the
alternative, if said property shall not be removed within thirty (30) days
after said termination, to dispose of said property in a manner deemed suitable
to Landlord, all without service of notice or resort to legal process and
without becoming liable for any loss damage which may be occasioned thereby,
and any proceeds of such disposition shall be retained by Landlord without
liability to Tenant, Tenant hereby waiving any interest in such proceeds.
23.3 Survival of Covenants. Tenant's obligations to observe or perform
the covenants contained in this Article shall expressly survive the expiration
or earlier termination of the original or any extended Term of this Lease.
24. HOLDING OVER. Any holding over without the consent of Landlord after the
expiration or earlier termination of the Term of this Lease shall be construed
to be and shall constitute a tenancy at the will of Landlord, and Tenant agrees
to pay as rents and liquidated damages for such holding over a sum equivalent
to the Rent herein specified and reserved plus One Hundred Percent (100%) of
the Fixed Minimum Rent (prorated on a monthly basis) and shall otherwise be on
the same terms and conditions herein, as far as applicable.
25. CERTIFICATES/MEMORANDUM.
25.1 Certifications. Tenant agrees at any time and from time to time
during the Term of this Lease, upon demand, to execute and acknowledge and
deliver unto Landlord a statement or statements, in writing, certifying (if
such be true) that this Lease is unmodified and
<PAGE> 22
in good standing (or if modified, then in good standing as modified, stating
the modification), and the date or dates, if any, to which Fixed Minimum Rent,
Additional Rent or other charges hereunder, if any, have been paid in advance,
it being the intention of the parties hereto that any such statement delivered
by Tenant pursuant to the provisions of this Section may be relied upon by any
prospective purchaser, mortgagee or assignee of any mortgagee of the Leased
Premises, the Building or any part thereof.
25.2 Memorandum of Lease. Promptly after the Commencement Date,
Landlord and Tenant, if requested by Landlord, shall execute and acknowledge
and deliver a memorandum or short form of this Lease, in recordable form,
acknowledging Tenant's acceptance of the Leased Premises for all purposes
herein provided and specifying the Commencement Date and the termination date
of this Lease in accordance with the provisions hereof, and said memorandum may
be recorded by Landlord only, in the Office of the County Clerk of Harris
County, Texas, but this Lease Agreement it self shall not be recorded. In the
event Tenant records a memorandum of this Lease, or this Lease, Landlord may
terminate this Lease upon five (5) days written notice provisions of Section
1.1 hereof. Checks or drafts tendered will constitute payment only when duly
paid by the drawers bank promptly upon presentment, properly endorsed, for
payment.
26. NOTICES. All notices required or permitted to be given hereunder by either
party hereto to the other party shall be deemed sufficiently given or made
three (3) business days after the date when mailed by United States Registered
or Certified Mail, adequate postage paid, to their respective addresses as
specified in Section 1.1 hereof. Each party hereto may notify the other party
of any change in its mailing address by notice in the manner herein above
provided, which new address shall thereafter be deemed the proper address for
notice hereunder.
27. TENANT'S PAYMENTS
27.1 Payments. Tender of Rent and/or any other payment due hereunder
shall be considered to have been made on the date such payments received by
Landlord and not on the date mailed by Tenant. For purposes hereof, the office
of Landlord is the office presently or henceforth designated pursuant to the
provisions of Section 1.1 hereof. Checks or drafts tendered will constitute
payment only when duly paid by the drawers bank promptly upon presentment,
properly endorsed, for payment.
27.2 Interest. All sums due and owing by Tenant to Landlord under this
Lease shall bear interest at the maximum rate permitted by the laws of the
State of Texas from the date due until paid.
28. LANDLORD'S LIEN. To secure the payment of all Fixed Minimum Rent, and
Additional Rent reserved herein, and all other payments due Landlord hereunder,
or to become due hereunder and the faithful performance of all covenants,
agreements and stipulations herein contained to be performed by Tenant, Tenant
hereby grants to Landlord an express first and prior contract lien and security
interest on all property (including fixtures, equipment, inventory, goods,
wares, furniture, office equipment, supplies and merchandise) which may be
placed in the Leased Premises, and also upon all proceeds of any insurance
which may accrue to Tenant by reason of destruction of or damage to any such
property. All exemption laws are hereby waived by Tenant in favor of said lien
and security interest. This lien and security interest is given in
<PAGE> 23
addition to the Landlord's statutory lien and shall be cumulative thereof.
Tenant shall not remove any property from the Leased Premises until all of
Tenant's obligations under this Lease are satisfied. This lien may be
foreclosed with or without court proceedings by public or private sale,
provided Landlord gives Tenant at least ten (10) days notice of the time, place
and terms of said sale, and Landlord shall have the right to become the
purchaser of such property, upon being the highest bidder therefor at said
sale. The notice referred to in the preceding sentence may (but needs not) be
given by Landlord to Tenant contemporaneously with any other notice from
Landlord to Tenant which may be given in accordance herewith. At the time of
the execution of this Lease, and if requested thereafter by Landlord, Tenant
shall execute and deliver to Landlord financing statement instruments in form
deemed sufficient by Landlord to reflect the security interest herein granted
and any proper amendment of, assignment of, modification in or extension of the
aforesaid contract lien and security interest hereby granted. Tenant hereby
grants to Landlord a power of attorney to sign, in place and stead of Tenant,
any and all such instruments. Said power of attorney is irrevocable and coupled
with an interest. Landlord shall, in addition to all of its rights hereunder,
have all of the rights and remedies of a secured party under the Texas Business
and Commerce Code.
29. RULES AND REGULATIONS. Such reasonable rules and regulations applying to
all tenants in the Building as may be adopted by Landlord for the safety, care,
cleanliness, preservation of good order or operation of the Leased Premises,
the Building, the Property and the Common Areas, are hereby made a part hereof
and Tenant agrees to comply with all such rules and regulations, immediately
upon receipt of a copy of same. Landlord shall have the right at all times to
change any of the rules and regulations or to amend them in any manner deemed
reasonable by Landlord. All changes and amendments will be sent by Landlord.
All changes and amendments will be sent by Landlord to Tenant in writing and
shall be thereafter carried out and observed by Tenant. (See Exhibit "B"
attached for current rules and regulations).
30. RELOCATION. In the event Landlord determines to utilize the Leased Premises
for other purposes during the term of this Lease, Tenant agrees to relocate to
other space in the Building designated by Landlord, provided such other space
is of equal or larger size than the Leased Premises. Landlord shall pay all out
pocket expenses of any such relocation, including the expenses of moving and
reconstruction of Tenant improvements, whether furnished by Landlord or Tenant.
In the event of such relocation, this Lease shall continue in full force and
effect without any change in the terms or other conditions, but with the new
location substituted for the old location set forth in this Lease.
31. BROKERS. None.
32. MISCELLANEOUS
32.1 Successors and Assigns. All rights and liabilities herein granted
to or imposed upon the respective parties hereto shall extend to and jointly
and severally bind the several respective heirs, legal representatives,
successors and assigns of the respective parties hereto, an if there shall be
more than one Landlord or Tenant, all shall be bound jointly and severally the
terms, conditions and agreements herein contained. No rights, however, shall
inure to the benefit of any assignee of Tenant unless the assignment to such
assignee has been approved by Landlord in writing as provided herein.
<PAGE> 24
32.2 Waivers. One or more waivers of any breach or violation of any
agreement, covenant or condition herein contained shall not be deemed to be a
waiver of any subsequent violation or breach of the same or any other
agreement, covenantor condition herein contained, and the consent or approval
by either party of any act by the other, which act requires the approval or
consent of the other party, shall not be deemed to waive or render unnecessary
the future requirements of consent or approval of the same or similar act; and
the subsequent acceptance of Rent or other payment due hereunder shall not be
deemed to be a waiver of any preceding breach by Tenant, other than failure of
Tenant to pay the particular Rent so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of said Rent.
No express covenant, term or condition of this Lease shall be deemed to have
been waived by either party, unless such waiver be in writing.
32.3 Accord and Satisfaction. No payment made by Tenant or received by
Landlord in an amount less than the amount herein stipulated shall be deemed to
be other than on account of the earliest received payment, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as Rent be deemed an accord and satisfaction. and Landlord may accept
any such check or payment without prejudice to Landlord's right to recover the
balance of such amount or to pursue any other remedy in this Lease or by law
provided Landlord.
32.4 Entire Agreement. This Lease, together with the exhibit or
exhibits aforesaid and the rider or riders, if any, attached hereto and forming
a part hereof,, contains and sets forth the entire agreement and understandings
between the parties hereto concerning the Leased Premises, and there are no
covenants, promises, agreements, conditions or understandings, either oral or
written, between said parties other than as herein expressly set forth. Except
as herein otherwise provided, no subsequent alteration, amendment, change or
addition to this Lease shall be binding upon either party hereto, unless
reduced to writing and signed by both parties.
32.5 Partnership. Landlord does not become a partner of Tenant in the
conduct of its business or otherwise, or a joint venturer or a member of a
joint enterprise with Tenant by virtue of this Lease.
32.6 Force Majeure. In the event Landlord shall be delayed, hindered
or prevented from the performance of any act required hereunder by reason of
strikes, fire, explosions, lock-outs, failure of power governmental
restrictions or regulations, unavailability of suitable financing, materials
and/or labor, riots insurrection, war or on account of any other condition or
occurrence not the fault of Landlord, then the performance of any such act
shall be extended for a period equivalent to the period of such delay.
32.7 Captions and Numbers. The captions, section numbers and article
numbers appearing in this Lease are inserted only as a matter of convenience
and in no wise define, limit, construe or describe the scope or intent of such
sections or articles, nor in any wise affect this Lease.
32.8 Tenant, Defined Use of Pronouns. The word "Tenant" shall be
deemed and taken to mean each and every person or party mentioned as a Tenant
herein, be the same one or more and if there shall be more than one Tenant. Any
notice required or permitted by the terms of this of Lease may be given by or
to any one thereof and shall have the same force and effect as
<PAGE> 25
if given by or to all thereof. The use of the neuter singular pronoun to refer
to Landlord or Tenant shall be deemed a proper reference even though Landlord
or Tenant may be an individual, a partnership, a corporation, a group of two or
more individuals or corporations. The necessary grammatical changes required to
make the provisions of this Lease apply in the plural sense where there is more
than one Landlord or one Tenant, and to either corporations, associations,
partnerships or individuals, males or females, shall in all instances be
assumed as though in each case fully expressed.
32.9 Severability. If any provisions covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, there remainder of this Lease, or the
application of such provision, covenant or condition to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each provision, covenant or condition of this
Lease shall be valid and shall be enforced to the fullest extent permitted by
Law.
32.10 Survival. Landlord and Tenant expressly agree that all
provisions of this Lease which contemplate performance after the expiration or
earlier termination hereof shall survive such expiration or earlier termination
of this Lease.
32.11 Authority. Tenant is fully authorized and empowered to enter
into this Lease. Further, if Tenant is not an individual, then the person
signing this Lease on Behalf of Tenant warrants and covenant that (s)he has the
full authority and power to execute this Lease on behalf of Tenant and to bind
Tenant hereto, and that all requisite actions and formalities have been taken
to authorize Tenant to enter into this Lease and to authorize the person
signing on Tenant's behalf to do so.
32.12 Usage and Environmental. Tenant acknowledges and agrees that
Landlord acquired title to the Leased Premises on or about September 1, 1998
(the "Acquisition Date"). Prior to such Acquisition Date, Landlord did not own
or control the Leased Premises or the Building; and had no involvement, control
or supervision of the construction of same or the maintenance, repair, or
remodeling same. Landlord represents that it has not received any actual notice
of, an based on Landlords actual knowledge, Landlord is not aware of the
existence of any condition which would indicate that the Building and Leased
Premises (exclusive of fixtures installed by Tenant) conform to all applicable
building codes. Landlord is not aware of the existence of any condition which
would indicate that materials used in construction of the Building or Leased
Premises (exclusive of trade fixtures installed by Tenant) contain friable
asbestos or poly chlorinated biphenyl. In either event, Tenant consents to the
condition of the property and hereby releases Landlord from any damages from
such condition (s). Landlord represents and warrants that from and after the
Acquisition Date, none of the materials used in any and all improvements,
construction. repairs or maintenance to the Building and Leased Premises
(exclusive of fixtures installed by Tenant) contain friable asbestos or poly
chlorinated biphenyl.
<PAGE> 26
EXECUTED as of the date first set forth above in multiple counterparts, each of
which shall be deemed to be an original.
Landlord:
Dynacq International, Inc.
By: /s/ Philip Chan
- -----------------------------------
Name: Philip Chan
Title: Vice President
Tenants:
Vista Healthcare, Inc.
By: Glenn Rodriguez
- -----------------------------------
Name: Glenn Rodriguez
Title: President
<PAGE> 27
EXHIBIT "C"
RULES AND REGULATIONS
1. All tenants will refer all contractor's representatives and installation
technicians who are to perform any work within the Building, grounds, and
Parking Area to Lessor for Lessor's supervision, approval and control before
the performance of any such work. This provision shall apply to all work
performed in the Building, grounds and Parking Area including, but not limited
to, installations of telephones, telegraph equipment, electrical devices and
attachments, and any and all installations of every nature effecting floors,
walls, woodwork, trim, window, ceilings, equipment and any other physical
portion of the Building, grounds, and Parking Area. Lessee shall not mark,
paint, drill into, or in any way deface any part of the Building or the Leased
Premises without Lessor's written consent. No boring, cutting or stringing of
wires shall be permitted, except with the prior written consent of the Lessor,
and as the Lessor may direct.
2. The work of the janitorial or cleaning personnel shall not be hindered by
Lessee after 5:30 p.m., and such work may be done at any time when the Leased
Premises are vacant. The windows, doors and fixtures in the Leased Premises and
Building may be cleaned at any time. Lessee shall provide adequate waste and
rubbish receptacles, cabinets, books cases, map cases, etc., necessary to
prevent unreasonable hardship to Lessor in discharging its cleaning
obligations.
3. Movement in or out of the Building or through the Building entrances or
lobbies of furniture or office equipment, or dispatch or receipt by Lessee of
any heavy equipment, bulky material, merchandise or other item which requires
use of elevators or stairways, shall be restricted to such hours as Lessor
shall designate. The method of such movement, routing of such movement, safety
precautions associated with such movement and the prohibition of Lessee
bringing any dangerous items into the Building shall be subject to the Lessor's
discretion and control. Any hand trucks, carryalls, or similar appliances used
for the delivery or receipt of merchandise or equipment shall be equipped with
rubber tires, side guards and such other safeguards as the Lessor shall
require. Although Lessor or its personnel may participate in or assist in the
supervision of such movement, Lessee assumes final responsibility for all risks
as to damage to property and injury to persons that may result from such
participation or assistance and Lessee shall indemnify and hold harmless Lessor
and Lessor's employees and agents, and reimburse Lessor and Lessor's employees
and agents with respect to any and all claims, demands, causes of action and
liability arising as a result of any assistance or supervision or exercise of
control over Lessee's movement of items in and out of the Building.
4. No sign, advertisement or notice shall be displayed, painted or affixed by
Lessee or Lessee's employees, agents or contractors in or on any part of the
outside or inside of the Building or Leased Premises without prior written
consent of Lessor, and then only of such color, size, character, style and
material and in such places as shall be approved and designated by Lessor.
Signs on doors and entrances to the Leased Premises and outside of the Leased
Premises within the Building, grounds or Parking Area shall be placed thereon
by a contractor approved by Lessor.
5. Lessee shall not place, install or operate on the Leased Premises or in any
part of the Building any engine, refrigerating, heating or air conditioning
apparatus, stove or machinery, or conduct mechanical operations or place or use
in or about the Leased Premises or the Building any
<PAGE> 28
explosives, gasoline, kerosene, oil, acids, caustics or any other inflammable,
explosive, hazardous or odorous material without the prior written consent of
Lessor. No portion of the Leased Premises shall at any time be used for
cooking, sleeping or lodging quarters.
6. Lessee shall not make or permit any nuisance or improper noises in the
Building or otherwise interfere in any way with other tenants or persons doing
business in the Building or with Lessor's operation of the Building.
7. Lessor will not be responsible for any fixtures, personal property,
equipment, jewelry or money lost in or stolen from the Leased Premises or
public areas of the Building, grounds or Parking Area. Lessor shall not be
responsible for damages to or theft of motor vehicles or other items from any
Parking Areas used in connection with the Building.
8. No maintenance or repair work shall be done on any vehicles in the Parking
Area. No disabled vehicles shall be parked or stored in the Parking Area. All
vehicles in the Parking Area shall be parked within the designated spaces and
not in more than one (1) space or across spaces. At Lessor's option, all
disabled vehicles, recreational vehicles, boats and vehicles improperly parked
in spaces designated for handicapped persons and all other improperly parked
vehicles may be towed or otherwise removed from the Parking Area at the owner's
expense. In the event any vehicle or boat is towed, Lessor will not be liable
or responsible for the loss, damage or theft of any property located in the
vehicle or boat or for any damage to the vehicle or boat.
9. Neither Lessee or Lessee's employees, agents, invitees or licensees shall at
any time leave or discard any rubbish, paper, articles or objects of any kind
whatsoever outside the doors of the Leased Premises or in any other area within
the Building or on the grounds or in the Parking Area. No birds, animals,
bicycles or vehicles shall be brought into or kept in or about the Building.
10. None of the entries, passages, doors, hallways, or stairways in the
Building shall be blocked or obstructed by Lessee. Such areas shall not be used
by Lessee at any time except for ingress or egress to the Leased Premises by
Lessee's, Lessee's employees, agents and invitees.
11. Lessor shall have the right to determine and prescribe the weight and
proper position of any usually heavy equipment, including but not limited to
copying equipment, computer equipment, safes and large files that are to be
placed in the Building. Only those items which in the exclusive judgment of the
Lessor will not do damage to the floors, structure and elevators may be moved
into the Building. Any damage resulting from moving or installing such articles
in the Building or the existence of same in the Building shall be paid for by
Lessee.
12. All Christmas and other decorations in the Building must be flame
retardant.
13. Any request by Lessee to place or remove names from the directory board in
the lobby of the Building shall be furnished to Lessor in writing on Lessee's
letterhead.
14. Any services which Lessee requests Lessor to perform which Lessor is not
required to perform under this Lease shall, if performed by Lessor, be billed
to Lessee at Lessor's cost plus a 15% fee to cover Lessor's overhead costs.
Lessor shall have the right to refuse to perform any such services.
<PAGE> 29
15. If Lessor's maintenance engineer or any of Lessor's other personnel do any
work after normal business hours at the request of Lessee, Lessee shall pay for
the cost of such work.
16. All doors leading from public corridors to the Leased Premises are to be
kept closed when not in use.
17. Canvassing, soliciting or peddling in the Building is prohibited and Lessee
shall cooperate with Lessor to prevent such activities.
18. Lessee shall give Lessor immediate notice in the event that any defects or
dangerous conditions arise or exist in the Leased Premises or in the Building
or if any accidents or emergencies occur in the Leased Premises or Building.
19. Lessee shall not use the Leased Premises or permit the Leased Premises to
be used for photographic, multilith or multigraph reproductions for sale to the
general public. All photographic, multilith or multigraph reproductions in the
Leased Premises shall be produced for Lessee in the ordinary course of Lessee's
business.
20. All requests for services made by Lessee shall be made directly to Lessor
or Lessor's designated agents. Employees of Lessor or Lessor's designated
agents shall not perform any work or do anything outside of their regular
duties unless directed to do so by Lessor or Lessor's designated agents. No
requests will be made by Lessee directly to Lessor or Lessor's employees.
<PAGE> 1
EXHIBIT 10.31
MANAGEMENT SUPPORT AND MARKETING AGREEMENT
This MANAGEMENT SUPPORT AND MARKETING AGREEMENT ("Agreement,") entered
into and effective as of the 1st day of October, 1998 (notwithstanding the date
of actual execution) by and between DOCTORS PRACTICE MANAGEMENT, INC., A Texas
business corporation ("DPM"), and ULTRAMED, L.C., a Texas limited liability
company ("ULTRAMED")
WITNESSETH:
WHEREAS, ULTRAMED is a duly and validly existing Texas limited
liability company that has been organized for the purpose of providing
management support and marketing services for medical and related healthcare
providers ("Healthcare Services") to the general public in the Greater Houston,
Texas area;
WHEREAS, DPM is experienced in providing management and related items
and services to physicians, professional associations, and other professional
healthcare entities and individuals and has been engaged as manager by VISTA
HEALTHCARE, INC.,("VISTA") a Texas business corporation organized for the
purpose of operating an outpatient surgical and diagnostic clinic and providing
medical and related healthcare services ("Healthcare Services") to the general
public in the Greater Houston, Texas area; pursuant to a Full Services
Management Agreement of even date herewith;
WHEREAS, DPM desires and intends to obtain such management,
administrative, and business services necessary and appropriate for Vista's
business operations and the provision of Healthcare Services by Vista, and
ULTRAMED is capable of assisting DPM in providing, all such management,
administrative, and business services; and
WHEREAS, DPM and ULTRAMED mutually desire an arrangement that:
(1) ensures consistency of service, quality of care, and safety of
Vista's patients;
(2) facilitates effective utilization of Healthcare services;
(3) ensures consistent and Customary patterns for the provision of
Healthcare Services;
(4) facilitate the management and administration of the day-to-day
business operations of Vista; and
(5) facilitate the establishment and maintenance of a public image of
excellence and high quality for Vista,
all for the benefit of those persons seeking Healthcare Services as
patients of the Vista.
<PAGE> 2
NOW, THEREFORE, for and in consideration of the mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and confessed, the parties agree as
follows:
I. Covenants of ULTRAMED:
1.1 ULTRAMED covenants that it will provide assistance to DPM in
support of the management agreement between DPM and VISTA, including:
(a) Subject to the approval of DPM, the day-to-day operation of the
Ambulatory Surgical Center (ASC), including but not limited to the following:
(i) scheduling of procedures;
(ii) approval of procedures to be performed;
(iii) approval of physicians to perform the procedures;
(iv) supervision of the nursing staff and other support
staff personnel;
(v) physician staffing; and
(vi) nurse staffing.
(b) It is expressly agreed that all billing, collection, and
accounting responsibilities shall remain the responsibility of DPM.
1.2 ULTRAMED agrees that it has the primary responsibility for the
marketing of the facilities, including but not limited to the following:
(a) recruitment of physicians as tenants in the professional building
(b) recruitment of physicians to use and otherwise employ the services
of the ASC
(c) general efforts to improve the reputation and market the benefits
of Vista Health Care, Inc.
1.3 ULTRAMED agrees to spend at least $25,000.00 quarterly,
($100,000.00 annually,) directly on advertising, entertainment, and general
marketing of Vista Health Care Inc , the ASC, and the associated services of
the Vista Medical Center at 1401 and 1401A Vista, Pasadena, Texas. Further,
ULTRAMED will provide to DPM a written report and verification of these
expenditures for each quarter, with said report being due not later than thirty
(30) days after the end of each respective quarter.
1.4 ULTRAMED, as an express condition of this contract, agrees not to
change its managers, Dr. Boris Payan and Dr. Jose R. Reyes, during the term of
this agreement. A breach of this condition by ULTRAMED shall constitute an
event of default and a material breach of the contract, entitling DPM to
terminate this agreement immediately.
1.5 Supplies: ULTRAMED shall obtain and provide all necessary office
supplies, and shall ensure that it is at all times adequately stocked with such
supplies as are reasonably necessary and appropriate for its day to day
operation.
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<PAGE> 3
1.6 Management and Clerical Personnel. ULTRAMED shall employ or
otherwise retain, and shall be responsible for selecting, training,
supervising, scheduling, and terminating, all management and clerical personnel
as ULTRAMED deems reasonably necessary and appropriate in the performance of
its duties and obligations under this Agreement. ULTRAMED shall have sole
responsibility for determining the salaries, wages, and fringe benefits of all
such management and clerical personnel, for paying such salaries and wages, and
for providing such fringe benefits, and for withholding as required by law, any
sums for income tax, unemployment insurance, social security, or any other
withholding required by applicable law or governmental requirement.
1.7 Insurance: Throughout the Term, ULTRAMED shall, at ULTRAMED's
expense, obtain and maintain with commercial carriers, through captive
insurance companies, through self-insurance, or some combination thereof,
professional, casualty, and comprehensive general liability insurance covering
ULTRAMED, its personnel, and all of its equipment in such amounts, on such
basis, and upon such terms and conditions as DPM deems appropriate.
1.8 Nonphysician Healthcare Personnel: ULTRAMED shall assist DPM in
exercising its duties to employ and be responsible for the salaries, wages,
fringe benefits, and other employment related expenses with regard to all
nonphysician healthcare personnel necessary for the provision of Healthcare
services to patients at the Facility. DPM shall determine the salaries, wages,
and fringe benefits of all such personnel.
1.9 Indemnification by ULTRAMED: ULTRAMED shall indemnify and hold DPM
harmless from and against any and all liability losses, damages, claims, causes
of action, and expenses, including, without limitation, reasonable attorney's
fees and associated costs, associated with or resulting, directly or
indirectly, from any act or omission of ULTRAMED, its employees, agents, or
independent contractors in or about the Facility during the Term. To be
entitled to such indemnification, DPM shall give ULTRAMED prompt written notice
of the assertion by a third party of any claim with respect to which DPM might
bring a claim for indemnification hereunder, and in all events must provide
such written notice to ULTRAMED within the applicable period for defense of
such claim by ULTRAMED. ULTRAMED shall, at its own expense, have the right to
defend and litigate any such third-party claim.
II. Representations and Warranties of DPM. DPM represents and warrants to
ULTRAMED that:
2.1 Organization and Existence. DPM is a Texas corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all requisite legal and corporate power to carry on its business
as now conducted and to enter into and perform this Agreement.
2.2 Compliance with Laws. DPM is in compliance in all material
respects with all applicable foreign, federal, state, municipal and other
political subdivision or governmental agency statutes, ordinances and
regulations, including, without limitation, those imposing taxes, in every
applicable jurisdiction in respect of the ownership of the DPM's properties and
conduct of the DPMs business.
3
<PAGE> 4
2.3 Brokers. DPM in not a party to or in any way obligated under any
contract or other agreement for, and there are no outstanding claims against
DPM for the payment of any broker's or finder's fee in connection with the
origin, negotiation, execution or performance of this Agreement.
2.4 DPM's Authority Relative to this Agreement. The execution,
delivery and performance of this Agreement by DPM has been duly authorized and
approved by the Board of Directors and no further corporate action is necessary
on the part of the DPM to make this Agreement valid and binding upon the DPM in
accordance with its terms. Neither the execution, delivery nor performance of
this Agreement by the DPM will result in a violation or breach of any term or
provision under the Articles of Incorporation or Bylaws of DPM or constitute a
default or breach of, or accelerate the performance required under, any
indenture, mortgage, deed of trust or other contract or agreement to which DPM
is a party or by which it or any of its respective assets are bound, or,
violate any order, writ, injunction or decree of any court, administrative
agency or governmental body.
III. Representations and Warranties of ULTRAMED. ULTRAMED represents and
warrants to and agrees with DPM that:
3.1 Organization and Existence. ULTRAMED is a limited liability
company duly organized pursuant to the laws of Texas and in good standing, and
has all requisite legal power to enter into and perform this Agreement.
3.2 Authority Relative to this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized, and no further action
is necessary on the part of ULTRAMED to make this Agreement valid and binding
upon ULTRAMED in accordance of its terms. Neither the execution, deliver nor
performance of this Agreement by ULTRAMED will result in a violation or breach
of any term or provision or constitute a default or breach of, or accelerate
the performance required under any other contract or agreement to which
ULTRAMED is a party or by which it or its properties are bound, or violate any
order, writ, injunction or decree of any court, administrative agency or
governmental body.
3.3 Brokers. ULTRAMED is not a party to or in any way obligated under
any contract or agreement for, and there are no outstanding claims against
ULTRAMED for the payment of any broker's or finder's fee in connection with the
origin, negotiation, execution, or performance of this agreement.
IV. Trade secrets and non-compete agreement.
4.1 Confidential information. ULTRAMED acknowledge that in the course
of the performance of this Agreement, it has had and will continue to have
access to certain know-how, formulae, processes, data, proprietary information,
supplier and patient records and information and other confidential knowledge
and trade secrets of DPM's and VISTA's business and operations. ULTRAMED
understands that all such information is confidential and has been or will be
conceived or learned by ULTRAMED in confidence, and agrees not to reveal any
such information to any third person for any reason or under any circumstances.
ULTRAMED further
4
<PAGE> 5
agrees that it will at no time use any such information for the purpose of
competing with or assisting others in competing with the business of DPM or
VISTA, or for any purpose which may be harmful or detrimental to the business
or interests of DPM or VISTA. The restrictions in this section shall not apply
and shall not prohibit the use or disclosure of such confidential information
(I) to the extent required by law or court order, or other administrative order
in any litigation, arbitration, or similar proceeding; (ii) to the extent such
information becomes publicly available other than through a breach of this
section; or (iii) to the extent such information would become necessary to
support any claim arising between the parties; or (iv) with the written
agreement of DPM and VISTA. The parties agrees that any remedy at law for
actual or threatened breach of the provisions of this section would be
inadequate and that DPM or VISTA shall be entitled to specific performance
thereof or injunctive relief by temporary or permanent injunction or such other
appropriate judicial remedy, writ or order as may be entered by a court of
competent jurisdiction. Any such remedy shall be in addition to any damages
which DPM or VISTA may be legally entitled to recover as a result of any breach
by the other party of the provisions of this section, and ULTRAMED hereby
waives any requirement for the securing or posting of any bond in connection
with obtaining any such injunctive or other equitable relief.
V. Consideration and Disbursement of Funds
5.1 The consideration for this agreement is the payment by DPM of a
Management Fee of 1/3 (one-third) of the net collections resulting from the
contract between DPM and Vista. Provided, however, such collections shall only
be from accounts receivable created on or after the beginning date of this
Agreement, namely, October 1, 1998.
5.2 The Management Fee is not intended and shall not be interpreted or
applied as permitting ULTRAMED to share in Vista's fees for Healthcare Services
or any other services, but is acknowledged as the parties' negotiated agreement
as to the reasonable fair market value of the items and services furnished by
ULTRAMED TO DPM pursuant to this Agreement, considering the nature of the
services required by DPM and the risks assumed by ULTRAMED.
5.3 Payment of Management Fee: The Management Fee shall be due and
payable on or before the fifteenth (15th) calendar day of each month for
services provided in the immediately preceding month.
VI. Term and Termination
6.1 Initial and Renewal Terms. The term of this Agreement will be for
a One (1) year period commencing as of October 1, 1998, and expiring as of
September 30, 1999, unless and until terminated as provided hereinafter ("the
Term"). DPM is hereby granted and shall, if not at the time in default under
this Agreement, have at its sole discretion, an option to extend the term of
this Agreement for another year under the same terms contained herein. This
option shall be exercised only by DPM's delivering to ULTRAMED before the
termination of the original term written notice of DPM's election to extend the
term of this Agreement as provided herein
5
<PAGE> 6
6.2 Termination
6.2.1 Termination by DPM: DPM may terminate this Agreement upon the
dissolution of Vista.
6.2.2 Termination by ULTRAMED: ULTRAMED may terminate this Agreement
upon the occurrence of the dissolution of DPM, or if DPM fails to pay ULTRAMED
the Fee as provided for in Article V of this Agreement within Ten (10) days of
the date such amounts are due as provided in said Section.
6.2.3 Termination by Agreement: In the event ULTRAMED and DPM shall
mutually agree in writing, this agreement may be terminated on the date
specified in such written agreement.
6.2.4 Damage or Condemnation: In the event the Vista Healthcare
Facility is totally or substantially destroyed by fire, explosion, flood,
windstorm, hail, earthquake, hurricane, tornado, or other casualty or act of
God, or in the event all or a substantial portion of the Facility and the
premises on which it is situated is taken or to be taken by condemnation or
eminent domain proceeding, then either party may by written notice to the other
immediately terminate this Agreement.
6.2.5 Bankruptcy: In the event that either party become insolvent, or
if any petition under federal or state law pertaining to bankruptcy or
insolvency or for a reorganization or arrangement or other relief from
creditors shall be filed by or against either party, or if any assignment,
trust, mortgage, or other transfer shall be made of all or a substantial part
of the property of either party, or if either party shall make or offer a
composition in its debts with its creditors, or if a receiver, trustee, or
similar officer or creditor's committee shall be appointed to take charge of
any property of or to operate or wind up the affairs of either party, then the
other party may, by written notice, as specified herein, immediately terminate
this Agreement.
6.2.6 Default: In the event either party shall give written notice to
the other that such other party has substantially defaulted in the performance
of any material duty or material obligation imposed upon it by this Agreement,
and such default shall not have been cured within thirty (30) days following
the giving of such written notice, the party giving such written notice shall
have the right to immediately terminate this Agreement unless the defaulting
party shall, within said thirty (30) day period, have made a good faith effort
to initiate corrective action and it is contemplated that such corrective
action will be completed within the following thirty (30) day period.
6.3 Effects of Termination: Upon termination of this Agreement, as
hereinabove provided, neither party shall have any further obligations
hereunder except for (i) obligations accruing prior to the date of termination,
and (ii) obligations, promises, or covenants set forth herein that are
expressly made to extend beyond the Term, including, without limitation,
indemnities, payment of accrued management Fees, if any. Notwithstanding
anything to the contrary, herein, upon termination of this Agreement for any
reason, all accrued management Fees, if any, shall become immediately due and
payable without demand or notice.
6
<PAGE> 7
VII. Miscellaneous
7.1 Independent Relationship: It is mutually understood and agreed
that ULTRAMED and DPM, in performing their respective duties and obligations
under this Agreement, are at all times acting and performing as independent
contractors with respect to each other, and nothing in this Agreement is
intended nor shall be construed to create an employer/employee relationship or
a joint venture relationship, or to allow DPM to exercise control or direction
of any nature, kind, or description over the manner or method by which ULTRAMED
performs its duties.
7.2 Representatives
7.2.1 ULTRAMED Representative: Except as may be herein more
specifically provided, ULTRAMED shall act with respect to all matters hereunder
through its managers.
7.2.2 DPM Representative: Except as may be herein more specifically
provided, DPM shall act with respect to all matters hereunder through its
President.
7.3 Notices: Any notice, demand, or communication required, permitted,
or desired to be given hereunder shall be deemed effectively given when
personally delivered or mailed by prepaid certified mail, return receipt
requested, addressed as follows:
If to ULTRAMED: BORIS L. PAYAN M.D.
4301A Vista
Pasadena, Texas 77504
Phone: (713) 941-6431
Telefax: (713) 941-4046
If to DPM: MR. GLENN RODRIGUEZ
4301A Vista
Pasadena, Texas 77504
Phone: (713) 947-0891
Telefax: (713) 944-3334
with a copy to: Eric G. Carter
1314 Texas Avenue, Suite 1110
Houston, Texas 77002
Phone (713) 227-0042
Telefax: (713) 227-7001
or to such other address, or to the attention of such other person or
officer, as either party may by written notice designate.
7.4 Governing Law: This Agreement has been executed and delivered in,
and shall be governed by, and construed and enforced in accordance with, the
laws of the State of Texas. Venue for any legal actions hereunder shall be in
the district courts of Harris County, Texas.
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<PAGE> 8
7.5 Assignment: This Agreement may not be assigned by any party
hereto.
7.6 Waiver of Breach: The waiver by either party of any condition or
covenant, or of any breach or violation of any provision of this Agreement
shall not operate as, or to be construed to constitute, a waiver of any
subsequent breach of the same or another provision hereof.
7.7 Enforcement: In the event either party resorts to legal action to
enforce or interpret any provision of this Agreement, the prevailing party
shall be entitled to recover costs of such action so incurred, including,
without limitation, reasonable attorney's fees.
7.8 Gender and Number: Whenever the context of this Agreement
requires, the gender of all words herein shall include the masculine, feminine,
and neuter, and the number of all words herein shall include the singular and
plural.
7.9 Additional Assurance: Except as may be herein specifically
provided to the contrary, the provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties;
provided, however, at the request of either party, the other party shall
execute such additional instruments and take such additional acts as are
reasonable and as the requesting party may deem necessary to effectuate this
Agreement.
7.10 Consents, Approvals, and Exercise of Discretion: Except as may be
herein specifically provided to the contrary, whenever this Agreement requires
any consent or approval to be given by either party, or either party must or
may exercise discretion, the parties agree that such consent or approval shall
not be unreasonably withheld or delayed, and such discretion shall be
reasonably exercised.
7.11 Force Majeure: Neither party shall be liable or deemed to be in
default for any delay or failure in performance under this Agreement or other
interruption of service deemed to result, directly or indirectly, from acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by either party's employees, or any other similar cause
beyond the reasonable control of either party.
7.12 Severability: In the event any provision of this Agreement is
held to be invalid, illegal, or unenforceable for any reason and in any
respect, such invalidity, illegality, or unenforceability shall not affect the
remainder of this agreement, which shall be and remain in full force and
effect, enforceable in accordance with its terms.
7.13 Divisions and Readings: The division of this Agreement into
articles, sections, and subsections and the use of captions and headings in
connection therewith are solely for convenience and shall not affect in any way
the meaning or interpretation of this Agreement.
7.14 Amendments and Agreement Execution: This Agreement and amendments
hereto shall be in writing and executed in multiple copies by the duly
authorized officers of Vista and Manager. Each multiple copy shall be deemed an
original, but all multiple copies together shall constitute one and the same
instrument.
8
<PAGE> 9
7.15 Entire Agreement: This Agreement supersedes all previous
contracts and amendments and constitutes the entire agreement between the
parties with respect to the subject matter of this Agreement. Neither party
shall be entitled to benefits other than those specified herein. No oral
statements or prior written material not specifically incorporated herein shall
be of any force and effect, and no changes in or additions to this Agreement
shall be recognized unless incorporated herein by amendment as provided herein,
such amendment(s) to become effective on the date stipulated in such
amendment(s). The parties specifically acknowledged that, in entering into and
executing this agreement, the parties rely solely upon the representations and
agreements contained in this Agreement and no others.
7.16 Specific performance. Each party acknowledges that a remedy at
law for any breach or attempted breach of the provisions of this Agreement will
be inadequate, and agrees that each party shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach.
7.17 Successors Bound. Subject to the provisions of Section 7.5, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal legal representatives, and assigns.
7.18 Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. The word "This
Agreement," "this instrument," "herein," "hereto," "hereunder," and words of
similar import refer to this Agreement as a whole and not to a particular
article, section, paragraph, or other subdivision of this Agreement. Whenever
the context requires, the gender of all words used in this Agreement shall
include the masculine, feminine, and neuter, and the number of all words shall
include the singular and the plural.
7.19 Counterparts. This agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute
the same instrument.
7.20 Public disclosure. The parties hereto agree that any disclosure
or press release about the transactions contemplated by this Agreement may only
be made in the manner and at the time mutually determined by the Purchaser and
the Seller.
7.21 Time. Time is of the essence hereof. If the time for performance
of any obligations set forth in this Agreement falls on Saturday, Sunday, or
legal holiday, compliance with such obligation on the next business day
following such Saturday, Sunday or legal holiday shall be deemed acceptable.
For purposes of this agreement, a "business day" is any day other than a
Saturday, Sunday, or legal holiday in Texas.
7.22 Attorney's Fees. In the event of any action at law or in equity
between the parties hereto to enforce any provision or right hereunder or in
any way related hereto or arising herefrom, the unsuccessful party in such
litigation covenants and agrees to pay to the successful party all costs and
expenses, including reasonable attorney's fees, incurred therein by such
successful party. If such successful party shall recover judgment in any such
action or proceeding, such costs and expenses shall be included as part of such
judgment.
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<PAGE> 10
7.23 Language. The language of this Agreement shall be construed as a
whole and in accordance with the fair meaning of the language used. The
language of this Agreement shall not be strictly construed for or against
either of the parties hereto based upon who drafted or was principally
responsible for drafting the Agreement or any specific term or condition
hereof. This Agreement shall be deemed to have been drafted by each party
hereto, and no party may urge otherwise.
7.24. Knowledge. Any representation, warranty or covenant herein which
is limited to a party's "knowledge" is made with the understanding that such
party has examined whatever sources of information that are reasonably
accessible to such party in order to verify the truth and accuracy of such
representation, warranty or covenant.
7.25 Other documents. The parties agree to execute all other documents
or instruments necessary to effect the transfers of property set forth herein
and otherwise to implement the provisions of this Agreement.
IN WITNESS WHEREOF, ULTRAMED and DPM have executed this Agreement in
multiple originals this 1st day of October, 1998.
ULTRAMED: ULTRAMED, L.C.
By: /s/ Dr. Payen
-------------------------------------
Dr. Payen, Manager
DPM: Doctors Practice Management, Inc.
By: /s/ Philip Chan
-------------------------------------
Philip Chan
Vice President
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<PAGE> 1
EXHIBIT 10.32
FULL SERVICE MANAGEMENT AGREEMENT
This FULL SERVICE MANAGEMENT AGREEMENT ("Agreement") is entered
into and effective as of the 1st day of October, 1998 (notwithstanding the date
of actual execution) by and between DOCTORS PRACTICE MANAGEMENT, INC., A Texas
business corporation ("Manager"), and Vista Healthcare Inc., a Texas business
corporation ("Vista").
WITNESSETH:
WHEREAS, Vista is a duly and validly existing Texas business
corporation that has been organized for the purpose of operating an outpatient
surgical and diagnostic clinic and providing related healthcare services
("Healthcare Services") to the general public in the Greater Houston, Texas
area;
WHEREAS, Manager is experienced in providing management and
related items and services to physicians, professional associations, and other
professional healthcare entities and individuals;
WHEREAS, Vista desires and intends to obtain such management,
administrative, and business services necessary and appropriate for Vista's
business operations and the provision of Healthcare Services by Vista, and
manager desires to provide, and is capable of providing, all such management,
administrative, and business services; and
WHEREAS, Vista and Manager mutually desire an arrangement that:
(1) ensures consistency of service, quality of care, and safety of Vista's
patients;
(2) facilitates effective utilization of Healthcare services;
(3) ensures consistent and Customary patterns for the provision of Healthcare
Services;
(4) facilitate the management and administration of the day-to-day business
operations of Vista; and
(5) facilitate the establishment and maintenance of a public image of
excellence and high quality for Vista,
all for the benefit of those persons seeking Healthcare Services as patients of
the Vista.
NOW, THEREFORE, for and in consideration of the mutual covenants
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and confessed, the parties agree as
follows:
I . DEFINITIONS
For the purposes of this Agreement, the following terms shall have
the following meanings described thereto, unless otherwise clearly required by
the context in which such term is used.
<PAGE> 2
1.1 Agreement: The term "Agreement" shall mean this Full Service Management
Agreement between Vista and Manager and any amendments hereto as may from time
to time be adopted as hereinafter provided.
1.2 Annual Budget: The term "Annual Budget" shall mean, the operational
budget of Vista, for a given fiscal year, prepared by Manager in consultation
with Vista.
1.3 Vista: The term "Vista" shall mean Vista Healthcare Inc., a Texas
business corporation.
1.4 Manager/Vista Account: The term "Manager/Vista Account" shall mean the
bank account of the Manager established on behalf of Vista as described in
Section 3.9 hereof.
1.5 Vista Expense or Vista's Expense: The term "Vista Expense" or "Vista's
Expense" shall mean an expense or cost incurred by Vista or Manager on behalf
of Vista and for which Vista is financially liable, including management fee,
regardless of whether the transfer of Vista's funds to satisfy the Vista's
financial liability is performed by Vista or by manager on Vista's behalf.
1.6 Facility: The term "Facility" shall mean Vista's licensed physical
premises in which Healthcare services are furnished by physicians to patients,
and shall include, if applicable, multiple locations.
1.7 Healthcare Services: The term "Healthcare Services" shall mean the
medical and related healthcare services provided by physicians to patients of
Vista's Ambulatory Surgical Care Center.
1.8 Management Fee: The term "Management Fee" shall mean Manager's
compensation established and described in Article V hereof.
1.9 Manager: The term "Manager" shall mean Doctors Practice Management,
Inc., a Texas business corporation.
1.10 Manager Expense or Manager's Expense: The term "Manager Expense" or
"Manager's Expense" shall mean an expense or cost incurred by Manager on behalf
of Vista and for which Manager is financially liable.
1.11 State: The term "State" shall mean the State of Texas.
1.12 Term: The term "Term" shall mean the initial and any renewal periods
of duration of this Agreement as described in Section 6.1 hereof.
II. APPOINTMENT AND AUTHORITY OF MANAGER
2.1 Appointment: Vista hereby appoints Manager as its sole and exclusive
agent for the management and administration of the business functions and
services related to Vista's provision of Healthcare Services and Manager hereby
accepts such appointment, subject at all times to the provisions of this
Agreement.
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2.2 Authority: Consistent with the provisions of this Agreement, Manager
shall have the responsibility and commensurate authority to provide business,
administrative, and full management services for Vista relating to the
provision of Healthcare services, including, without limitation, management,
administration, billing and collection services, financial consulting,
financial record keeping and reporting, preparation of financial statements,
cash management services, contract negotiation, employment and supervision of
nonphysican personnel, support services, marketing, and other business office
services. Manager is hereby expressly authorized to provide all such services
in whatever reasonable manner Manager deems appropriate to meet the day-to-day
requirements of the business functions of, or related to, Vista's provision of
Healthcare Services at the Facility. To the extent practicable, Manager, at its
discretion, may from time to time perform some or all of such business office
services for Vista at locations other than the Facility. Except as otherwise
provided in this Agreement, all expenses incurred by Manager in providing
management services pursuant to this Agreement shall be Manager's Expense. The
parties acknowledge and agree that Vista shall be solely responsible for and
have sole control over the physician's provision of Healthcare Services
performed for patients at the Facility and that all diagnoses, treatments,
procedures, and other professional healthcare services shall be provided and
performed by physician or under the supervision of physician personnel, as such
physicians, in their sole discretion, deem appropriate.
III. COVENANTS OF MANAGER.
3.1 Facilities and Equipment: Vista shall provide to Manager the space for
the Facility, including all equipment, fixtures, furniture, and furnishings
located therein that Manager deems reasonably necessary for the provision of
Healthcare Services. Manager shall consult with and seek the advice of Vista in
connection with equipping the Facility and in connection with the purchase of
additional or replacement equipment to ensure the necessity and appropriateness
of equipment placed in service at the Facility.
3.1.1 Retention of Title: The Manager shall have access to and use of the
space for the clinic, and all equipment, fixtures, furniture, and furnishings
located therein throughout the Term for the sole purpose of providing
Healthcare Services support to physicians and patients of the Facility;
provide, however, that title to all such equipment, fixtures, furniture, and
furnishings therein shall, at all times, be and remain vested in Vista.
3.1.2 Repair and Maintenance: Vista shall be responsible for the repair,
maintenance, and replacement of all equipment located in the Facility.
3.1.3 Disclaimer of Warranty: MANAGER MAKES NO REPRESENTATIONS OR
WARRANTIES, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO ANY EQUIPMENT,
FIXTURES, FURNITURE, FURNISHINGS, OR SUPPLIES PROVIDED BY MANAGER PURSUANT TO
THIS AGREEMENT, AND ALL WARRANTITIES, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, WARRANTITIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, ARE HEREBY EXPRESSLY DISCLAIMED.
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3.2 Utilities and Related Services: Manager shall, at the expense of Vista,
negotiate, enter into, and retain contracts for, and shall timely pay when due
all charges relating to electricity, gas, water, telephone, sewage, waste
disposal, cleaning (interior and exterior), pest extermination, heating and
air-conditioning maintenance, and similar services reasonably necessary and
appropriate for the operation of the facility and the provision of Healthcare
Services therein.
3.3 Supplies: Manager shall, at the expense of Vista, obtain and provide
all reasonable medical, office, and other supplies, and shall ensure that the
Facility is at all times adequately stocked with such supplies as are
reasonably necessary and appropriate for the operation of' the Facility.
3.4 Support Services: Manager shall, at the expense of Vista, provide all
laundry, linen, uniform, stationery, forms, postage, duplication or
photocopying services, and other support services as are reasonably necessary
and appropriate for the operation of the Facility.
3.5 Licenses and Permits: Manager shall, at the expense and Benefit of
Vista, coordinate all development and planning processes, and apply for and use
manager's best efforts to obtain and maintain all federal, State and local
licenses and regulatory permits, required for or in connection with the
operation of the Facility and the equipment (existing and future) located
therein.
3.6 Personnel
3.6.1 Management and Clerical Personnel. Manager shall employ or otherwise
retain, and shall be responsible for selecting, training, supervising,
scheduling, and terminating, all management and clerical personnel as Manager
deems reasonably necessary and appropriate for Manager in performance of its
duties and obligations under this Agreement. Manager shall have sole
responsibility for determining the salaries, wages, and fringe benefits of all
such management and clerical personnel, for paying such salaries and wages, and
for providing such fringe benefits, and for withholding as required by law, any
sums for income tax, unemployment insurance, social security, or any other
withholding required by applicable law or governmental requirement.
3.6.2 Nonexclusivity: In recognition of the fact that the personnel
retained by Manager to provide services pursuant to this Agreement may from
time to time perform services for others, this Agreement shall not prevent
Manager from performing such services for others or restrict Manager from using
such personnel in the performance of services for others.
3.6.3 Contract Negotiations: Upon the request of Vista, Manager shall
advise with respect to and negotiate, either directly or on Vista's behalf, as
appropriate, all contractual arrangements with third parties as are reasonably
necessary and appropriate for Vista's provision of Healthcare Services.
3.7 Billing and Collection: On behalf of and for the account of Vista,
Manager shall establish and maintain credit and billing and collection policies
and procedures, and shall be responsible for the billing and collection of all
professional and other fees for billable Healthcare Services provided by Vista.
Manager shall advise and consult with Vista regarding the fees for Healthcare
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Services provided by Vista in connection with the billing and collection
services to be provided hereunder, and throughout the Term, Vista hereby grants
Manager an irrevocable special power of attorney and appoints Manager as
Vista's true and lawful agent and attorney-in-fact, and Manager hereby accepts
such special power of attorney and appointment, for the following purposes:
3.7.1 To bill Vista's patients, in Vista's name and on Vista's behalf, for
all billable Healthcare Services provided by Vista.
3.7.2 To bill, in Vista's name and on Vista's behalf, all claims for
reimbursement or indemnification from Blue Shield/Blue Cross, insurance
companies, Medicare, Medicaid, and all other third-party payors for all covered
billable Healthcare Services provided by Vista;
3.7.3 To collect and receive, in Vista's name and on Vista's behalf, all
accounts receivable generated by such billings and claims for reimbursement or
indemnification, and to deposit all amounts collected into the Manager/Vista
Account, which account shall be maintained at Manager's Expense and shall be
and at all times remain in Manager's name. Vista covenants to transfer and
deliver to Manager all funds received by Vista from patients or third-party
payors for Healthcare services. Upon receipt by Manager of any funds from
patients or third-party payors or from Vista pursuant hereto for Healthcare
Services, Manager shall immediately deposit same into the Manager/Vista
Account; and
3.7.4 To take possession of, endorse in the name of Vista, and deposit into
the Manager/Vista Account any notes, checks, money orders, insurance payments,
and any other instruments received in payment of accounts receivable for
Healthcare Services, and to make withdrawals from the Manager/Vista Account for
payments of those items designated as Manager or Vista Expense.
3.8 Financial matters
3.8.1 Annual Budget: Annually and at least thirty (30) days prior to the
commencement of each fiscal year of Vista, Manager shall prepare, in
consultation with Vista, and deliver to Vista, an operational budget for such,
fiscal year setting forth an estimate of facility revenues and expenses
(including, without limitation, all costs associated with the services provided
by Manager hereunder). Manager shall use its best efforts to perform its duties
and obligations under this Agreement such that the actual revenues, costs, and
expenses associated with Vista's provision of Healthcare Service in the
Facility during any applicable period shall be consistent with the Annual
Budget. Manager shall prepare and submit to Vista, and shall thereafter adopt,
an Annual Budget for the current fiscal year as soon as practicable.
3.8.2 Accounting and Financial Records: Manager shall establish and
administer accounting procedures, controls, and systems for the development
preparation, and safe keeping of records and books of accounts relating to the
business and financial affairs of Vista at the Facility all of which shall be
prepared and maintained in accordance with generally accepted accounting
principles consistently applied. Manager shall prepare and deliver to Vista,
within (90) days of the end of each fiscal year of Vista, a balance sheet, a
profit and loss statement, and a statement
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of cash flow reflecting the financial status of Vista in respect of the
provision of Healthcare Services at the Facility as of the end of such prior
fiscal year, all of which shall be prepared in accordance with generally
accepted accounting principles consistently applied. Manager shall also prepare
and deliver to Vista interim monthly financial statements for management
purposes only.
3.9 Reports and Records
3.9.1 Medical Records: Manager shall establish, monitor, and maintain
procedures and policies for the timely creation, preparation, filing and
retrieval of all medical records generated by Vista in connection with Vista's
provision of Healthcare Services. All such medical records shall be treated in
accordance with all applicable State and federal laws relating to the
confidentiality thereof.
3.10 Legal Actions: As requested by Vista, Manager shall, at Vista's
Expense, advise and assist Vista in instituting or defending, in the name of
Vista, all legal actions or proceedings by or against third parties arising out
of Vista's provision of Healthcare Services at the Facility, including, without
limitation, those actions to collect fees for billable Healthcare Services or
other billable services provided to patients by Vista, and those actions
necessary for the protection and continued operation of Vista.
3.11 Manager Insurance: Throughout the Term, manager shall, at Manager's
Expense, obtain and maintain with commercial carriers, through captive
insurance companies, through self-insurance, or some combination thereof,
professional, casualty, and comprehensive general liability insurance covering
manager, Manager personnel, and all of Manager's equipment in such amounts, on
such basis, and upon such terms and conditions as Manager deems appropriate.
IV. COVENANTS OF VISTA
4.1 Qualification: Vista shall at all times during the Term be and remain
legally qualified to own and operate an ambulatory surgical care center in a
manner consistent with all State and federal laws;
4.2 Personnel
4.2.1 Nonphysician Healthcare Personnel: Vista shall employ and be
responsible for the salaries, wages, fringe benefits, and other employment
related expenses with regard to all nonphysician healthcare personnel necessary
for the provision of Healthcare services to patients at the Facility. Manager
shall determine the salaries, wages, and fringe benefits of all such personnel.
Vista shall be responsible for selecting, scheduling, and terminating all
nurses, laboratory technicians, and other nonphysician healthcare personnel as
Vista deems reasonably necessary and appropriate for the operation of the
Facility; provided, however, that all such nonphysician healthcare personnel
shall be hired and/or terminated by Vista after consultation with Manager.
Manager shall be responsible for training and supervising all nonphysician
healthcare personnel, and all such personnel shall be under Manager's control,
supervision and direction when assisting Vista in the performance of Healthcare
Services in the Facility-
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4.3 Standards: As a continuing condition of Manager's obligations
hereunder, Vista shall provide Healthcare Services in accordance with
applicable federal, State, and municipal laws, rules, regulations, ordinances,
and orders, and the ethics and standards of care of the medical community
wherein the Facility is located.
4.4 Vista Contracting: Vista shall not, without the prior written consent
of manager, have any right or authority to enter into any agreements with third
parties relating to the Facility, its operation, or any agreements otherwise
binding upon Manager.
4.5 Vista Insurance. Throughout the Term, Vista shall, at Vista's Expense,
obtain and maintain with commercial carriers, acceptable to Manager,
professional and comprehensive general liability insurance covering Vista and
those nonphysician personnel Vista employs to provide Healthcare services in
the minimum amount Six Hundred Thousand Dollars ($600,000.00) in the aggregate
for Vista and each nonphysician personnel Vista employs to provide Healthcare
Services. Such insurance shall name Manager as an additional named insured to
the extent its interest may appear. Vista shall provide to Manager a
certificate of insurance evidencing such coverage. The insurance policy or
policies shall provide for at least thirty (30) day's advance written notice to
Vista from the insurer as to any alteration of coverage, cancellation, or
proposed cancellation for any cause. The certificate of insurance shall require
that such notice also be given to Manager.
4.6 Indemnification by Vista: Vista shall indemnify and hold Manager
harmless from and against any and all liability losses, damages, claims, causes
of action, and expenses, including, without limitation, reasonable attorney's
fees and associated costs, associated with or resulting, directly or
indirectly, from any act or omission of Vista, its employees, agents, or
independent contractors in or about the Facility during the Term. To be
entitled to such indemnification, Manager shall give Vista prompt written
notice of the assertion by a third party of any claim with respect to which
Manager might bring a claim for indemnification hereunder, and in all events
must provide such written notice to Vista within the applicable period for
defense of such claim by Vista. Vista shall, at Vista's Expense, have the right
to defend and litigate any such third-party claim.
V. MANAGEMENT FEE AND DISBURSEMENT OF FUNDS
5.1 Amount of Management Fee: Vista agrees to pay a management Fee of 60%
of all monies collected by Manager. The Management Fee is not intended and
shall not be interpreted or applied as permitting manager to share in Vista's
fees for Healthcare Services or any other services, but is acknowledged as the
parties' negotiated agreement as to the reasonable fair market value of the
items and services furnished by Manager pursuant to this Agreement, considering
the nature of the services required by Vista and the risks assumed by Manager.
5.2 Payment of Management Fee: The Management Fee shall be due and payable
on or before the tenth (10) calendar day of each month for services provided in
the immediately preceding month.
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VI. TERM AND TERMINATION
6.1 Initial and Renewal Terms. The term of this Agreement will be for a One
(1) year period commencing as of October 1, 1998, and expiring as of September
30, 1999, unless and until terminated as provided in Section 6.2 of this
Agreement the ("Term"). Manager is hereby granted an option to extend the term
of this Agreement two (2) times for one year each under the same terms
contained herein. This option shall be exercised by Manager's delivering to
Vista before the end of the original term written notice of Manager's election
to extend the term of this Agreement.
6.2 Termination
6.2.1 Termination by Manager: Manager may terminate this Agreement upon the
occurence of any one of the following events:
(a) upon the dissolution of Vista;
(b) upon Vista failing to pay Manager the Management Fee as provided for
in Article V of this Agreement within Ten (10) days of the date such
amounts are due as provided in Section 5.2 hereof;
(c) upon the expiration of sixty (60) days after Manager has given Vista
written notice of Manager's intent to terminate this Agreement with or
without cause: or
6.2.2 Termination by Vista: Vista may terminate this Agreement upon the
occurrence of the dissolution of Manager.
6.2.3 Termination by Agreement: In the event Vista and Manager shall
mutually agree in writing, this agreement may be terminated on the date
specified in such written agreement.
6.2.4 Damage or Condemnation: In the event the Facility is totally or
substantially destroyed by fire, explosion, flood, windstorm, hail, earthquake,
hurricane, tornado, or other casualty or act of God, or in the event all or a
substantial portion of the Facility and the premises on which it is situated is
taken or to be taken by condemnation or eminent domain proceeding, then either
party may by written notice to the other immediately terminate this Agreement.
6.2.5 Bankruptcy: In the event that either party become insolvent, or if
any petition under federal or state law pertaining to bankruptcy or insolvency
or for a reorganization or arrangement or other relief from creditors shall be
filed by or against either party, or if any assignment, trust, mortgage, or
other transfer shall be made of all or a substantial part of the property of
either party, or if either party shall make or offer a composition in its debts
with its creditors, or if a receiver, trustee, or similar officer or creditor's
committee shall be appointed to take charge of any property of or to operate or
wind up the affairs of either party, then the other party may, by written
notice, as specified in section 7.3, immediately terminate this Agreement.
6.2.6 Default: In the event either party shall give written notice to the
other that such other party has substantially defaulted in the performance of
any material duty or material obligation imposed upon it by this Agreement, and
such default shall not have been cured within thirty (30) days following the
giving of such written notice, the party giving such written notice shall have
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the right to immediately terminate this Agreement unless the defaulting party
shall, within said thirty (30) day period, have made a good faith effort to
initiate corrective action and it is contemplated that such corrective action
will be completed within the following thirty (30) day period.
6.3 Effects of Termination: Upon termination of this Agreement, as
hereinabove provided, neither party shall have any further obligations
hereunder except for (i) obligations accruing prior to the date of termination,
and (ii) obligations, promises, or covenants set forth herein that are
expressly made to extend beyond the Term, including, without limitation,
indemnities, payment of accrued management Fees, if any, and the authority and
limited power of attorney granted to manager in Section 3.9 herein which shall
survive until such time as such obligations, promises, or covenants shall be
fully paid and satisfied (all of which provisions shall survive the expiration
or termination of this Agreement). Notwithstanding anything to the contrary,
herein, upon termination of this Agreement for any reason, all accrued
management Fees, if any, shall become immediately due and payable without
demand or notice.
VII. MISCELLANEOUS
7.1 Independent Relationship: It is mutually understood and agreed that
Vista and Manager, in performing their respective duties and obligations under
this Agreement, are at all times acting and performing as independent
contractors with respect to each other, and nothing in this Agreement is
intended nor shall be construed to create an employer/employee relationship or
a joint venture relationship, or to allow Manager to exercise control or
direction of any nature, kind, or description over the manner or method by
which Vista performs Healthcare services.
7.2 Representatives
7.2.1 Vista Representative: Except as may be herein more specifically
provided, Vista shall act with respect to all matters hereunder through the
President of Vista.
7.2.2 Manager Representative: Except as may be herein more specifically
provided, Manager shall act with respect to all matters hereunder through the
President of Manager.
7.3 Notices: Any notice, demand, or communication required, permitted, or
desired to be given hereunder shall be deemed effectively given when personally
delivered or mailed by prepaid certified mail, return receipt requested,
addressed as follows:
Vista: Vista Healthcare, Inc.
4301 Vista
Pasadena, Texas 77504
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Manager: Doctors Practice Management, Inc.
10304 I-10 East, Suite 369
Houston, Texas 77029
or to such other address, or to the attention of such other person or officer,
as either party may by written notice designate.
7.4 Governing Law: This Agreement has been executed and delivered in, and
shall be governed by, and construed and enforced in accordance with, the laws
of the State of Texas.
7.5 Assignment: Except as may be herein specifically provided to the
contrary, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective legal representatives, successors, and
assigns; provided, however, that Vista shall not assign its rights and
obligations under this Agreement without the prior written consent of Manager.
Manager shall have the right to (i) assign its rights and obligations hereunder
to any third party, and (ii) collaterally assign its interest in this Agreement
and its right to collect Management fees hereunder to any financial institution
or other third party without the consent of Vista.
7.6 Waiver of Breach: The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or to be construed to
constitute, a waiver of any subsequent breach of the same or another provision
hereof.
7.7 Enforcement: In the event either party resorts to legal action to
enforce or interpret any provision of this Agreement, the prevailing party
shall be entitled to recover costs of such action so incurred, including,
without limitation, reasonable attorney's fees.
7.8 Gender and Number: Whenever the context of this Agreement requires, the
gender of all words herein shall include the masculine, feminine, and neuter,
and the number of all words herein shall include the singular and plural.
7.9 Additional Assurance: Except as may be herein specifically provided to
the contrary, the provisions of this Agreement shall be self-operative and
shall not require further agreement by the parties; provided, however, at the
request of either party, the other party shall execute such additional
instruments and take such additional acts as are reasonable and as the
requesting party may deem necessary to effectuate this Agreement.
7.10 Consents, Approvals, and Exercise of Discretion: Except as may be
herein specifically provided to the contrary, whenever this Agreement requires
any consent or approval to be given by either party, or either party must or
may exercise discretion, the parties agree that such consent or approval shall
not be unreasonably withheld or delayed, and such discretion shall be
reasonably exercised.
7.11 Force Majeure: Neither party shall be liable or deemed to be in
default for any delay or failure in performance under this Agreement or other
interruption of service deemed to result, directly or indirectly, from acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by either party's employees, or any other similar cause
beyond the reasonable control of either party.
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7.12 Severability: In the event any provision of this Agreement is held to
be invalid, illegal, or unenforceable for any reason and in any respect, such
invalidity, illegality, or unenforceability shall not affect the remainder of
this agreement, which shall be and remain in full force and effect, enforceable
in accordance with its terms.
7.13 Divisions and Readings: The division of this Agreement into articles,
sections, and subsections and the use of captions and headings in connection
therewith are solely for convenience and shall not affect in any way the
meaning or interpretation of this Agreement.
7.14 Amendments and Agreement Execution: This Agreement and amendments
hereto shall be in writing and executed in multiple copies by the duly
authorized officers of Vista and Manager. Each multiple copy shall be deemed an
original, but all multiple copies together shall constitute one and the same
instrument.
7.15 Entire Agreement: This Agreement supersedes all previous contracts and
amendments and constitutes the entire agreement between the parties with
respect to the subject matter of this Agreement. The contract of January 1,
1996 and the Amendment of September 1, 1996 are expressly terminated, provided
that neither party is relieved of its duties and obligations remaining under
said contract and amendment (including payments). In addition, there remain
unpaid balances for the contract period from August,1994 through December,1995
in the amount of TWO HUNDRED THIRTY-FIVE THOUSAND FIVE HUNDRED EIGHTY-EIGHT AND
61/100 ($235,588.61) DOLLARS. As a further condition to this Agreement, Vista
recognizes the balance owed, ratifies the accounting, authorizes payment for
the balance owed, and makes said payment to Manager contemporaneously with the
execution of this Agreement. Neither party shall be entitled to benefits other
than those specified herein. No oral statements or prior written material not
specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment(s) to
become effective on the date stipulated in such amendment(s). The parties
specifically acknowledge that, in entering into and executing this agreement,
the parties rely solely upon the representations and agreements contained in
this Agreement and no others.
IN WITNESS WHEREOF, Vista and Manager have executed this Agreement in
multiple originals this 1st day of October, 1998.
Vista: Vista Healthcare, Inc.
By: /s/ Glenn Rodriguez
--------------------------------
Glenn Rodriguez
President
Manager: Doctors Practice Management, Inc.
By: /s/ Philip Chan
--------------------------------
Philip Chan
Vice President
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AMENDMENT NO. 1 TO FULL SERVICE MANAGEMENT AGREEMENT
This Amendment No. 1 to the Full Service Management Agreement (the
"Agreement") is entered into effective September 1, 1996 by and between Vista
Healthcare, Inc. a Texas corporation, ("Vista") and Doctors Practice
Management, Inc., a Texas corporation ("DPMI).
WITNESSETH
WHEREAS, Vista and DPMI desire to amend the Full Service Management
Agreement dated May 1, 1996 (the "Management Agreement"); and
WHEREAS, Vista and DPMI, following the execution and effectiveness of this
Amendment, desire to continue to the Management Agreement in full force and
effect without further amendment thereto;
NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. AMENDMENT. The parties hereto hereby agree that Section 5.1 of the
Management Agreement is hereby amended to increase the management fee from 28%
of collections to 38% of collections.
2. ENTIRE AGREEMENT: NO FURTHER AMENDMENTS. The parties hereto acknowledge
and agree that Amendment and the Management Agreement represent the entire
agreement of the parties with respect to the subject matter hereof and thereof
and that there exists no other agreements or understandings between the parties
whether oral or written. The Management Agreement may not be further amended
without the written consent of both parties thereto.
IN WITNESS WHEREOF, the parties hereto have entered into this Amendment
effective as of September 1, 1996.
VISTA HEALTHCARE, INC.
By: /s/ Glenn Rodriguez
-----------------------------------
GLENN RODRIGUEZ, VICE PRESIDENT
DOCTORS PRACTICE MANAGEMENT, INC.
By: /s/ Philip Chan
-----------------------------------
PHILIP CHAN, VICE PRESIDENT
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EXHIBIT 10.33
REAL ESTATE LIEN NOTE
$1,400,000.00 Houston, Texas September 1, 1998
For value received, the undersigned, as principal, (the "Maker") promises to
pay to the order of VISTA HEALTHCARE, INC., a Texas corporation (the "Payee"),
at the Payee's offices at 1401 Vista, Pasadena, Texas 77504, in legal and
lawful money of the United States of America the principal sum of ONE MILLION
FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($1,400,000.00), with interest thereon
from date hereof until maturity upon the balance of the principal sum at the
rate of EIGHT AND ONE-HALF PERCENT (8.5%) per annum until paid.
This Note, both as to principal and interest, shall be due and payable as
follows:
Upon demand, but if demand not sooner made, in eighty-four (84) monthly
installments (both principal and interest), with the first installment in the
amount of TWENTY-TWO THOUSAND ONE HUNDRED SEVENTY-ONE AND 08/100 DOLLARS
($22,171.08) being due and payable on October 1, 1998 and a like installment to
be paid on or before the same calendar day of each succeeding month for
eighty-four (84) months until this Note is paid in full.
All payments make under this Note shall be applied first to accrued
interest and the balance, if any, to principal.
The Maker reserves the right to prepay this Note in whole or in part at
any time without the payment of a premium or penalty.
It is the intention of the parties hereto to conform strictly to the
applicable laws of the State of Texas, the United States of America, and
judicial and/or administrative interpretations or determinations thereof
("Law"), regarding the contracting for, charging, and receiving of interest for
the use and detention of money. The owner and holder hereof shall have no right
to claim, charge, or receive any interest in excess of the maximum rate
allowable under the law on that portion of the face amount representing
principal which is outstanding and unpaid from time to time. Determination of
the rate of interest for the purpose of determining whether this Note is
usurious under the Law shall be made by amortizing, prorating, allocating and
spreading in equal parts during the period of the actual time of this Note, all
charged, or received in excess of the maximum lawful rate shall be deemed a
result of a mathematical error and a mistake; if this Note is paid in part by
the Maker prior to the end of the full stated term of this Note and the
interest received for the actual period of existence of this Note exceeds the
maximum lawful rate, the owner and holder shall credit the amount of the excess
against any amount owing under maturity, the owner shall refund to the Maker
the amount of such excess, and shall not be subject to any of the penalties
provided by Law for contracting for, charging or receiving Interest in excess
of the maximum lawful rate. Any such excess which is unpaid shall be canceled.
<PAGE> 2
In the event of a failure to pay any installment of principal and/or
interest herein provided when due, or a breach of the provisions of any of the
instruments executed in connection with or securing this Note, or failure to
pay any obligation of whatever nature owed to the owner and holder hereof
whether such obligation is in existence now or in the future, or should the
owner and holder hereof deem itself insecure, then the owner and holder
thereof, at its option, may declare the entire principal balance and accrued
interest owing hereon at once due and payable without notice. Failure to
exercise this option shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default.
The makers, signers, sureties, guarantors, and endorsers of this Note
severally waive demand, presentment, notice of dishonor, diligence in
collecting, grace, notice and protest, notice of the failure to pay any
installments of principal or interest or both prior to acceleration of
maturity, notice of default, notice of intent to accelerate, notice of
acceleration of maturity, and agree to one or more extensions for any period of
periods of time and partial payments, before or after maturity, without
prejudice to the holder; and if this Note shall be collected by legal
proceedings through a probate or bankruptcy court or shall be placed in the
hands of an attorney for collection, the undersigned agree to pay not less than
fifteen percent (15%) of all unpaid principal and interest as reasonable
attorney's or collection fees, or such other amount for attorney's fees and
expenses as may be found by a court of competent jurisdiction as being
reasonable and customary.
This Note, and the terms, conditions and obligations hereunder shall be
binding upon the parties hereto, their respective successors, assigns,
executors, and/or administrators as the case may be.
Should this Note be signed by more than one person (reference herein to
any gender shall reference to all genders) and/or firm and/or corporation, all
of the obligations herein contained shall be considered joint and several
obligations of each signer hereof.
This Note is secured by a deed of trust of even date herewith executed by
Maker to EDWIN LAMM, III, Trustee, securing the following real property:
4.5799 acres of land being the residue of Lot 14 of
South Houston Gardens, Section 5, as recorded in Volume 4,
Page 15 of the Map Records of Harris County, Texas, and lying
in the Day Land and Cattle Company Survey, Abstract No. 1025,
Harris County, Texas, said 4.5799 acres of land being more
particularly described by metes and bounds in Exhibit A
attached hereto and made a part hereof for all purposes.
<PAGE> 3
The liens securing this note are secondary and inferior to the liens
securing the payment of the unpaid balance of that certain $1,500,000.00
indebtedness described in and secured by a deed of trust of record under
Clerk's file number N822396 in the County Clerk's Office of Harris County,
Texas, the payment of which indebtedness the Maker hereof has not assumed but
which the Payee herein as well as any other and holder of this note is
obligated to pay as and when due and should default be made in the payment
thereof the undersigned Maker has the right to cure such default and receive
credit on this note, all as provided in the hereinabove mentioned Deed and Deed
of Trust, which are referred to, incorporated herein, and made a part hereof.
THIS LOAN IS PAYABLE IN FULL SEVEN YEARS FROM THE DATE HEREOF. AT
MATURITY, THE MAKER MUST REPAY THE ENTIRE PRINCIPAL BALANCE OF THE NOTE AND THE
UNPAID INTEREST THEN DUE. HOLDER IS UNDER NO OBLIGATION TO REFINANCE THIS NOTE
AT ANY TIME. YOU WILL THEREFORE, BE REQUIRED TO PAY OUT OF OTHER ASSETS WHICH
YOU OWN OR SEEK FINANCING FROM A LENDER, WHICH MAY BE THE HOLDER OF THIS NOTE,
WILLING TO LEND YOU THE MONEY. IF YOU REFINANCE THIS LOAN AT MATURITY, YOU MAY
HAVE TO PAY SOME OR ALL OF THE CLOSING COSTS NORMALLY ASSOCIATED WITH A NEW
LOAN EVEN IF YOU OBTAIN REFINANCING FROM THE SAME HOLDER.
THE WRITTEN LOAN AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN
THE PARTIES.
DYNACQ INTERNATIONAL, INC.
By: /s/ Chiu Chan
------------------------------------
Chiu Chan, President
Address: 4301A Vista
Pasadena, Texas 77504
<PAGE> 1
EXHIBIT 10.34
WARRANTY DEED WITH VENDOR'S LIEN
STATE OF TEXAS *
* KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HARRIS *
That the undersigned VISTA HEALTHCARE, INC. of the County of Harris and
State of Texas, for and in consideration of the sum of TEN DOLLARS ($10.00) and
other good and valuable consideration paid to the undersigned by Grantee herein
named, the receipt and sufficiency of which are hereby acknowledged and
confessed, and the further consideration of the execution and delivery by
Grantee of one certain promissory note of even date herewith in the original
principal sum of $1,400,000.00, payable to the order of Grantor in 84 monthly
installments, with interest at the rate of eight and one-half per cent (8.5%)
per annum, and providing for acceleration of maturity in event of default and
for attorney fees, the payment of which note is secured by the Vendor's Lien
herein retained; and additionally secured by deed of trust of even date
therewith to EDWIN LAMM, III, Trustee, recorded in the Real Property Records of
Harris County, Texas
HAVE GRANTED, SOLD, AND CONVEYED, and by these presents DO HEREBY GRANT, SELL,
AND CONVEY unto DYNACQ INTERNATIONAL, INC. (Grantee), of the County of Harris,
State of Texas, all of that certain real estate (the "Property") lying and
being situated in Harris County, Texas, more particularly described in as
follows:
4.5799 acres of land being the residue of Lot 14 of
South Houston Gardens, Section 5, as recorded in Volume 4,
Page 15 of the Map Records of Harris County, Texas, and lying
in the Day Land and Cattle Company Survey, Abstract No. 1025,
Harris County, Texas, said 4.5799 acres of land being more
particularly described by metes and bounds in Exhibit A
attached hereto and made a part hereof for all purposes.
TO HAVE AND TO HOLD the Property, together with all and singular the
rights and appurtenances thereto in any wise belonging and any right, title,
and interest of Grantor in and adjacent to streets, alleys, and rights-of-way,
unto the said DYNACQ INTERNATIONAL, INC., its heirs, personal representatives,
successors, and assigns forever and Grantor does hereby bind itself and its
heirs, personal representatives, successors, and assigns, to warrant and
forever defend all and singular the Property unto Grantee and its heirs,
personal representatives, successors, and assigns, against every person
whomsoever lawfully claiming or to claim the same, or any part thereof,
subject, however, as aforesaid.
<PAGE> 2
It is expressly agreed and stipulated that the VENDOR'S LIEN as well as
the superior title in and to the above described premises, are retained against
the Property, premises, and improvements until the abovedescribed note and all
interest thereon have been fully paid according to the face, tenor, effect, and
reading thereof, when this Deed shall become absolute.
This conveyance is made subject to and Grantee herein does not assume
payment of the unpaid balance of that certain $1,500,000.00 indebtedness
described in and secured by a Deed of Trust of record under Clerk's File Number
N822396 in the County Clerk's Office of Harris County, Texas, but Grantor as
well as any other owner and holder of Grantee's $1,400,000.00 note shall be
obligated to pay any and all installments falling due thereon as and when due,
and in the event of default in the payment of any such installment as and when
due, then so long as Grantee is not in default of the payment of Grantee's
aforesaid $1,400,000.00 note or in default in the performance of the covenants
of the Deed of Trust securing said note, Grantee shall have the right to pay
any such delinquent installment or installments and to receive credit upon
Grantee's $1,400,000.00 note for all sums so paid, and in such manner as such
Grantee shall direct, as of the date of such payment.
This conveyance is specifically made and accepted subject to any and all
restrictions, reservations, covenants, conditions, and easements to the extent,
and only to the extent, they are still in force and effect and shown of record
in the office of the County Clerk of Harris County, Texas.
Executed this 1st day of September, 1998.
VISTA HEALTHCARE, INC.
BY: /s/ Glenn Rodriguez
-------------------------------------
Glenn Rodriguez, President
Address: 1401 Vista
Pasadena, Texas 77504
<PAGE> 3
THE STATE OF TEXAS
COUNTY OF HARRIS
BEFORE ME the undersigned authority on this day personally appeared Glenn
Rodriguez, President of VISTA HEALTHCARE, INC., known to be to be the person
whose name is subscribed to the foregoing instrument, who acknowledged to me
that he executed said instrument for the purposes and consideration and in the
capacity therein expressed.
---------------------------
NOTARY PUBLIC, IN AND FOR
THE STATE OF TEXAS
Address of Grantee:
DYNACQ INTERNATIONAL, INC.
4301A Vista
Pasadena, Texas 77504
<PAGE> 1
EXHIBIT 10.35
DEED OF TRUST
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HARRIS )
That the undersigned, DYNACQ INTERNATIONAL, INC., 4301A Vista, Pasadena, Texas
77504, of Harris County, Texas, hereinafter called Grantors (whether one or
more) for the purpose of securing the indebtedness hereinafter described and in
consideration of the sum of TEN DOLLARS ($10.00) to us in hand paid by the
Trustee hereinafter named, the receipt of which is hereby acknowledged, and for
the further consideration of the uses, purposes and trusts hereinafter set
forth, have GRANTED, SOLD, AND CONVEYED, and by these presents do GRANT, SELL
AND CONVEY unto EDWIN LAMM, III, TRUSTEE, of the County of Harris, State of
Texas, all of the following described property situated in Harris County,
Texas, to-wit:
4.5799 acres of land being the residue of Lot 14 of
South Houston Gardens, Section 5, as recorded in Volume 4,
Page 15 of the Map Records of Harris County, Texas, and lying
in the Day Land and Cattle Company Survey, Abstract No. 1025,
Harris County, Texas, said 4.5799 acres of land being more
particularly described by metes and bounds in Exhibit A
attached hereto and made a part hereof for all purposes.
TO HAVE AND TO HOLD the above described property, together with the
rights, privileges and appurtenances thereto belonging, unto the said Trustee
and to his substitutes or successors forever. And Grantors named herein do
hereby bind themselves, their heirs, executors, administrators and assigns to
warrant and forever defend the said premises unto the said Trustee, his
substitutes or successors and assigns forever, against the claim, or claims, of
all persons claiming or to claim the same or any part thereof.
This conveyance, however, is made in TRUST to secure payment of one
certain promissory note in the original principal sum of $140,000.00, dated
September 1, 1998, executed by Grantor and payable to order of VISTA
HEALTHCARE, INC. in 84 monthly installments at eight and one-half per cent
(8.5%) interest, providing for acceleration of maturity and attorney fees and
should Grantors do and perform all of the obligations and covenants so assumed
and make prompt payment of the indebtedness evidenced by said note so assumed
as the same shall become due and payable, then this conveyance shall become
null and void and of no further force and effect, and shall be released at the
expense of Grantors, by the holder hereof, hereinafter called Beneficiary
(whether one or more.)
Grantors covenant and agree as follows:
That they are lawfully seized of said property and have the right to
convey same, that said property is free from all liens and encumbrances except
as herein provided.
<PAGE> 2
To protect the title and possession of said property and to pay when due
all taxes and assessments now existing or hereafter levied or assessed upon
said property, or the interest herein created by this Deed of Trust, and to
preseve and maintain the lien hereby created as a first and prior lien on said
property including any improvements hereafter made a part of the realty.
Grantors agree that in the event of default in the payment of any
installment, principal or interest, of the note so assumed by Grantors, or in
the event of default in the payment of said note when due or declared due, or
of a breach of any of the obligations or covenants contained in the Deed of
Trust securing said note so assumed, Beneficiary may, at his option, advance
and pay such sum or sums as may be required to cure any such default, and that
any and all such sums so advanced and paid by Beneficiary to cure such default
shall be paid by Grantors to Beneficiary at 2919 Allen Parkway, Suite 202 in
the City of Houston, Harris County, Texas, 77019 within five (5) days after the
date of such payment without notice or demand, which are expressly waived.
Grantors covenant to pay promptly to Beneficiary, without notice or
demand, within the time and as provided in the foregoing paragraph, any and all
sums that may, under the provisions of the foregoing paragraph be due
Beneficiary.
In the event of a breach of the foregoing covenants, it shall thereupon,
or at any time thereafter, be the duty of the Trustee, or his successor or
substitute as hereinafter provided, at the request of Beneficiary (which
request is hereby conclusively presumed), to enforce this Trust, and after
advertising the time, place and terms of the sale of the above described and
conveyed property, then subject to the lien hereof, for at least twenty-one
(21) days preceding the date of sale by posting written or printed notice
thereof at the Courthouse door of the county where said real property is
situated, which notice may be posted by the Trustee acting, or by any person
acting for him, and the Beneficiary (the holder of the indebtedness secured
hereby) has, at least twenty-one days preceding the date of sale, served
written or printed notice of the proposed sale by certified mail on each debtor
obligated to pay the indebtedness secured by this Deed of Trust according to
the records of Beneficiary, by the deposit of such notice, enclosed in a
postpaid wrapper, properly addressed to such debtor at debtor's most recent
address as shown by the records of Beneficiary, in a post office or official
depository under the care and custody of the United Sates Postal Service, the
Trustee shall sell the above described property, then subject to the lien
hereof, at public auction in accordance with such notice at the Courthouse door
of the county where such real property is situated (provided where said real
property is situated in more than one county, the notice to be posted as herein
provided shall be posted at the Courthouse door of each of such counties where
said real property is situated, and said above described and conveyed property
may be sold at the Courthouse door of any one of such counties, and the notices
so posted shall designate the county where the property will be sold), on the
first Tuesday in any month between the hours of ten o'clock A.M. and four
o'clock P.M. to the highest bidder for cash, and make due conveyance to the
Purchaser or Purchasers, with general warranty binding Grantors, their heirs
and assigns: and out of the money arising from such sale the Trustee
2
<PAGE> 3
shall pay, first, all expenses of advertising the sale and making the
conveyance, including a commission of 10% to himself and second, to Beneficiary
the full amount of all sums so advanced and paid and that are then owing to
Beneficiary under the provisions hereof, rendering the balance of the sales
price, if any, to the person or persons legally entitled thereto: and the
recitals in the conveyance to the Purchaser or Purchasers shall be full and
conclusive against Grantors, their heirs and assigns: said sale and deed to be
made subject to the then unpaid part of the indebtedness so assumed by Grantors
and the lien or liens securing the same, and it is agreed that such sale shall
not in any manner affect any indebtedness which may thereafter become due and
owing to Beneficiary under the covenants and provisions of this Deed of Trust,
it being agreed that this Deed of Trust and all rights of Beneficiary shall be
and remain in full force and effect so long as the obligations and indebtedness
so assumed by Grantors or any part thereof remain unsatisfied or unpaid that a
sale by the Trustee or Substitute Trustee hereunder shall not exhaust the right
of the Trustee or Substitute Trustee in event of any subsequent default
hereunder and at the request of Beneficiary, to thereafter enforce this trust
and make sale of said property as herein provided.
Beneficiary shall have the right to purchase at any sale of the property,
being the highest bidder and to have the amount for which such property is sold
credited on the total sums owed Beneficiary.
Beneficiary in any event is hereby authorized to appoint a substitute
trustee, or a successor trustee, to act instead of the Trustee named herein
without other formality than the designation in writing of a substitute or
successor trustee; and the authority hereby conferred shall extend to the
appointment of other successor and substitute trustees successively until the
full and final payment and satisfaction of the indebtedness and obligations so
assumed by Grantors, and each substitute and successor trustee shall succeed to
all of the rights and powers of the original Trustee named herein.
The term "Grantors" used in this instrument shall also include any and all
successors in interest of Grantors to all or any part of the herein described
and conveyed property as well as any and all purchasers thereof at any sale
made hereunder by the Trustee or Substitute Trustee, and the provisions of this
Deed of Trust shall be covenants running with the land.
If this Deed of Trust is or becomes binding upon one person or upon a
corporation, the plural reference to Grantors shall be held to include the
singular and all of the agreements and covenants herein undertaken to be
performed by and the rights conferred upon Grantors, shall be binding upon and
inure to the benefit of not only Grantors respectively but also their
respective heirs, executors, administrators, grantees, successors and assigns.
It is expressly stipulated that the liability of Grantors to Beneficiary,
arising by virtue of the assumption by Grantors of the payment of the note
herein described and of the obligations of the Deed of Trust securing said
note, as well as the liability to
3
<PAGE> 4
Beneficiary of any and all persons hereafter assuming payment of said note and
performance of the obligations of said Deed of Trust, shall in no wise be
discharged or released by this instrument or by the exercise by Beneficiary of
the rights and remedies herein provided for, it being agreed that this
instrument and all rights and remedies herein accorded Beneficiary are
cumulative of any and all other rights and remedies existing at law.
Grantors expressly represent that any indebtedness becoming due and
payable under and by virtue of the terms and provisions of this Deed of Trust
is in part payment of the purchase price of the herein described and conveyed
property and that this Deed of Trust is cumulative and in addition to the
Vendor's Lien expressly retained deed of even date herewith executed by
Beneficiary to Grantors, and it is expressly agreed that Beneficiary may
foreclose under either or both of said liens as Beneficiary may elect, without
waiving the other, said deed hereinbefore mentioned, together with its record,
being here referred to and made a part of this instrument.
In the event any sale is made of the above described property, or any
portion thereof, under the terms of this Deed of Trust, Grantors, their heirs
and assigns, shall forthwith upon the making of such sale surrender and deliver
possession of the property so sold to the Purchaser at such sale, and in the
event of their failure to do so they shall thereupon from and after the making
of such sale be and continue as tenants at will of such Purchaser, and in the
event of their failure to surrender possession of said property upon demand,
the Purchaser, his heirs or assigns, shall be entitled to institute and
maintain an action for forcible detainer of said property in the Justice of the
Peace Court in the Justice Precinct in which such property, or any part
thereof, is situated.
EXECUTED this 1st day of September 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Dan Borah /s/ Larry Mason Lee /s/ Roger Alan Parham
- ----------------- ------------------------- -----------------------
DAN BORAH, LARRY MASON LEE, ROGER ALAN PARHAM,
Grantor Grantor Grantor
</TABLE>
Mailing address of trustee: Mailing Address of each beneficiary:
Name: ERIC G. CARTER Name: RED LOUIE'S, L.C.
Address: 2919 Allen Parkway, Suite 202 Address: 2919 Allen Parkway,
Houston, Texas 77019 Suite 202
Houston, Texas 77019
4
<PAGE> 5
Mailing address of Grantors:
3813 E. Nasa Road 1
Seabrook, Texas 77586:
ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 1st day of September
1998, by DAN BORAH.
-----------------------------
Notary Public in and for the
State of Texas
ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 1st day of September
1998, by LARRY MASON LEE.
-----------------------------
Notary Public in and for the
State of Texas
ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 1st day of September
1998, by ROGER ALAN PARHAM.
-----------------------------
Notary Public in and for the
State of Texas
5
<PAGE> 1
EXHIBIT 10.36
STANDARD FORM OF AGREEMENT BETWEEN OWNER AND
CONTRACTOR WHERE THE BASIS FOR PAYMENT IS THE COST OF THE
WORK PLUS A FEE WITH A NEGOTIATED GUARANTEED MAXIMUM PRICE
AIA DOCUMENT A111 - 1997
1997 EDITION - ELECTRONIC FORMAT
- --------------------------------------------------------------------------------
This document has important legal consequences. Consultation with an attorney is
encouraged with respect to its completion or modification. AUTHENTICATION OF
THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401.
This document is not intended for use in competitive bidding.
AIA document A201-1997, General Conditions of the Contract for Construction, is
adopted in this document by reference.
This document has been approved and endorsed by The Associated General
Contractors of America.
Copyright 1920, 1925, 1951, 1958, 1961, 1963, 1967, 1974, 1978, 1987, (c)1997 by
The American Institute of Architects. Reproduction of the material herein or
substantial quotation of its provisions without written permission of the AIA
violates the copyright laws of the United States and will subject the violator
to legal prosecution.
- -------------------------------------------------------------------------------
AGREEMENT made as of the THIRTEENTH day of APRIL in the year NINETEEN HUNDRED
NINETY-EIGHT
(In words, indicate day, month and year)
BETWEEN the Owner:
(Name, address and other information)
DYNACQ INTERNATIONAL, INC.
4301 VISTA
PASADENA, TEXAS 77504
and the Contractor:
(Name, address and other information)
BECK-FORD CONSTRUCTION, INC.
6750 MAYARD ROAD
HOUSTON, TEXAS 77041
The Project is:
(Name and location)
ADDITIONS AND REMODELING - VISTA COMMUNITY MEDICAL CENTER
4301 VISTA
PASADENA, TEXAS 77504
The Architect is:
(Name, address and other information)
BENCHMARK, AN ARCHITECTURAL CORPORATION
4545 BISSONNET, SUITE 104
BELLAIRE, TEXAS 77401
The Owner and Contractor agree as follows.
ARTICLE 1 THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the Contract
(General, Supplementary and other
Page #1
<PAGE> 2
Conditions), Drawings, Specifications, Addenda issued prior to execution of
this Agreement, other documents listed in this Agreement and Modifications
issued after execution of this Agreement; these form the Contract, and are
as fully a part of the Contract as if attached to this Agreement or
repeated herein. The Contract represents the entire and integrated
agreement between the parties hereto and supersedes prior negotiations,
representations or agreements, either written or oral. An enumeration of
the Contract Documents, other than Modifications, appears in Article 15. If
anything in the other Contract Documents is inconsistent with this
Agreement, this Agreement shall govern.
ARTICLE 2 THE WORK OF THIS CONTRACT
The Contractor shall fully execute the Work described in the Contract
Documents, except to the extent specifically indicated in the Contract
Documents to be the responsibility of others.
ARTICLE 3 RELATIONSHIP OF THE PARTIES
The Contractor accepts the relationship of trust and confidence established
by this Agreement and covenants with the Owner to cooperate with the
Architect and exercise the Contractor's skill and judgment in furthering
the interests of the Owner; to furnish efficient business administration
and supervision; to furnish at all times an adequate supply of workers and
materials; and to perform the Work in an expeditious and economical manner
consistent with the Owner's interests. The Owner agrees to furnish and
approve, in a timely manner, information required by the Contractor and to
make payments to the Contractor in accordance with the requirements of the
Contract Documents.
ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
4.1 The date of commencement of the Work shall be the date of this
Agreement unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this
Agreement or, if applicable, state that the date will be fixed in a notice
to proceed.) DATE OF COMMENCEMENT SHALL BE WITHIN FIVE (5) DAYS FROM THE
RECEIPT OF BUILDING PERMIT FROM CITY OF PASADENA
If, prior to commencement of the Work, the Owner requires time to file
mortgages, mechanic's liens and other security interests, the Owner's time
requirement shall be as follows:
4.2 The Contract Time shall be measured from the date of commencement.
4.3 The Contractor shall achieve Substantial Completion of the entire Work
not later than 175 days from the date of commencement, or as follows:
(Insert number of calendar days. Alternatively, a calendar date may be used
when coordinated with the date of commencement. Unless stated elsewhere in
the Contract Documents, insert any requirements for earlier Substantial
Completion of certain portions of the Work.)
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time, or for bonus payments for early completion of the Work.)
N/A
ARTICLE 5 BASIS FOR PAYMENT
5.1 CONTRACT SUM
5.1.1 The Owner shall pay the Contractor the Contract Sum in current
funds for the Contractor's performance of the Contract. The Contract Sum is
the Cost of the Work as defined in Article 7 plus the Contractor's Fee.
5.1.2 The Contractor's Fee is:
(State a lump sum, percentage of Cost of the Work or other provision for
determining the Contractor's Fee, and describe the method of adjustment of
the Contractor's Fee for changes in the Work.)
SIX PERCENT (06%) OF THE COST OF THE WORK WHICH IS SOMETIMES HEREINAFTER
REFERRED TO IN THE CONTRACT DOCUMENTS AS OVERHEAD AND PROFIT.
5.2 GUARANTEED MAXIMUM PRICE
5.2.1 The sum of the Cost of the Work and the Contractor's Fee is
guaranteed by the Contractor not to exceed ONE MILLION NINE HUNDRED
SEVENTY-SEVEN THOUSAND AND NO/100 (PER QUOTE LETTER DATED MARCH 16, 1998)
Dollars ($1,977,000.00), subject to additions and deductions by Change
Order as provided in the Contract Documents. Such maximum sum is referred
to in the Contract Documents as the Guaranteed Maximum Price. Costs which
would cause the Guaranteed Maximum Price to be
Page #2
<PAGE> 3
exceeded shall be paid by the Contractor without reimbursement by the
Owner.
(Insert specific provisions if the Contractor is to participate in
any savings.)
SAVINGS - OWNER 80% AND CONTRACTOR 20%
5.2.2 The Guaranteed Maximum Price is based on the following
alternates, if any, which are described in the Contract Documents and are
hereby accepted by the Owner:
(State the numbers or other identification of accepted alternates. If
decisions on other alternates are to be made by the Owner subsequent to the
execution of this Agreement, attach a schedule of such other alternates
showing the amount for each and the date when the amount expires.)
N/A
5.2.3 Unit prices, if any, are as follows:
N/A
5.2.4 Allowances, if any, are as follows:
(Identify and state the amounts of any allowances, and state whether they
include labor, materials, or both.)
TESTING/BALANCING $5,000.00; LANDSCAPE ALLOWANCE $15,000.00; GRAPHIC
ALLOWANCE $10,000.00
5.2.5 Assumptions, if any, on which the Guaranteed Maximum Price is
based are as follows:
SEE ATTACHMENT "A"
5.2.6 To the extent that the Drawings and Specifications are
anticipated to require further development by the Architect, the Contractor
has provided in the Guaranteed Maximum Price for such further development
consistent with the Contract Documents and reasonably inferable therefrom.
Such further development does not include such things as changes in scope,
systems, kinds and quality of materials, finishes or equipment, all of
which, if required, shall be incorporated by Change Order.
ARTICLE 6 CHANGES IN THE WORK
6.1 Adjustments to the Guaranteed Maximum Price on account of changes
in the Work may be determined by any of the methods listed in Subparagraph
7.3.3 of AIA Document A201-1997.
6.2 In calculating adjustments to subcontracts (except those awarded
with the Owner's prior consent on the basis of cost plus a fee), the terms
"cost" and "fee" as used in Clause 7.3.3.3 of AIA Document A201-1997 and
the terms "costs" and "a reasonable allowance for overhead and profit" as
used in Subparagraph 7.3.6 of AIA Document A201-1997 shall have the
meanings assigned to them in AIA Document A201-1997 and shall not be
modified by Articles 5, 7 and 8 of this Agreement. Adjustments to
subcontracts awarded with the Owner's prior consent on the basis of cost
plus a fee shall be calculated in accordance with the terms of those
subcontracts.
6.3 In calculating adjustments to the Guaranteed Maximum Price, the
terms "cost" and "costs" as used in the above-referenced provisions of AIA
Document A201-1997 shall mean the Cost of the Work as defined in Article 7
of this Agreement and the terms "fee" and "a reasonable allowance for
overhead and profit" shall mean the Contractor's Fee as defined in
Subparagraph 5.1.2 of this Agreement.
6.4 If no specific provision is made in Paragraph 5.1 for adjustment
of the Contractor's Fee in the case of changes in the Work, or if the
extent of such changes is such, in the aggregate, that application of the
adjustment provisions of Paragraph 5.1 will cause substantial inequity to
the Owner or Contractor, the Contractor's Fee shall be equitably adjusted
on the basis of the Fee established for the original Work, and the
Guaranteed Maximum Price shall be adjusted accordingly.
ARTICLE 7 COSTS TO BE REIMBURSED
7.1 COST OF THE WORK
The term Cost of the Work shall mean costs necessarily incurred by the
Contractor in the proper performance of the Work. Such costs shall be at
rates not higher than the standard paid at the place of the Project except
with prior consent of the Owner. The Cost of the Work shall include only
the items set forth in this Article 7.
7.2 LABOR COSTS
Page #3
<PAGE> 4
7.2.1 Wages of construction workers directly employed by the Contractor to
perform the construction of the Work at the site or, with the Owner's approval,
at off-site workshops.
7.2.2 Wages or salaries of the Contractor's supervisory and administrative
personnel when stationed at the site with the Owner's approval. DUE TO THE FAST
TRACK NATURE OF THIS PROJECT, TWENTY-FIVE (25%) PERCENT OF THE COST OF
BECK-FORD'S PROJECT MANAGER WILL BE CHARGED TO THIS PROJECT EVEN THOUGH HE WILL
NOT BE STATIONED AT THE SITE.
(If it is intended that the wages or salaries of certain personnel stationed at
the Contractor's principal or other offices shall be included in the Cost of the
Work, identify in Article 14 the personnel to be included and whether for all or
only part of their time, and the rates at which their time will be charged to
the Work.)
7.2.3 Wages and salaries of the Contractor's supervisory or administrative
personnel engaged, at factories, workshops or on the road, in expediting the
production or transportation of materials or equipment required for the Work,
but only for that portion of their time required for the Work.
7.2.4 Costs paid or incurred by the Contractor for taxes, insurance,
contributions, assessments and benefits required by law or collective bargaining
agreements and, for personnel not covered by such agreements, customary benefits
such as sick leave, medical and health benefits, holidays, vacations and
pensions, provided such costs are based on wages and salaries included in the
Cost of the Work under Subparagraphs 7.2.1 through 7.2.3.
7.3 SUBCONTRACT COSTS
7.3.1 Payments made by the Contractor to Subcontractors in accordance with
the requirements of the subcontracts.
7.4 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION
7.4.1 Costs, including transportation and storage, of materials and
equipment incorporated or to be incorporated in the completed construction.
7.4.2 Costs of materials described in the preceding Subparagraph 7.4.1 in
excess of those actually installed to allow for reasonable waste and spoilage.
Unused excess materials, if any, shall become the Owner's property at the
completion of the Work or, at the Owner's option, shall be sold by the
Contractor. Any amounts realized from such sales shall be credited to the Owner
as a deduction from the Cost of the Work.
7.5 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED
ITEMS
7.5.1 Costs, including transportation and storage, installation,
maintenance, dismantling and removal of materials, supplies, temporary
facilities, machinery, equipment, and hand tools not customarily owned by
construction workers, that are provided by the Contractor at the site and fully
consumed in the performance of the Work; and cost (less salvage value) of such
items if not fully consumed, whether sold to others or retained by the
Contractor. Cost for items previously used by the Contractor shall mean fair
market value.
7.5.2 Rental charges for temporary facilities, machinery, equipment, and
hand tools not customarily owned by construction workers that are provided by
the Contractor at the site, whether rented from the Contractor or others, and
costs of transportation, installation, minor repairs and replacements,
dismantling and removal thereof. Rates and quantities of equipment rented shall
be subject to the Owner's prior approval.
7.5.3 Costs of removal of debris from the site.
7.5.4 Costs of document reproductions, facsimile transmissions and
long-distance telephone calls, postage and parcel delivery charges, telephone
service at the site and reasonable petty cash expenses of the site office.
7.5.5 That portion of the reasonable expenses of the Contractor's personnel
incurred while traveling in discharge of duties connected with the Work.
7.5.6 Costs of materials and equipment suitably stored off the site at a
mutually acceptable location, if approved in advance by the Owner.
7.6 MISCELLANEOUS COSTS
Page #4
<PAGE> 5
7.6.1 That portion of insurance and bond premiums that can be directly
attributed to this Contract: PAYMENT/PERFORMANCE BONDS EXCLUDED FROM BASE
BID
7.6.2 Sales, use or similar taxes imposed by a governmental authority that
are related to the Work.
7.6.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Contractor is required by the
Contract Documents to pay.
7.6.4 Fees of laboratories for tests required by the Contract Documents,
except those related to defective or nonconforming Work for which
reimbursement is excluded by Subparagraph 13.5.3 of AIA Document A201-1997
or other provisions of the Contract Documents, and which do not fall
within the scope of Subparagraph 7.7.3.
7.6.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents, the cost of
defending suits or claims for infringement of patent rights arising from
such requirement of the Contract Documents; and payments made in
accordance with legal judgments against the Contractor resulting from
such suits or claims and payments of settlements made with the Owner's
consent. However, such costs of legal defenses, judgments and settlements
shall not be included in the calculation of the Contractor's Fee or
subject to the Guaranteed Maximum Price. If such royalties, fees and costs
are excluded by the last sentence of Subparagraph 3.17.1 of AIA Document
A201-1997 or other provisions of the Contract Documents, then they shall
not be included in the Cost of the Work.
7.6.6 Data processing costs related to the Work.
7.6.7 Deposits lost for causes other than the Contractor's negligence or
failure to fulfill a specific responsibility to the Owner as set forth in
the Contract Documents.
7.6.8 Legal, mediation and arbitration costs, including attorneys' fees,
other than those arising from disputes between the Owner and Contractor,
reasonably incurred by the Contractor in the performance of the Work and
with the Owner's prior written approval; which approval shall not be
unreasonably withheld.
7.6.9 Expenses incurred in accordance with the Contractor's standard
personnel policy for relocation and temporary living allowances of
personnel required for the Work, if approved by the Owner.
7.7 OTHER COSTS AND EMERGENCIES
7.7.1 Other costs incurred in the performance of the Work if and to the
extent approved in advance in writing by the Owner.
7.7.2 Costs due to emergencies incurred in taking action to prevent
threatened damage, injury or loss in case of an emergency affecting the
safety of persons and property, as provided in Paragraph 10.6 of AIA
Document A201-1997.
7.7.3 Costs of repairing or correcting damage or nonconforming Work
executed by the Contractor, Subcontractors or suppliers, provided that
such damaged or nonconforming Work was not caused by negligence or failure
to fulfill a specific responsibility of the Contractor and only to the
extent that the cost of repair or correction is not recoverable by the
Contractor from insurance, sureties, Subcontractors or suppliers.
ARTICLE 8 COSTS NOT TO BE REIMBURSED
8.1 The Cost of the Work shall not include:
8.1.1 Salaries and other compensation of the Contractor's personnel
stationed at the Contractor's principal office or offices other than the
site office, except as specifically provided in Subparagraphs 7.2.2 and
7.2.3 or as may be provided in Article 14.
8.1.2 Expenses of the Contractor's principal office and offices other than
the site office.
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<PAGE> 6
8.1.3 Overhead and general expenses, except as may be expressly included in
Article 7.
8.1.4 The Contractor's capital expenses, including interest on the
Contractor's capital employed for the Work.
8.1.5 Rental costs of machinery and equipment, except as specifically
provided in Subparagraph 7.5.2.
8.1.6 Except as provided in Subparagraph 7.7.3 of this Agreement, costs due
to the negligence or failure to fulfill a specific responsibility of the
Contractor, Subcontractors and suppliers or anyone directly or indirectly
employed by any of them or for whose acts any of them may be liable.
8.1.7 Any cost not specifically and expressly described in Article 7.
8.1.8 Costs, other than costs included in Change Orders approved by the
Owner, that would cause the Guaranteed Maximum Price to be exceeded.
ARTICLE 9 DISCOUNTS, REBATES AND REFUNDS
9.1 Cash discounts obtained on payments made by the Contractor shall accrue
to the Owner if (1) before making the payment, the Contractor included them
in an Application for Payment and received payment therefor from the Owner,
or (2) the Owner has deposited funds with the Contractor with which to make
payments; otherwise, cash discounts shall accrue to the Contractor. Trade
discounts, rebates, refunds and amounts received from sales of surplus
materials and equipment shall accrue to the Owner, and the Contractor shall
make provisions so that they can be secured.
9.2 Amounts that accrue to the Owner in accordance with the provisions of
Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of
the Work.
ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS
10.1 Those portions of the Work that the Contractor does not customarily
perform with the Contractor's own personnel shall be performed under
subcontracts or by other appropriate agreements with the Contractor. The
Owner may designate specific persons or entities from whom the Contractor
shall obtain bids. The Contractor shall obtain bids from Subcontractors and
from suppliers of materials or equipment fabricated especially for the Work
and shall deliver such bids to the Architect. The Owner shall then determine,
with the advice of the Contractor and the Architect, which bids will be
accepted. The Contractor shall not be required to contract with anyone to
whom the Contractor has reasonable objection.
10.2 If a specific bidder among those whose bids are delivered by the
Contractor to the Architect (1) is recommended to the Owner by the
Contractor; (2) is qualified to perform that portion of the Work; and (3) has
submitted a bid that conforms to the requirements of the Contract Documents
without reservations or exceptions, but the Owner requires that another bid
be accepted, then the Contractor may require that a Change Order be issued to
adjust the Guaranteed Maximum Price by the difference between the bid of the
person or entity recommended to the Owner by the Contractor and the amount of
the subcontract or other agreement actually signed with the person or entity
designated by the Owner.
10.3 Subcontracts or other agreements shall conform to the applicable
payment provisions of this Agreement, and shall not be awarded on the basis
of cost plus a fee without the prior consent of the Owner.
ARTICLE 11 ACCOUNTING RECORDS
The Contractor shall keep full and detailed accounts and exercise such
controls as may be necessary for proper financial management under this
Contract, and the accounting and control systems shall be satisfactory to the
Owner. The Owner and the Owner's accountants shall be afforded access to, and
shall be permitted to audit and copy, the Contractor's records, books,
correspondence, instructions, drawings, receipts, subcontracts, purchase
orders, vouchers, memoranda and other data relating to this Contract, and the
Contractor shall preserve these for a period of three years after final
payment, or for such longer period as may be required by law.
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<PAGE> 7
ARTICLE 12 PAYMENTS
12.1 PROGRESS PAYMENTS
12.1.1 Based upon Applications for Payment submitted to the Architect by
the Contractor and Certificates for Payment issued by the Architect, the
Owner shall make progress payments on account of the Contract Sum to the
Contractor as provided below and elsewhere in the Contract Documents.
12.1.2 The period covered by each Application for Payment shall be one
calendar month ending on the last day of the month, or as follows:
12.1.3 Provided that an Application for Payment is received by the
Architect not later than the FIRST day of a month, the Owner shall make
payment to the Contractor not later than the TWENTIETH day of the SAME
month. If an Application for Payment is received by the Architect after the
application date fixed above, payment shall be made by the Owner not later
than TWENTY (20) days after the Architect receives the Application for
Payment.
12.1.4 With each Application for Payment, the Contractor shall submit
payrolls, petty cash accounts, receipted invoices or invoices with check
vouchers attached, and any other evidence required by the Owner or
Architect to demonstrate that cash disbursements already made by the
Contractor on account of the Cost of the Work equal or exceed (1) progress
payments already received by the Contractor; less (2) that portion of those
payments attributable to the Contractor's Fee; plus (3) payrolls for the
period covered by the present Application for Payment.
12.1.5 Each Application for Payment shall be based on the most recent
schedule of values submitted by the Contractor in accordance with the
Contract Documents. The schedule of values shall allocate the entire
Guaranteed Maximum Price among the various portions of the Work, except
that the Contractor's Fee shall be shown as a single separate item. The
schedule of values shall be prepared in such form and supported by such
data to substantiate its accuracy as the Architect may require. This
schedule, unless objected to by the Architect, shall be used as a basis for
reviewing the Contractor's Applications for Payment.
12.1.6 Applications for Payment shall show the percentage of completion
of each portion of the Work as of the end of the period covered by the
Application for Payment. The percentage of completion shall be the lesser
of (1) the percentage of that portion of the Work which has actually been
completed; or (2) the percentage obtained by dividing (a) the expense that
has actually been incurred by the Contractor on account of that portion of
the Work for which the Contractor has made or intends to make actual
payment prior to the next Application for Payment by (b) the share of the
Guaranteed Maximum Price allocated to that portion of the Work in the
schedule of values.
12.1.7 Subject to other provisions of the Contract Documents, the amount
of each progress payment shall be computed as follows:
.1 take that portion of the Guaranteed Maximum Price properly
allocable to completed Work as determined by multiplying the
percentage of completion of each portion of the Work by the share
of the Guaranteed Maximum Price allocated to that portion of the
Work in the schedule of values. Pending final determination of
cost to the Owner of changes in the Work, amounts not in dispute
shall be included as provided in Subparagraph 7.3.8 of AIA
Document A201-1997;
.2 add that portion of the Guaranteed Maximum Price properly
allocable to materials and equipment delivered and suitably
stored at the site for subsequent incorporation in the Work, or
if approved in advance by the Owner, suitably stored off the site
at a location agreed upon in writing;
.3 add the Contractor's Fee, less retainage of FIVE percent (05%).
The Contractor's Fee shall be computed upon the Cost of the Work
described in the two preceding Clauses at the rate stated in
Subparagraph 5.1.2 or, if the Contractor's Fee is stated as a
fixed sum in that Subparagraph, shall be an amount that bears the
same ratio to that fixed-sum fee as the Cost of the Work in the
two preceding Clauses bears to a reasonable estimate of the
probable Cost of the Work upon its
Page #7
<PAGE> 8
completion;
.4 subtract the aggregate of previous payments made by the Owner;
.5 subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.1.4 to substantiate prior
Applications for Payment, or resulting from errors subsequently
discovered by the Owner's accountants in such documentation; and
.6 subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of
AIA Document A201-1997.
12.1.8 Except with the Owner's prior approval, payments to Subcontractors
shall be subject to retainage of not less than percent (05%). The Owner and the
Contractor shall agree upon a mutually acceptable procedure for review and
approval of payments and retention for Subcontractors.
12.1.9 In taking action on the Contractor's Applications for Payment, the
Architect shall be entitled to rely on the accuracy and completeness of the
information furnished by the Contractor and shall not be deemed to represent
that the Architect has made a detailed examination, audit or arithmetic
verification of the documentation submitted in accordance with Subparagraph
12.1.4 or other supporting data; that the Architect has made exhaustive or
continuous on-site inspections or that the Architect has made examinations to
ascertain how or for what purposes the Contractor has used amounts previously
paid on account of the Contract. Such examinations, audits and verifications,
if required by the Owner, will be performed by the Owner's accountants acting
in the sole interest of the Owner.
12.2 FINAL PAYMENT
12.2.1 Final payment, constituting the entire unpaid balance of the Contract
Sum, shall be made by the Owner to the Contractor when:
.1 the Contractor has fully performed the Contract except for the
Contractor's responsibility to correct Work as provided in
Subparagraph 12.2.2 of AIA Document A201-1997, and to satisfy other
requirements, if any, which extend beyond final payment; and
.2 a final Certificate for Payment has been issued by the Architect.
12.2.2 The Owner's final payment to the Contractor shall be made no later
than 30 days after the issuance of the Architect's final Certificate for
Payment, or as follows:
12.2.3 The Owner's accountants will review and report in writing on the
Contractor's final accounting within 30 days after delivery of the final
accounting to the Architect by the Contractor. Based upon such Cost of the Work
as the Owner's accountants report to be substantiated by the Contractor's final
accounting, and provided the other conditions of Subparagraph 12.2.1 have been
met, the Architect will, within seven days after receipt of the written report
of the Owner's accountants, either issue to the Owner a final Certificate for
Payment with a copy to the Contractor, or notify the Contractor and Owner in
writing of the Architect's reasons for withholding a certificate as provided in
Subparagraph 9.5.1 of the AIA Document A201-1997. The time periods stated in
this Subparagraph 12.2.3 supersede those stated in Subparagraph 9.4.1 of the
AIA Document A201-1997.
12.2.4 If the Owner's accountants report the Cost of the Work as
substantiated by the Contractor's final accounting to be less than claimed by
the Contractor, the Contractor shall be entitled to demand arbitration of the
disputed amount without a further decision of the Architect. Such demand for
arbitration shall be made by the Contractor within 30 days after the
Contractor's receipt of a copy of the Architect's final Certificate for
Payment; failure to demand arbitration within this 30-day period shall result
in the substantiated amount reported by the Owner's accountants becoming
binding on the Contractor. Pending a final resolution by arbitration, the Owner
shall pay the Contractor the amount certified in the Architect's final
Certificate for Payment.
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<PAGE> 9
12.2.5 If, subsequent to final payment and at the Owner's request, the
Contractor incurs costs described in Article 7 and not excluded by Article
8 to correct defective or nonconforming Work, the Owner shall reimburse the
Contractor such costs and the Contractor's Fee applicable thereto on the
same basis as if such costs had been incurred prior to final payment, but
not in excess of the Guaranteed Maximum Price. If the Contractor has
participated in savings as provided in Paragraph 5.2, the amount of such
savings shall be recalculated and appropriate credit given to the Owner in
determining the net amount to be paid by the Owner to the Contractor.
ARTICLE 13 TERMINATION OR SUSPENSION
13.1 The Contract may be terminated by the Contractor, or by the
Owner for convenience, as provided in Article 14 of AIA Document A201-1997.
However, the amount to be paid to the Contractor under Subparagraph 14.1.3
of AIA Document A201-1997 shall not exceed the amount the Contractor would
be entitled to receive under Paragraph 13.2 below, except that the
Contractor's Fee shall be calculated as if the Work had been fully
completed by the Contractor, including a reasonable estimate of the Cost of
the Work for Work not actually completed.
13.2 The Contract may be terminated by the Owner for cause as
provided in Article 14 of AIA Document A201-1997. The amount, if any, to be
paid to the Contractor under Subparagraph 14.2.4 of AIA Document A201-1997
shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it
exceed an amount calculated as follows:
13.2.1 Take the Cost of the Work incurred by the Contractor to the
date of termination;
13.2.2 Add the Contractor's Fee computed upon the Cost of the Work to
the date of termination at the rate stated in Subparagraph 5.1.2 or, if the
Contractor's Fee is stated as a fixed sum in that Subparagraph, an amount
that bears the same ratio to that fixed-sum Fee as the Cost of the Work at
the time of termination bears to a reasonable estimate of the probable Cost
of the Work upon its completion; and
13.2.3 Subtract the aggregate of previous payments made by the Owner.
13.3 The Owner shall also pay the Contractor fair compensation,
either by purchase or rental at the election of the Owner, for any
equipment owned by the Contractor that the Owner elects to retain and that
is not otherwise included in the Cost of the Work under Subparagraph
13.2.1. To the extent that the Owner elects to take legal assignment of
subcontracts and purchase orders (including rental agreements), the
Contractor shall, as a condition of receiving the payments referred to in
this Article 13, execute and deliver all such papers and take all such
steps, including the legal assignment of such subcontracts and other
contractual rights of the Contractor, as the Owner may require for the
purpose of fully vesting in the Owner the rights and benefits of the
Contractor under such subcontracts or purchase orders.
13.4 The Work may be suspended by the Owner as provided in Article 14
of AIA Document A201-1997; in such case, the Guaranteed Maximum Price and
Contract Time shall be increased as provided in Subparagraph 14.3.2 of AIA
Document A201-1997 except that the term "profit" shall be understood to
mean the Contractor's Fee as described in Subparagraphs 5.1.2 and Paragraph
6.4 of this Agreement.
ARTICLE 14 MISCELLANEOUS PROVISIONS
14.1 Where reference is made in this Agreement to provision AIA
Document A201-1997 or another Contract Document, the reference refers to
that provision as amended or supplemented by other provisions of the
Contract Documents.
14.2 Payments due and unpaid under the Contract shall bear interest
from the date payment is due at the rate stated below, or in the absence
thereof, at the legal rate prevailing from time to time at the place where
the Project is located.
(Insert rate of interest agreed upon, if any.)
SEVEN PERCENT (07%)
(Usuary laws and requirements under the Federal Truth in Lending Act,
similar state and local consumer credit laws and other regulations at the
Owner's and Contractor's principal places of business, the location of the
Project and elsewhere may affect the validity of this provision. Legal
advice should be obtained with respect to deletions or modifications, and
also regarding requirements such as written disclosures or waivers.)
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<PAGE> 10
14.3 The Owner's representative is:
(Name, address and other information.)
MR. JOHN MORAN
DYNACQ INTERNATIONAL, INC.
4301 VISTA
PASADENA, TEXAS 77504
14.4 The Contractor's representative is:
(Name, address and other information.)
RONALD A. BROWN, VICE-PRESIDENT
BECK-FORD CONSTRUCTION, INC.
6750 MAYARD ROAD
HOUSTON, TEXAS 77041
14.5 Neither the Owner's nor the Contractor's representative shall be
changed without ten days' written notice to the other party.
14.6 Other provisions:
ARTICLE 15 ENUMERATION OF CONTRACT DOCUMENTS
15.1 The Contract Documents, except for Modifications issued after
execution of this Agreement, are enumerated as follows:
15.1.1 The Agreement is this executed 1997 edition of the Standard Form of
Agreement Between Owner and Contractor, AIA Document A111-1997.
15.1.2 The General Conditions are the 1997 edition of the General
Conditions of the Contract for Construction, AIA Document A201-1997.
15.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated MARCH 02, 1998, and are as follows:
<TABLE>
<CAPTION>
Document Title Pages
<S> <C> <C>
VISTA COMMUNITY MEDICAL CENTER
</TABLE>
15.1.4 The Specifications are those contained in the Project Manual dated
as in Subparagraph 15.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to
this Agreement.)
<TABLE>
<CAPTION>
Section Title Pages
<S> <C> <C>
PER ATTACHMENT "B"
</TABLE>
15.1.5 The Drawings are as follows, and are dated unless a different date
is shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
<TABLE>
<CAPTION>
Number Title Date
<S> <C> <C>
PER ATTACHMENT "C"
</TABLE>
15.1.6 The Addenda, if any, are as follows:
<TABLE>
Number Date Pages
<S> <C> <C>
ONE (01) MARCH 09, 1998 1-3
----------------------------------------------------------------
TWO (02) MARCH 12, 1998 1-5
----------------------------------------------------------------
</TABLE>
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in
this Article 15.
15.1.7 Other Documents, if any, forming part of the Contract Documents are
as follows:
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<PAGE> 11
(List here any additional documents, such as a list of alternates that are
intended to form part of the Contract Documents. AIA Document A201-1997
provides that bidding requirements such as advertisement or invitation to
bid, Instructions to Bidders, sample forms and the Contractor's bid are not
part of the Contract Documents unless enumerated in this Agreement. They
should be listed here only if intended to be part of the Contract
Documents.)
HOLSTE & ASSOCIATES, INC. LETTER OF DESIGN ITEM DATED MARCH 02, 1998 - 5
PAGES - ATTACHMENT "D"
ARTICLE 16 INSURANCE AND BONDS
(List required limits of liability for insurance and bonds. AIA Document
A201-1997 gives other specific requirements for insurance and bonds.)
COST OF PERFORMANCE AND PAYMENT BONDS $23,700.00 (NOT IN BASE BID)
This Agreement is entered into as of the day and year first written above and
is executed in at least three original copies, of which one is to be delivered
to the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
/s/ Philip Chan /s/ Robert W. Becktell
- ------------------------------------- --------------------------------------
OWNER (Signature) CONTRACTOR (Signature)
Philip Chan Robert W. Becktell, President
- ------------------------------------- --------------------------------------
(Printed name and title) (Printed name and title)
Page #11
<PAGE> 1
EXHIBIT 21.0
LIST OF SUBSIDIARIES
1. Vista Healthcare, Inc., a Texas corporation
2. Dynacq (Asia) Ltd., a Hong Kong limited liability company
3. Vista Community Medical Center, L.L.C., a Texas limited liability
company
4. ASO Medical, Inc.
5. Doctors Practice Management, Inc., a Texas corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 2,443,257
<SECURITIES> 0
<RECEIVABLES> 1,681,205
<ALLOWANCES> 0
<INVENTORY> 29,608
<CURRENT-ASSETS> 4,154,070
<PP&E> 5,212,841
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,612,056
<CURRENT-LIABILITIES> 1,643,089
<BONDS> 1,087,144
0
0
<COMMON> 3,607
<OTHER-SE> 5,800,911
<TOTAL-LIABILITY-AND-EQUITY> 9,612,056
<SALES> 0
<TOTAL-REVENUES> 11,234,435
<CGS> 408,074
<TOTAL-COSTS> 6,421,585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,389,956
<INTEREST-EXPENSE> 132,562
<INCOME-PRETAX> 1,882,258
<INCOME-TAX> 716,000
<INCOME-CONTINUING> 1,166,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 945,843
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.27
</TABLE>
