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FORM 10-KSB
UNITED STATES
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 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED JUNE
30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] for the transition period from
____________ to ____________
Commission file number: 1-14150
THE COMPANY DOCTOR
(Name of small business issuer in its charter)
DELAWARE 72-1234136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
SUITE 1800
5215 NORTH O'CONNOR BOULEVARD
IRVING, TEXAS 75039
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (972) 401-8300
Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, NO PAR VALUE PER SHARE BOSTON STOCK EXCHANGE
WARRANTS TO PURCHASE COMMON STOCK
Securities registered pursuant to section 12(g) of the Securities Exchange Act:
NONE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ]
State issuer's revenues for its most recent fiscal year: $11,034,467
The aggregate market value of the 3,413,650 shares of Common Stock held by
non-affiliates was $12,587,834 as of September 23, 1997. For purposes of the
foregoing calculation only, each of the issuer's officers and directors is
deemed to be an affiliate. The market value of the shares was calculated based
on the closing sales of such shares on The Nasdaq SmallCap Market on such date.
As of September 23, 1997, 4,906,949 shares of the issuer's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Transitional Small Business Disclosure Format: Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company Doctor manages facilities that provide occupational and
industrial medical and related services exclusively to employees and
prospective employees of corporate customers located in the states of Texas,
Louisiana and Arkansas. The Company currently manages eleven occupational and
industrial medicine facilities servicing over approximately 4,000 employers and
clients including local offices of such corporations as Blockbuster Video, Excel
Telecommunications, Fibrebond Corp., Interceramic Tile, Southwest Airlines,
U-Haul Corporation, Levi, the U.S. Postal Service and Atlantic Richfield Co.
(ARCO). At these facilities, prospective employees of the corporate customer
can be pre-screened and work-related injuries and medical conditions arising
from employment can be diagnosed and treated. See "Item 1. Description of
Business - Healthcare Operations and Services."
Currently, the Company's operating revenues are derived primarily
through a non-exclusive Practice Management Agreement with The Physician Group,
P.A. ("The Physician Group"), a Texas professional association of physicians
and other medical professionals which is paid by the employer for services
either on a fee-for-service basis or on a prepaid "capitated" basis (a fixed
monthly fee for each employee). The Company receives a management fee for the
provision of non-medical services, including marketing, management of the
practice and use of the facilities, and provision of non-medical procedures and
programs. The Company also receives a portion of its operating revenues from
management of two facilities outside The Physician Group. See "Item 1.
Description of Business - Physician Services, Recruitment and Duties" and -
"Affiliations, Joint Ventures and Acquisitions."
At its nine Texas facilities, the Company utilizes The Physician Group
to render the actual medical services provided to employees and prospective
employees of its clients. Because most states have enacted laws limiting the
practice of medicine to licensed individuals or professional organizations
comprised of licensed individuals, the Company is dependent on The
Physician Group or other professional associations of licensed professionals to
render medical services at the Company's facilities. The Company anticipates
it will continue to contract with The Physician Group to provide medical
services at facilities which the Company acquires or opens in Texas in the
future.
The Company believes its management techniques and cost containment
strategies have in many cases resulted in reductions in loss ratios by workers'
compensation insurers and, thereafter, in reduced insurance premiums charged to
the Company's clients. To benefit indirectly from the advantages of its own
cost containment programs, the Company implemented an arrangement with Employers
General Insurance Group ("EGIG"), a subsidiary of Old Republic General Insurance
Group, Inc., a company listed on the New York Stock Exchange with an A+ rating
from A.M. Best Company, to develop and offer an insurance and occupational
medicine product known as "Comp2000" which is a fully-guaranteed fixed cost
workers' compensation insurance policy that includes The Physician Group's
capitated preventive healthcare services. See "Item 1. Description of Business
- - - - Healthcare Operations and Services and - Insurance and Insurance Related
Operations."
In order to benefit even more directly from the use of its cost
containment strategies utilized in its practice management activities, the
Company acquired a Texas domiciled, multi-line insurance company, now known as
Risk Management Assurance Corporation ("RMAC"), effective June 30, 1996.
Through RMAC, the Company may enter the workers' compensation insurance
market by reinsurance of insurance policies issued by other workers'
compensation insurers, including EGIG. See "Item 1. Description of Business -
Insurance and Insurance Related Operations".
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INDUSTRY OVERVIEW
Occupational and industrial healthcare consists of (i) workers'
compensation injury care and related services, and (ii) non-injury healthcare
services related to employer needs or statutory requirements.
Workers' Compensation. Workers' compensation laws require certain
employers to compensate employees for medical expenses, lost wages and other
costs resulting from work-related accidents, injuries and illnesses. As each
state is responsible for enactment, implementation and regulation of these
laws, workers' compensation laws and regulations on benefits and arrangements
vary on a state-by-state basis and are often highly complex. Typically
however, work-related injuries are broadly defined, and injured or ill
employees are entitled to extensive compensation benefits. Employers are
required to provide first-dollar coverage with no insurance co-payment or
deductible due from the injured or ill employee for medical treatment and, in
many states, there is no lifetime limit on expenses. In exchange for providing
this coverage for employees, employers are not subject to litigation by
employees for compensation or benefits in excess of those provided by
applicable state statute. In most states, the employer is required to secure
the payment of compensation benefits through the purchase of commercial
insurance from private insurance companies, participation in state-operated
insurance funds or employer self-insurance. In the few states, including
Texas, in which employers are not required to purchase such insurance,
uninsured employers are exposed to significant potential liability as the
result of an employee's work-related injury or death.
Non-Injury Healthcare Services. Non-injury healthcare services include
employment-related physical examinations (including pre-employment screening
and post-hiring annual physical exams), drug and alcohol testing, functional
capacity testing and other related programs designed to meet specific employer
needs. Non-injury healthcare services also include programs to assist
employers in complying with an expanding list of federal and state governmental
requirements, including hearing conservation programs, toxic chemical exposure
surveillance and monitoring programs, and Department of Transportation and
Federal Aviation Administration physical examinations. Federal laws governing
health issues in the workplace, including the Americans with Disabilities Act,
have increased employers' demand for healthcare professionals who have
experience in the delivery of these regulated services.
The Company believes that the cost of work-related injuries is likely
to continue to rise primarily because of (i) broader definitions of injuries
and illnesses covered by workers' compensation laws, (ii) an aging work force,
(iii) the continued requirement that employers pay all of an employee's cost of
medical treatment, without any employee co- payment or deductible, and a
significant portion of lost wages and non-medical costs, and (iv) the
relatively low utilization to date of comprehensive cost containment programs
in the workers' compensation system. The Company believes its management
techniques and cost containment strategies can benefit all employers, but in
particular, employers in industries that have relatively high workers'
compensation costs and employers with higher than average claims experience.
HEALTHCARE OPERATIONS AND SERVICES
Seven of the eleven occupational healthcare facilities currently
managed by the Company are located in the Dallas/Fort Worth, Texas metropolitan
area. The remaining four facilities are located in Baytown, Texas (a suburb of
Houston); El Paso, Texas; Shreveport, Louisiana; and Little Rock, Arkansas.
The facilities managed by the Company range in size from approximately 3,000
square feet to 10,000 square feet and have capacity to handle from
approximately 40 to 200 patients per day. Each facility is equipped with
examination rooms, an emergency suite, an intake room, an x-ray room, a small
laboratory and areas for reception, drug testing, collection, rehabilitation
and administration. The facilities are generally open nine to eleven hours per
day.
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Licensed physicians in the Company's facilities are generally trained
and experienced in occupational and industrial medicine or have emergency or
general medicine backgrounds. Each facility utilizes a staff of between five
and 25 full-time persons (or their part-time equivalents), including nurses,
therapists and administrative support personnel. Each of the Company's
facilities is staffed with one or more licensed physicians.
A majority of the medical and non-medical services are offered on a
walk-in basis, although specialized services are usually scheduled in advance.
Through The Physician Group, urgent care is offered for employees suffering
from work-related injuries, which most commonly involve soft tissue injuries,
back injuries or exposure to hazardous material. Patients with injuries beyond
the scope of the physician's expertise are referred to an appropriate medical
facility.
Fee-for-Services Plan. The following chart lists the services offered
on a "fee-for-services" basis whereby employers pay The Physician Group for
each medical service rendered and pay the Company for all non-medical services
rendered as the service is provided.
<TABLE>
<CAPTION>
Services Provided Application
- - - ----------------- -----------
<S> <C>
Prevention . . . . . . . . . . Cholesterol testing and management; RiskScan computerized health risk analysis;
Personalized health risk analysis; Health seminars; Stress management; Flu
immunizations; Smoking cessation.
Medical Examinations . . . . . Examinations in compliance with both Occupational Safety and Health Administration
and Department of Transportation standards; Computerized back examinations;
Pre-employment examinations; Comprehensive executive/annual examinations; Asbestos
and other medical surveillance examinations.
Treatment . . . . . . . . . . . Physical examinations by occupational medicine specialists; Work-related injury
treatment; Physical therapy services; X-rays; Laboratory facilities; Pharmacy.
Medical Screening
and Testing . . . . . . . . Pulmonary function; HIV antibody screening; Treadmill stress test; Tuberculosis test;
Hepatitis B screening; Audiometric screening; Heavy metals screening; Blood chemistry
profile (SMA-24); Chest X-rays; Vision screening; Proctoscopic examinations.
Management Services . . . . . . Cost/benefit management reports; Physician consultation; Safety, health and accident
prevention services; Case control - loss management services via computerized injury
tracking; Regulatory compliance information; Risk management information; Medical
billing audits; Accident work status reports; Occupational medicine supplies;
Physician summary reports to employers and employees.
Drug Testing . . . . . . . . . Consultation and program development; Medical review officer services; Collection
facility in compliance with National Institute of Drug Abuse standards; Screening
examinations.
</TABLE>
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The Preferred Employee Plan. A majority of services are offered
pursuant to a "Preferred Employee Plan" or "PEP," a "capitated" plan which
allows employers to limit the costs they would otherwise pay for certain
services, a managed care approach to occupational medicine. In return for a
prepaid monthly fee for each person employed by an employer client, ranging from
approximately $8.50 to $21 per person, the Company and The Physician Group
provide an agreed upon package of services. One portion of the capitated fee
is for medical services provided by The Physician Group and the other portion
is for non-medical services provided by the Company. Clients pay the same fee
for every employee, regardless of how many services are provided to any
particular employee in a given month. All existing PEP agreements are
terminable by the employer client, the Company or The Physician Group on 30
days' prior written notice.
The PEP is a variation on the use of in-house, captive medical
departments to control medical costs. Advantages of the PEP over the use of an
in-house medical department are that (i) small companies and major corporations
have the same opportunities for cost containment, (ii) the more sophisticated,
in-depth physical examination provided under the PEP to screen individuals for
health problems and physical fitness aid earlier discovery of health concerns;
and (iii) extensive examinations can provide a more accurate picture of the
potential productivity of an individual employee and can identify certain
significant risks of future on-the-job injuries and other serious health
conditions, thereby assisting in cost containment. These services are
specifically aimed at lowering the cost of employee benefits, improving
employee productivity, decreasing absenteeism and enhancing employer/employee
relations through use of wellness and prevention programs.
Services provided under the PEP by the Company and/or The Physician
Group include:
<TABLE>
<CAPTION>
Services Provided Application
- - - ----------------- -----------
<S> <C>
Comprehensive pre-placement
physical examinations . RiskScan computerized health risk analysis with confidential individual analysis for each
prospective employee and detailed management reports on overall results; Medical and
occupational history for each prospective employee; Physician's examination; Audiometric
evaluation; Vision screening; Pulmonary function testing; Submaximal stress electro-
cardiogram; Computerized back testing utilizing Isotechnology B-200; Chest X-ray; Complete
blood count; Blood chemistry profile including 24 tests for the assessment of internal
organ function and coronary risk; Urinalysis.
Comprehensive annual
physical examinations . Given in the birth month of the employee, these are identical to the pre-placement physical
examinations.
Treatment of work related
injuries . . . . . . . Necessary X-rays; Installation and removal of sutures and other physician diagnostic and
treatment services; Tetanus and other prophylactic vaccinations as required; Medications
(for pain, infection, etc.); Physical therapy as necessary.
Management analysis
and reports . . . . . . A cost-benefit analysis of the program; Projections of utilization of group health
benefits; Outpatient costs and associated costs of absenteeism and low productivity;
Mortality projections; Site analysis and recommendations for employee health; Public
liability and customer injury evaluation; Acute injury management and evaluation;
Management and review of occupational injuries; Management and statistical data for
occupational cases; Development of a health profile for the client company; Group summary
of health risks with comparisons of the client to national statistics.
</TABLE>
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The Company has developed and refined certain testing and evaluation
procedures that are effective in identifying conditions that indicate a
significant risk of on-the-job injuries and serious health concerns, thereby
avoiding likely high cost treatments attributable to preventable conditions.
The Company intends to continue to identify additional prevention strategies
and health management programs which will increase efficiencies without
compromising quality of care.
PHYSICIAN SERVICES, RECRUITMENT AND DUTIES
The Company's operating strategy relies heavily upon The Physician Group
obtaining and retaining skilled physicians that have medical management
experience. Dr. Angle, the President of both The Physician Group and the
Company, has over 16 years experience recruiting and retaining physicians to
staff hospital emergency departments and has operated and overseen one of the
Company's facilities since 1987. The Physician Group is responsible for the
recruiting of qualified and experienced physicians who understand and will
implement the Company's cost containment strategy, all of whom perform services
for the Company through The Physician Group, but none of whom are employees of
the Company.
Pursuant to a Practice Management Agreement, as amended, between the
Company and The Physician Group, professional medical services are provided by
physicians and licensed professionals employed by The Physician Group at the
facilities managed by the Company. The Practice Management Agreement
specifically separates medical services performed by The Physician Group from
non-medical and management services of the Company and employees or independent
contractors of The Physician Group from employees of the Company in order to
comply with the Texas Medical Practice Act. The Physician Group at all times
exercises full control over the medical services rendered at the facilities and
the Company performs non-medical functions including marketing, management and
administration. The Physician Group does not delegate to the Company any of
the powers, duties and responsibilities vested in The Physician Group by law as
a professional association.
Under the Practice Management Agreement, the Company is required to pay
The Physician Group a fee for its services based on certain costs of The
Physician Group. These costs include any salaries, bonuses and benefits of the
physicians and other expenses excluded as clinic expenses as defined by the
Practice Management Agreement. The minimum fee is $210,000 per region on an
annual basis. The Practice Management Agreement does not establish a maximum
fee payable to The Physician Group. For the year ended June 30, 1996, the
Physician Group generated approximately $2,866,000 of revenues and paid the
Company fees of approximately $1,150,000 for the existing two regions and for
the year ended June 30, 1997 (the "1997 fiscal year"), the Physician Group
generated revenues of approximately $9,005,000 and paid the Company fees of
approximately $3,602,000 for six regions. Based upon calculations from
historical data and costs associated with administration and management of The
Physician Group, certain excess adjusted gross revenue is paid to the Company as
compensation for services provided under the Practice Management Agreement,
which includes management fees and ancillary revenues from non-medical services.
Based on the Company's own review of The Physician Group's financial statements
and review of all compensation paid by The Physician Group to physicians
affiliated with The Physician Group, the Company believes the arrangements with
The Physician Group are fair and reasonable. Although no independent third party
was retained by the Company to render an opinion as to the fairness and
reasonableness of the terms of the arrangements between the Company and The
Physician Group, such terms were approved by the disinterested directors of the
Company. The Company anticipates that most, if not all, of its facilities will
be provided medical services by The Physician Group.
The Practice Management Agreement may terminate under certain
circumstances including by written agreement of the parties; by written notice
given by either party at least 90 days prior to the expiration of the initial
20 year term or any subsequent five year renewal term; upon a change in
majority ownership of The Physician Group or upon the death or disability of
The Physician Group's majority
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shareholder; at the option of one party if the other party becomes insolvent or
fails to perform under the Practice Management Agreement (and fails to cure the
same within a specified period after notice); by the Company if The Physician
Group ceases to legally qualify to provide medical services under the Practice
Management Agreement; or by The Physician Group if the Company fails to remit
any funds to which The Physician Group is entitled.
The Company recognizes that its success depends on physicians'
delivery of quality medical services that meet or exceed the quality of care
expectations of employees and the expectations of value of the employer. The
Physician Group has implemented procedures designed to provide cost effective
services to employees of its clients and keep employer clients informed
regarding their employee's progress. The Physician Group is cognizant however,
that once an employee enters the workers' compensation system, the relationship
between the healthcare provider and the employee assumes paramount importance,
with employers entitled to only limited information and with providers then
being subject to confidentiality restrictions with respect to privileged
patient/physician information. The Physician Group has implemented a policy
that the attending physician at his or her convenience will telephone the
employer the same day as the employee visit with the results of any
examinations and treatment and provide a report on the employee's physical
status. A written report regarding the visit is sent to the employer no later
than the next business day following the visit. The Physician Group requires
that its contracted physicians be available to speak to both the employer and
employee upon reasonable request.
INSURANCE AND INSURANCE RELATED OPERATIONS
The Company entered the workers' compensation insurance market to
enhance the Company's overall profitability by integrating healthcare
management and insurance services. The Company believes that market changes
underway in the occupational healthcare industry encourage workers'
compensation insurers to affiliate with healthcare providers and managers, such
as the Company, in an effort to contain costs and to fully align incentives
among healthcare providers, insurance firms, employers and employees.
EGIG. The Company previously implemented an arrangement with EGIG, a
subsidiary of Old Republic General Insurance Group, Inc., a company listed on
the New York Stock Exchange with an A+ rating from A.M. Best Company, to develop
and offer a fully-guaranteed cost product, known as Comp2000, that includes The
Physician Group's capitated preventive healthcare services and insurance
underwritten by Old Republic General Insurance Group. EGIG test marketed the
Comp2000 product on a trial basis to prospective clients during the latter part
of the 1996 fiscal year, but no sales were made as a result of the test
marketing. Under the Company's arrangement with EGIG with respect to the
Comp2000 product, as originally conceived and test marketed, The Physician Group
would have provided medical services and the Company would have provided other
non-medical services (e.g., ergonomic work site evaluations) while EGIG would
have provided risk management, claims administration and other administrative
services. Each party would have maintained independent control of all financial
books and records, and neither party would have shared in the revenues
attributable to those services provided by the other. Accordingly, the Company
would not have participated in the revenue stream generated by premiums charged
for workers' compensation insurance.
RMAC. The Company viewed the initial arrangement with EGIG as an
interim step to the acquisition and initiation of operations by an insurance
subsidiary, which would allow the Company to participate in the underwriting
risk of workers' compensation insurance and to share in premium revenues.
Effective June 30, 1996, the Company acquired all of the outstanding capital
stock of Montfort Insurance Company located in Lubbock, Texas for $687,010
cash. The Company renamed the acquired subsidiary
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Risk Management Assurance Corporation ("RMAC"). Prior to the acquisition, RMAC
was a dormant multi-line insurance company domiciled and licensed in Texas.
Since its acquisition, RMAC has focused on establishing relationships
with established issuing carriers of workers' compensation insurance and
independent agents, including EGIG, to design insurance products which are
unique and respond to opportunities in the highly competitive insurance
marketplace. By relying on companies, including EGIG, experienced in the
workers' compensation insurance market, RMAC may not be required to
independently estimate reserve requirements and, in this respect, will be in
effect relying upon the past claims experience of the issuing carrier.
Guaranteed cost workers' compensation insurance policies may be either (i)
policies whereby the employer purchases an insurance policy written by the
insurer and pays a premium based on the employer's aggregate payroll, and the
insurers (including RMAC, to the extent of its reinsurance) assume
responsibility for all indemnity and medical costs associated with injuries and
manage the employer's entire workers' compensation program, including all
expenses related to workplace injuries, or (ii) policies with a higher
deductible, under which the employer is responsible for all medical and
indemnity expenses up to a specific dollar amount, while the insurers are
responsible for medical and indemnity expenses over this level. RMAC intends to
become a participant in the workers' compensation risk by reinsuring a layer of
losses corresponding to the medical and indemnity costs of a primary care level
of losses. The policy issuing company will retain losses above the reinsurance
assumption by RMAC.
Rigorous price competition for workers' compensation insurance products
has delayed RMAC's entry into the insurance market to date. Management has
taken a conservative underwriting approach to a market in which inadequate
pricing on some classes of business is predicted. RMAC is continuing to develop
a superior program which will be available when opportunities for its
introduction to the market appear.
AFFILIATIONS, JOINT VENTURES AND ACQUISITIONS
In addition to establishing new facilities, the Company is expanding
geographically in areas contiguous to existing markets in order to increase its
market penetration and market share within areas in which a patient base is
currently served through affiliations, joint ventures and acquisitions. To the
extent permitted by applicable law, the Company pursues affiliations, joint
ventures and acquisitions with physicians, hospitals and other providers which
have established occupational medicine practices or with patient bases which
can be served in an occupational medical setting. In a typical transaction,
The Physician Group acquires the medical practice of a physician or group of
physicians (the "Physicians") and the Company acquires the physical assets of
the practice, including equipment and the facility, as well as the right to
manage the practice pursuant to the Practice Management Agreement. See "Item
1. Description of Business - Physician Services, Recruitment and Duties."
During the year ended June 30, 1996 (the "1996 fiscal year"), the
Company and The Physician Group acquired the assets, or all outstanding capital
stock, of occupational medicine practices in Lancaster, Texas, a suburb of
Dallas, and Baytown, Texas, a suburb of Houston. In the 1997 fiscal year, the
Company and The Physician Group acquired all of the outstanding capital stock
of an occupational and family medicine practice in El Paso, Texas and of an
occupational medicine and family medicine practice in Carrollton, Texas (a
suburb of Dallas) and also acquired the assets of a practice in Fort Worth,
Texas. The Company and The Physician Group financed these transactions through
the issuance of the Company's Common Stock, options to purchase Common Stock,
payment of cash and/or delivery of secured promissory notes. Simultaneously
with each transaction, the Company and The Physician Group entered into an
addendum to the Practice Management Agreement to provide that the Company has
the sole right to manage the newly acquired practices for a minimum of ten
years in accordance with the terms and conditions of the existing Practice
Management Agreement. Each of the Physicians who
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previously owned the acquired practices entered into a standard physician
employment agreement with The Physician Group to perform as a Staff Physician
for standard compensation rates and into the standard Regional Medical Director
employment agreement to serve as Regional Medical Director of the newly
acquired practice. The Company has implemented its cost containment and other
methods of operation at all of its facilities, including these newly acquired
facilities.
In June 1995, the Company and St. Vincent Infirmary Medical Center
("St. Vincent") established a facility to provide occupational medical services
in the Little Rock, Arkansas metropolitan area. Under the agreement with St.
Vincent, the Company owns 50% of the ownership interest of a limited liability
company known as HealthFirst Center, L.L.C. ("HealthFirst") and receives a
monthly minimum management fee based upon a minimum number of hours for
management of the operations of HealthFirst's facility, together with a
specified percentage of gross and net revenues, which relate to the provision
of non-physician services and having no relation to any referral of employers.
St. Vincent owns the remaining 50% interest and is responsible for all costs of
operation of HealthFirst. After repayment of the initial capitalization of
$500,000 which is being provided by St. Vincent, the Company and St. Vincent
will receive equal distributions of any profits generated by the joint venture.
The Company has no obligation to repay any portion of the $500,000 invested by
St. Vincent if the joint venture is unsuccessful. At June 30, 1997, the
Company had outstanding a loan in the amount of $30,000 from St. Vincent to
purchase medical equipment and establish operations of the Little Rock facility
prior to the formation of HealthFirst and had receivables owed from HealthFirst
of $96,000 for management fees, $30,000 for the equipment provided and $49,000
for advances to assist in funding operations.
In December 1994, the Company entered into a letter of intent with a
software development company to develop and market through a joint venture a
medical practice management information system, including a clinic management
system which would provide an electronic patient clinical record and enhanced
medical quality control functions. The Company was granted a perpetual license
of software developed pursuant to the letter of intent, although the software
development company retained ownership thereof. The Company is currently using
software developed pursuant to the letter of intent, but the parties are not
currently anticipating entering into a joint venture.
MARKETING AND SALES
The Company currently targets employers that employ between 50 and
1,500 workers and either operate in industries with relatively high workers'
compensation costs, such as manufacturing, wholesale, healthcare or hospitality
firms, or have higher than average claims experience for their industries.
These target employers are often in state sponsored assigned risk pools or, in
the State of Texas, may be self-insured. No one customer represents more than
5% of total revenues.
The Company's officers and sales and marketing personnel are
principally responsible for marketing. Sales and marketing personnel are
compensated through salaries plus commission based upon revenues generated by
corporate clients. The Company's marketing is currently done on a direct basis
to employers and such efforts are frequently directed toward time periods
during which employers make decisions concerning renewal of existing
relationships with managed care providers, health maintenance organizations or
other competitors.
Marketing efforts are continued after a client has retained the services
of the Company and the Physician Group. The Physician Group requires its
physicians to engage in follow-up contacts with an employer on the same day of
an employee's visit and requires physicians to provide routine reports to
employers concerning an employee's medical status and availability for work.
The Company also monitors employee satisfaction concerning the services provided
through follow-up audits and questionnaires.
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The Company's arrangement with EGIG for the Comp2000 product is
representative of the proposed future marketing strategy for RMAC. In the State
of Texas, EGIG markets its insurance products through in-house insurance
representatives and independent insurance agencies. RMAC intends, at the time
operations commence to utilize the companion sales concept, with representatives
of EGIG selling the insurance product. RMAC anticipates that other joint
marketing arrangements will be established with the issuing carriers in order to
expand the Company's existing customer base and thereby increase the number of
employees utilizing the Company's services.
COMPETITION
The occupational and industrial healthcare market is highly
competitive, with a large number of competitors. The Company competes with
numerous firms, including occupational healthcare firms and networks, national
and regional managed care providers, HMOs and in-house corporate medical
departments. The Company also competes with numerous smaller firms, networks,
hospitals and providers which offer services on a local level. Several large
workers' compensation insurance carriers offer managed care services for their
insurance customers either through the insurance carrier's own personnel or by
outsourcing various services to regional and national providers. The Company
currently recognizes OccuSystems,Inc., CRA Managed Care, Inc., Atlantic Health
Group, U.S. Healthworks and Meridian, among others, as competitors in its
existing markets.
With respect to recruiting physicians, nurses and therapists experienced
in occupational and industrial healthcare, The Physician Group and the Company,
as applicable, compete with the same entities listed above. The Physician Group
has from time to time experienced difficulty in recruiting physicians with
experience in occupational and industrial healthcare. The loss of existing
physicians, nurses or therapists, or the inability to attract similarly
qualified individuals, could adversely impact the Company's business.
Once active, RMAC will compete with a wide variety of entities,
including large insurance companies, managed healthcare companies,
state-sponsored insurance pools and risk management consultants, and companies
in the occupational healthcare market who may enter the workers' compensation
insurance business. Changes in workers' compensation regulations, or increases
in permissible premium rates, may encourage entry of competitors into markets in
which RMAC will be active, which in turn may have a material adverse effect on
RMAC's operations.
REGULATION
General. The Company's business is conducted within a highly regulated
environment, in both the insurance and healthcare areas. The Company's
activities are regulated primarily at the state level, so the Company must
comply with differing regulatory requirements in each state in which it does
business. The Company believes that its operations are in material compliance
with all applicable regulatory requirements. However, there is no assurance
that any regulatory determinations or court decisions will not adversely impact
the operations of the Company, RMAC or The Physician Group or require the
Company to restructure its operations. Moreover, violations of federal or state
statutes could result in the imposition of substantial civil and/or criminal
penalties on the Company or its officers. Laws and regulations change
frequently and any change could negatively or positively affect demand for the
Company's services, could reduce revenues or may decrease the Company's ability
to compete effectively.
Workers' Compensation Regulation. Workers' compensation laws
establish an employee's right to compensation and benefits related to
work-caused injuries or disease and impose a wide range of
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<PAGE> 11
obligations upon employers. Under these laws, employers are required to assume
financial responsibility for medical costs, a portion of lost wages and related
legal costs of work-related disease and injuries. These laws also prohibit
employers from imposing co-payments or deductibles on employees and, in some
states, restrict the employers' rights to exclusively select healthcare
providers. Workers' compensation laws typically establish the methods and
procedures which providers may employ in treatment programs and the maximum
fees charged by providers. Management estimates approximately 38% of the
Company's revenues in the 1997 fiscal year were subject to state-mandated fee
schedules prescribing maximum reimbursable amounts for designated medical
procedures provided by The Physician Group.
In several states, the number of workers' compensation claims and the
cost per claim have recently decreased, which has caused premium rate
reductions for workers' compensation insurance. The Company believes that
these decreases are due principally to not only legislative reform, but to
better management and control of claim costs by insurance companies and other
payors, and improved risk management by employers. If declines in workers'
compensation costs occur in states in which the Company conducts business and
persists over the long-term, such declines may have an adverse impact on
results of operations for the Company and RMAC, to the extent RMAC is actively
engaged in operations.
Corporate Practice of Medicine and Other Laws. Most states have
enacted laws limiting the practice of medicine to licensed individuals or
professional organizations comprised of licensed individuals. Many states also
regulate the relationship between business entities such as the Company and
licensed professionals and professional associations or corporations, such as
The Physician Group, particularly with respect to fee-splitting between a
licensed individual and a non-licensed individual or entity. These laws differ
widely from state to state as do interpretations by courts and regulatory
agencies. Under the Texas Medical Practice Act, only physicians licensed by
the Texas State Board of Medical Examiners may practice medicine in Texas.
Texas law prohibits a person from aiding or abetting, directly or indirectly,
the practice of medicine by any person, partnership, association, or
corporation not duly licensed to practice medicine. Accordingly, the Texas
courts have held that a corporation comprised of non-licensed individuals which
employs (or the practical equivalence of employment such as a contractual
relationship) licensed physicians to treat patients and which receives a fee is
unlawfully engaging in the practice of medicine. For this reason, the Company
and Physician Group entered into the Practice Management Agreement, under which
the Company only provides non-medical services. The Company has no right to
any portion of The Physician Group's profits derived from medical practice, no
right to trade and commercialize on any physician's license, and no right to
select medical staff in The Physician Group. The Company cannot arrange for
the procurement of capitated physician services and cannot treat or diagnose
any medical condition.
Anti-Referral and Fraud and Abuse Laws. Both federal and state laws
have been enacted covering the payment of remuneration to induce or in return
for (i) referral of Medicare or state health program patients, (ii) patient
care opportunities, or (iii) the purchase, lease or order of items or services
covered by Medicare or state health programs. The State of Texas has enacted
such a statute which applies to all payors, not just federal or state payors,
and which, to the Company's knowledge, has not yet been interpreted by any case
law. Since The Physician Group receives no state or federal funds, it is not
subject to the federal laws; however, Texas state law nevertheless applies.
Although certain of the services provided by The Physician Group affiliated
with the Company may be subject to the Texas statute, the Company believes its
arrangements with The Physician Group in Texas and the employment agreement
with Dr. Angle will comply with the "personal services and management contract"
and/or employment agreement safe harbors promulgated under applicable federal
law. More specifically, the Practice Management Agreement is in writing,
signed by the parties, and specifies the services to be provided by the
Company. In addition, the term of the Practice Management Agreement is for at
least one year and the aggregate compensation paid to the Company over the term
of the Practice Management Agreement
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<PAGE> 12
is set in advance, is consistent with fair market value in arm's-length
transactions (as determined in the judgment of the disinterested directors of
the Company voting on the terms of the Practice Management Agreement) and is
not determined in a manner that takes into account the volume or value of any
referrals or business otherwise generated between the parties for which payment
may be made in whole or in part under Medicare or a state health care program
or any other circumstances. The Company did not secure an independent
determination of the fairness and reasonableness of the terms of the Practice
Management Agreement. Finally, the services performed under the Practice
Management Agreement do not involve the counseling or promotion of a business
arrangement or other activity that violates any state or federal law. Dr.
Angle's employment contract is a legitimate bona fide employment relationship
wherein he provides services for a salary. In January 1995, certain
anti-referral provisions became effective which prohibit physicians with an
ownership or financial interest (as defined) in an entity from engaging in
certain business with that entity or referring a patient to that entity for the
provision of certain designated medical services. Several states are
considering similar legislation. The State of Texas has adopted an
anti-referral law which provides that, if the Company refers a patient to an
entity in which the physicians affiliated with The Physician Group have an
interest, the Company could be subject to penalties associated with a Class A
misdemeanor which may include a fine of up to $4,000 and/or imprisonment of up
to one year for each violation. The Company does not make referrals that
management considers would be subject to this prohibition.
HMO Regulation. A number of states have varying definitions of HMOs and
similar entities and different licensure requirements with respect to them. The
Company believes that its current operations in Texas and Arkansas do not
constitute it as an HMO under applicable state insurance laws or regulations. It
will be necessary for the Company to comply with the laws and regulations of
each state in which it has a facility with respect to HMOs. In the event that a
state in which the Company has established operations should change its laws and
regulations or interpret such laws and regulations so as to constitute the
Company as an HMO, or should a state in which it has such operations assert that
the Company is an HMO under existing laws and regulations, the Company may be
unable to continue operations in that state unless and until it complies with
applicable laws and regulations, the cost of which could be prohibitive.
A number of the Company's customers now utilize the Preferred Employee
Plan ("PEP"), a capitated plan under which a variety of services are provided
through The Physician Group. At the time the Company entered into contracts
with its existing customers who utilize the PEP, the Company believed that
because it was substantially controlled by Dr. Angle and two former directors
of the Company who are also physicians, the PEP could be provided through the
Company. The Company's healthcare counsel has recommended that the Company
amend its contracts with its PEP customers to clarify that all medical services
will be provided by The Physician Group and that The Physician Group enter into
and market capitated plans in the future. The Company has not yet obtained
signed amendments from its PEP customers. Failure to obtain any amendment
could result in a finding that the Company was offering or arranging for a
capitated plan, which in turn could cause the Company to be classified as an
HMO under Texas law. The Company intends to obtain the necessary addendums to
its PEP contracts and expects it will be successful in so doing. Nonetheless,
should the Company be classified as an HMO under Texas law, it could be subject
to fines, administrative regulation, additional licensing requirements and
substantial additional costs of operation.
Healthcare Reform. Although no national healthcare reform proposal
has been enacted to date, increasing healthcare costs have precipitated various
proposals for reform of the healthcare industry. One such proposal involves
combining traditional employer-sponsored health plans with workers'
compensation coverage to provide a single insurance plan for work related and
non-work related healthcare. While the Company's development of the joint
marketing arrangement with EGIG and the acquisition of RMAC
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<PAGE> 13
were undertaken to address the changing occupational and industrial healthcare
market, there is no assurance the Company will be successful in developing
products and services which will address market requirements or that healthcare
reform will not adversely affect the Company's operations.
Many states are considering, or have recently enacted, legislation
reforming workers' compensation laws. Such reforms include the ability of
employers to designate health plans such as HMOs and PPOs to cover workers'
compensation claimants and provisions to control medical costs associated with
workers' compensation claims. The federal government and at least one state
currently provide for a "reasonableness" review of medical costs paid or
reimbursed by workers' compensation.
Environmental. The Company is subject to various federal, state and
local statutes and ordinances regarding the disposal of infectious waste.
Violations of applicable infectious waste laws may result in the imposition of
penalties and fines or the closure of a facility. As with other regulatory
issues, the Company believes it is in compliance with applicable law.
Insurance Industry Laws. RMAC must comply with state insurance laws
and regulations in each state in which it becomes licensed. Currently, it is
subject to the Texas insurance laws and regulations, which are administered by
the Texas Department of Insurance and the Texas Workers' Compensation
Commission. All state regulatory agencies have broad administrative power with
respect to insurance operations, including the establishment of premium rates,
benefit levels, preparation of policy forms, dividend payments, capital
adequacy and the amount and type of investments. In Texas, the State Board of
Insurance ("Board") must approve all rates charged by RMAC and regulates RMAC's
insurance plans and policy forms. As a reinsurer, however, many of the Board's
regulations do not apply to RMAC. Further, Texas law requires a workers'
compensation insurer to maintain minimum capital reserves and to provide year
end reports of the calculation of the minimum capital reserves for review by
the Board. Under Texas law, the maximum amount of dividends that can be paid
by RMAC to the Company without authorization by the Commissioner of Insurance
of Texas in any year is equal to the greater of (i) 10% of RMAC's statutory
surplus as of the 31st day of December next preceding or (ii) the statutory net
income from operations of RMAC for the 12-month period ending the 31st day of
December next preceding, but shall not include pro-rata distributions of any
class of RMAC's own securities.
EMPLOYEES
The Company had 103 full-time and 20 part-time employees as of June 30,
1997, all of whom provided non-physician services. Of the Company's employees,
approximately 53 are administrative staff, 54 are paramedical staff, four are
sales and marketing personnel and 12 are corporate personnel. Additionally, as
of June 30, 1997, the Company was contracting through The Physician Group for
the services of 12 full-time and 32 part-time physicians. None of the Company's
employees are subject to collective bargaining agreements. The Company believes
its employee relations are good.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
The statements contained in this report that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
statements regarding the Company's expectations, hopes, intentions or
strategies regarding the future. All forward-looking statements included
herein are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those in such forward-looking statements. Among the
factors that could cause actual results to differ materially are the risk
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<PAGE> 14
factors which may be listed from time to time in the Company's reports on Form
10-QSB, 10-KSB and registration statements filed under the Securities Act.
Forward-looking statements encompass the (i) expectation that the Company can
secure additional capital, (ii) expected initiation of operations of RMAC and
its ability to enter into quota sharing arrangements with issuing carriers,
(iii) continued expansion of the Company's operations through joint ventures and
acquisitions, (iv) success of existing and new marketing initiatives undertaken
by the Company, (v) retention of physicians through The Physician Group and
success in generating revenue increases through the retention of such physicians
and an increase in their practices, (vi) success of the Company, in cooperation
with The Physician Group, in concluding acquisitions at prices which permit the
Company to achieve reasonable rates of return on such acquisitions, (vii)
success in expanding service to regional and national customers which can be
serviced through existing facilities or additional facilities, and (viii)
success in controlling the cost of services provided and general administrative
expenses as a percentage of revenues.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements were based on assumptions that the Company would
continue to expand, that capital will be available to fund the Company's growth
at a reasonable cost, that competitive conditions within the industry would not
change materially or adversely, that demand for the Company's services would
remain strong, that there would be no material adverse change in the Company's
operations or business, and that changes in laws and regulations or court
decisions will not adversely or significantly alter the operations of the
Company. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive, regulatory and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
the Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
information will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
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<PAGE> 15
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently manages a facility in Little Rock, Arkansas,
which is owned by HealthFirst, a joint venture with St. Vincent. The space for
the facility is provided by St. Vincent and the Company currently has no lease
obligation. The following tabulates certain information with respect to the
other facilities currently leased by the Company.
<TABLE>
<CAPTION>
Current
Square Monthly Lease
Location Footage Rental Lessor Expiration
- - - ---------------------------- ------- --------- -------------- ----------
<S> <C> <C> <C>
Executive Offices 3,172 $ 4,433 Dominion Oil & Gas 02/28/99
5215 North O'Connor, Ste. 1800 Corporation (1)
Irving, Texas 75039
Accounting Offices 2,890 $ 2,047 Westwood Crown Partners, 10/31/99
1850 Crown Drive, Suite #1114 Ltd.
Farmers Branch, Texas 75234
9500 Forest Lane, Ste. 110 5,701 $ 6,012 Dallas Forest Park 12/31/00
Dallas (Garland), Texas 75243 Corporation
8585 Stemmons Freeway 8,163 $ 10,221 Twin Towers Investment 01/31/02
Dallas, Texas 75247 Partnership
1200 East Copeland, Ste. 100 7,352 $ 7,757 AGF Stadium Place, Ltd. 7/30/00
Arlington, Texas 76011
2205 E. 70th Street, Suite 200 4,844 $ 4,440 Dr. Nabil A. Mouffarej and 6/30/98
Shreveport, Louisiana and Hanan T. Mouffarej
4308 Garth Road 4,943 $ 4,943 San Jacinto Methodist 12/31/99
Baytown (Houston), Texas 77521 Hospital (1)
2700 W. Pleasant Run Road 2,976 $ 3,472 Columbia HCA Hospital 8/31/00
Lancaster (Dallas), Texas 75146
1865 Lee Trevino(2) 4,100 $ 5,788 Francisco J. Guerra, M.D./ 8/20/06
El Paso, Texas 79936 Henry H. Calderoni. M.D.
4775 S. Felix Street 4,385 $ 4,020 HCT Management & 3/31/01
Fort Worth, Texas 76115 Ventures Company
2100 N. Main Street, Suite 300 6,800 $ 5,000 Rudd Properties 3/14/03
Fort Worth, Texas 76106
3604 Beltline Road 10,000 $ 8,743 Quad Corners Investments, 9/30/06
Dallas, Texas 75234 Ltd., a Texas Limited
Partnership
</TABLE>
_________________________
(1) Subleased from the named party.
(2) The physicians from whom this practice was acquired are contractually
obligated to enlarge these facilities at their own expense and the Company
has committed to lease the additional facilities at an initial rate
calculated to provide an internal rate of return on investment of 15% to
the Physicians, but not less than $16.00 per square foot. The Company will
have final approval of the design and scope of the improvements, the
contractor retained and the cost of the improvements.
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<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the Company (or any of its
directors and officers in their capacities as such) is party or to which
property of the Company is subject is pending and no such material proceeding
is known by management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the 1997
fiscal year.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Warrants have been quoted on The Nasdaq
SmallCap Market under the trading symbols CDOC and on the Boston Stock Exchange
under the symbol CDR since the Company's initial public offering in February
1996. The following table sets forth the range of high and low closing prices
of the Company's Common Stock and Warrants, as reported by The Nasdaq Stock
Market, from February 7, 1996 through March 31, 1997. The prices set forth
below reflect interdealer quotations, without retail markups, markdowns or
commissions, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
------------------ ----------------
1996 FISCAL YEAR: HIGH LOW HIGH LOW
------ ----- ------ ------
<S> <C> <C> <C> <C>
Third Quarter (commencing February 7, 1996) . . . . . . $ 10.25 $ 8.50 $ 3.50 $2.25
Fourth Quarter . . . . . . . . . . . . . . . . . . . . 10.87 9.37 4.25 3.00
1997 FISCAL YEAR:
First Quarter . . . . . . . . . . . . . . . . . . . . . $ 10.00 $ 8.87 $ 4.00 $ 3.12
Second Quarter . . . . . . . . . . . . . . . . . . . . . 8.87 5.87 3.12 1.50
Third Quarter . . . . . . . . . . . . . . . . . . . . . 6.50 5.50 1.62 1.00
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 6.00 3.50 1.00 .50
</TABLE>
The last reported sale price of the Common Stock on September 23, 1997
was $3.69 per share. The last reported sale price of the Warrants on September
23, 1997 was $.44 per Warrant. The number of record holders of the Company's
Common Stock was approximately 93 on September 23, 1997.
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Company's Board of Directors. No dividends on the Common
Stock have been paid by the Company, nor does the Company anticipate that
dividends will be paid in the foreseeable future.
As reflected in the price quotations above, there have been
significant price fluctuations in the Company's Common Stock and the Warrants.
Factors that may have caused or can cause market prices to fluctuate include
any purchase or sale of a significant number of securities during a relatively
short time period, quarterly fluctuations in results of operations,
announcements of new facilities, issuance of additional securities,
registration of securities and entrance of such securities into the public
float, market conditions specific to the Company's industry and market
conditions in general. In addition, in recent years the stock market in
general has experienced significant price and volume fluctuations. These
fluctuations, which may be unrelated to the operating performance of specific
companies, have had a substantial effect on the market price for many small
capitalization companies such as the Company. Factors such as those cited
above, as well as other factors that may be unrelated to the operating
performance of the Company, may adversely affect the price of the Common Stock
and the Warrants.
During the 1997 fiscal year, the Company filed two registration
statements under the Securities Act. One registration statement, effective
April 10, 1997, covered 502,227 shares of Common Stock. The other registration
statement, effective August 12, 1997, covered 400,000 redeemable Warrants to
purchase Common Stock (the "Warrants") and the 400,000 shares of Common Stock
(the "Warrant Shares") issuable upon exercise of the Warrants. One of the
registration statements was primarily for the benefit of the Physicians who
acquired an aggregate of 498,417 shares of Common Stock in connection with the
sale
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<PAGE> 18
of their medical practices to The Physician Group and the addition of such
practices to the management portfolio of the Company. To reduce the volatility
that the sale of a significant number of shares in a relatively short time
period could have on the market, each Physician agreed to restrict the number
of shares he would sell in any given month until February 28, 1998, at which
time the restriction will terminate. As a result of such restrictions, sales
by the Physicians during any month from April 10, 1997 to February 28, 1998
should not exceed approximately 41,000 shares. The Warrants were issued to
HealthCare Financial Partners-Funding II, L.P. ("HCFP") in April 1997 in
connection with certain credit facilities made available by an affiliate of
HCFP to the Company and were issued on terms and conditions which are identical
to the redeemable Common Stock purchase warrants which were issued in the
Company's initial public offering in February 1996. There are no restrictions
on the sale of the HCFP Warrants.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Financial
Statements and notes thereto.
OVERVIEW
The Company derives its revenues primarily from the management of
eleven physician practices engaged in the diagnosis and treatment of
work-related injuries and illnesses and from non-injury related services such
as employment- related physical examinations, drug and alcohol testing,
functional capacity testing and other related programs. During the 1997 fiscal
year, the Company derived approximately 41% of its revenues from management of
eleven practices which were providing services for work-related injuries and
illnesses. The remaining 59% of the Company's revenues were derived from
management of practices which were providing non-injury related medical
services. The Company's consolidated results of operations reflect the
revenues generated by The Physician Group and the costs associated with the
delivery of the Company's management services, including physician fees,
benefits and malpractice insurance premiums, and the expenses of RMAC. See
"Item 7. Financial Statements, Note 8."
The Physician Group currently acts as the primary caregiver providing
quality healthcare in an efficient and cost-effective manner and the Company
serves as the gatekeeper for the majority of claims experienced by its employer
clients. At such time as RMAC enters the workers' compensation insurance market
by participation as a reinsurer of insurance policies issued by other workers'
compensation insurers, the Company's concept of unity of the health care
delivery system will be complete. This concept is based upon the Physician
Group providing medical services, the Company providing management of the
practices and facilities, while RMAC and/or the issuing carrier will provide
risk management, claims administration and other insurance related services.
RESULTS OF OPERATIONS
In February and May of 1996, the Company and The Physician Group
acquired a practice in Lancaster, Texas and one in Baytown (Houston), Texas,
respectively. In June of 1996, the Company acquired an insurance subsidiary
now known as RMAC. In July of 1996 the Company and The Physician Group
acquired practices in El Paso, Texas and the Dallas Beltline clinic. The
Company's Central Fort Worth, Texas clinic was acquired in August of 1996. The
table on the following page sets forth certain consolidated financial data as a
percentage of total revenues for each of the two years ended June 30, 1996 and
1997.
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<PAGE> 19
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
FOR THE YEARS
ENDED JUNE 30,
-----------------------
1996 1997
-------- --------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of services provided . . . . . . . 34.2 49.5
General and administrative . . . . . . 60.5 54.1
Marketing expenses . . . . . . . . . . 2.3 2.7
Development/acquisition costs . . . . . 4.8 2.8
------ ------
Total costs and expenses . . . . . . 101.8 109.1
------ ------
Income (loss) from operations . . . . . (1.8) (9.1)
Other income (expense) . . . . . . . .
Interest income . . . . . . . . . . . 3.3 2.7
Interest expense . . . . . . . . . . (1.9) (4.4)
------- ------
Net income (loss) pre-tax . . . . . . . ( .4)% (10.8)%
======= ======
Income tax benefit (expense) . . . . . 2.4 (1.2)
Net income (loss) . . . . . . . . . . . 2.0% (12.0)%
====== ======
</TABLE>
Comparison of Fiscal Years Ended June 30, 1996 and 1997.
Revenues. Revenues increased $6,840,000 or 163.1%, from $4,194,000 in
the 1996 fiscal year to $11,034,000 in the 1997 fiscal year. This growth is
attributable primarily to four major factors: (i) improved marketing efforts to
capture additional market share, resulting in new clients at both the
established and new practices, (ii) marketing of additional services at several
of the facilities, (iii) development of existing practices, and (iv) the
addition of new practices to its management portfolio in the 1997 fiscal year.
The five acquired practices collectively generated revenues of $6,124,000, or
55.5% of the total revenues in the 1997 fiscal year and $372,000, or 8.9% of
revenues in the 1996 fiscal year. For "same-store" comparison practices,
revenues increased 31.0% at the Dallas practice, 24.7% at the Shreveport
practice and 4.3% at the Arlington practice, but decreased 3.4% at the Garland
practice, from the 1996 fiscal year to the 1997 fiscal year. The Company opened
a clinic in South Fort Worth, Texas in April, 1996 with nominal revenues from
that clinic in the 1996 fiscal year and revenues of $578,000 in the 1997 fiscal
year. Assuming that the three new practices acquired in 1997 had been managed
by the Company during the 1996 fiscal year, unaudited proforma information
indicates that revenues for the 1996 fiscal year would have been $9,145,000 as
compared to $11,034,000 of actual revenues of the Company in the 1997 fiscal
year.
Cost of Services. Cost of services provided increased 281.1% from
$1,433,000 in the 1996 fiscal year to $5,461,000 in the 1997 fiscal year, with
cost of services provided as a percentage of revenues increasing from 34.2% in
the 1996 fiscal year to 49.5% in the 1997 fiscal year. The cost of services
includes approximately $2,688,000 compensation paid to physicians under the
Practice Management Agreement and other medical personnel costs and expenses
such as pharmacy costs, physical therapy costs, lab fees, and medical supplies.
The increase was primarily due to minimum compensation guarantees for selling
physicians, increased physical therapy costs, additional staff physician
requirements, and a change in the cost structure related to the addition of a
family practice revenue component. During the third quarter of the 1997 fiscal
year, the Company instituted a cost reduction plan. One specific goal was to
reduce the cost of services provided as a percentage of revenues. Accordingly,
the plan included restructuring by The Physician Group of several physician
contracts and consolidation of the Company's vendor relationships. The five
newly acquired medical practices accounted for $3,064,000, or 56.1% of the cost
of services provided in the 1997 fiscal year, which as a percentage of revenues
was 27.8% in the 1997 fiscal year.
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<PAGE> 20
General and Administrative Expense. General and administrative expense
increased 134.7% from $2,537,000 in the 1996 fiscal year to $5,954,000 in the
1997 fiscal year. The general and administrative expenses as a percentage of
revenues decreased 6.5%, from 60.5% of revenues in the 1996 fiscal year to
54.0% of revenues in the 1997 fiscal year. This decrease was due primarily to
an improved ratio of administrative salaries relative to revenue. Total
general and administrative payroll was $1,305,000 or 31.1% of revenue in the
1996 fiscal year compared to $1,729,000 or 15.7% of revenue in the fiscal year
ended 1997. In addition to the improvement in salaries, other general and
administrative expenses targeted to be reduced in the Company's cost reduction
program include, but are not necessarily limited to, computer expenses,
consulting fees, payroll, printing, outside services, and travel.
Marketing. Marketing expenses increased from $95,000 in the 1996
fiscal year to $299,000 in the 1997 fiscal year, and increased as a percentage
of revenues from 2.3% to 2.7 %. The rise in marketing expense is attributed to
the Company's expansion into new markets and is expected to continue to rise in
future periods as the Company expands in both its existing and new markets,
begins marketing insurance products, and expands the services provided in its
practices.
Development and Acquisition Costs. The Company had $202,000 in
development and acquisition costs late in the 1996 fiscal year as compared to $
313,000 in the 1997 fiscal year, or 4.8% of revenues in the 1996 fiscal year
and 2.8 % of revenues in the 1997 fiscal year. These costs were attributable
to the search for physicians with established occupational medicine practices
or patient bases which could be served in an occupational medical setting, the
negotiations to add such practices to the Company's management portfolio and
the development of RMAC. As part of the cost reduction program, the Company
eliminated several staff positions in the business development area and in RMAC
in an effort to better align costs with near term opportunities.
Interest Expense and Interest Income. Interest expense increased
478.3% from $83,000 in the 1996 fiscal year to $480,000 in the 1997 fiscal
year. As a percentage of revenues, interest expense was 1.9% in the 1996
fiscal year and 4.4 % in the 1997 fiscal year. A significant amount of the
Company's indebtedness was incurred late in the 1996 fiscal year and early in
the 1997 fiscal year in connection with the addition of five practices to its
management portfolio and the interest payable in connection with notes issued
as partial consideration for these practices. The Physicians received as
partial consideration an aggregate of $2,144,000 in cash and $3,694,000 in
principal amount of promissory notes with interest ranging from 8.5 % to 9.5 %,
the principal of which was due at dates ranging from April 15, 1997 to May 15,
1998. The majority of the debt to the Physicians was refinanced with the
proceeds of the HCFP financing completed on April 15, 1997. See - "Liquidity
and Capital Resources". The Company had $139,000 of interest income in the
1996 fiscal year and $300,000 of interest income in the 1997 fiscal year.
Interest income during both fiscal years was primarily attributable to
investment of proceeds of the Company's initial public offering in
interest-bearing obligations and the interest bearing investments held by RMAC.
As the Physicians connected with the five new practices received a portion of
their consideration in cash, the Company's investment income declined. As a
percentage of revenues, interest income was 3.3% in the 1996 fiscal year and
2.7% in the 1997 fiscal year.
Net Income or Loss. As a result of the factors described above, the
Company had a net loss before income tax of approximately $1,173,000 in the 1997
fiscal year as compared to a net loss before income tax of $17,000 in the 1996
fiscal year. In the 1997 fiscal year, net loss after income tax expense (which
included a $275,000 impairment of the deferred tax asset and a total income tax
expense of $127,000) was $1,300,000 as compared to net income of $83,000 after
the income tax benefit of $100,000 in the 1996 fiscal year. At June 30, 1997,
the Company had approximately $2,300,000 of net operating loss carryforwards
(for income tax reporting purposes) which expire in the
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<PAGE> 21
years 2008 through 2012. However, the use of net operating loss carryforward
may be limited or reduced due to a change in ownership as a result of the
Company's initial public offering, and, accordingly, the Company may be able to
utilize only a portion of its net operating loss carryforwards. The impairment
of the tax benefit as a result of the net operating loss carryforwards was
increased by $275,000 in the 1997 fiscal year due to uncertainty as to their
ultimate utilization as a result of the fiscal 1997 loss. See "Note 9 to
Consolidated Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. As of June 30, 1997, the Company's principal sources of
liquidity included cash and cash equivalents of $414,000, $350,000 of
short-term investments and other current assets totaling $2,297,000, resulting
in total current assets of $3,061,000. Current liabilities were $3,560,000
which resulted in a net working capital deficit of $499,000 at June 30, 1997.
During the 1997 fiscal year, the Company's liquidity decreased
significantly, primarily due to the cost of the five new practices added to the
Company's management portfolio, and also due to the acquisition and
capitalization of RMAC. During the 1996 fiscal year, the Company added a clinic
in Lancaster, Texas for 51,846 shares of Common Stock and a clinic in Baytown
for 33,334 shares of Common Stock, $300,000 cash, a note for $750,000 and an
obligation to issue additional shares of Common Stock valued on February 28,
1997 at $350,000 (resulting in the issuance of 54,902 shares in March 1997).
The Company also acquired RMAC for $687,000 cash. Even though such transactions
were finalized in the 1996 fiscal year, all of the cash used for these
transactions was paid subsequent to the end of the 1996 fiscal year. During the
1997 fiscal year, the Company added to its management portfolio a clinic in El
Paso, Texas for 226,752 shares of Common Stock, $700,000 cash and promissory
notes in the principal amount of $1.9 million; a clinic in Central Fort Worth
for 48,205 shares of Common Stock, $300,000 cash and a promissory note in the
principal amount of $200,000; and another clinic in Dallas for 63,380 shares of
Common Stock, an option to be granted each year for so long as the selling
physician is employed by The Physician Group to purchase that number of shares
of Common Stock of the Company which has a market value of $100,000, cash of
$843,750, and a promissory note in the principal amount of $843,750. In
accordance with their respective agreements entered into in connection with the
foregoing transactions, certain Physicians demanded registration of their shares
under the Securities Act, on or before February 28, 1997. When the registration
statement was not declared effective by the Securities and Exchange Commission
by such date, the Physicians became entitled to sell their shares back to the
Company at a price calculated pursuant to an agreed upon formula (the "Sale
Right"). Three of the Physicians notified the Company of exercise of their Sale
Right, then each of them subsequently rescinded such exercise and agreed to
extend the registration deadline. In partial consideration of such extension
agreements, the Company issued an aggregate of 19,998 additional shares of
Common Stock to those three Physicians and agreed to pay certain expenses
incurred by the Physicians in connection with such extension agreements. The
Company was also obligated to pay the expenses of registering the Physicians'
shares pursuant to the registration rights agreements. An aggregate of 498,417
shares issued to the Physicians and an additional 3,810 shares to be issued by
the Company upon exercise of outstanding options held by a consultant were
registered on April 10, 1997 and the expense of such registration, together with
the additional expenses assumed by the Company in connection with negotiating
the extension, was approximately $50,000.
During the 1997 fiscal year, the Company also made several investments
in its information systems including the continuing development of its practice
management system, a marketing and clinical management software suite and its
accounting system. The Company has also continued to acquire equipment for its
facilities, including equipment to introduce therapy services as a new service
in several of its facilities.
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<PAGE> 22
Cash Flow. The Company's operating activities used cash of $947,000
during the 1996 fiscal year and $666,000 during the 1997 fiscal year. The
principal components in cash used in operating activities included depreciation
and amortization ($164,000 and $752,000 in the 1996 fiscal year and the 1997
fiscal year, respectively), deferred tax asset of $100,000 in the 1996 fiscal
year and a deferred tax impairment of $100,000 in the 1997 fiscal year, accounts
receivable (an increase of $385,000 in the 1996 fiscal year and an increase of
$166,000 in the 1997 fiscal year), accounts payable and accrued expenses
($501,000 decrease in the 1996 fiscal year and a $212,000 increase in the 1997
fiscal year), prepaid expenses ($78,000 in the 1996 fiscal year and an increase
of $ 28,000 in the 1997 fiscal year), other assets ($111,000 in the 1996 fiscal
year and $247,000 in the 1997 fiscal year), and compensation for options granted
to an unrelated third party (none in the 1996 fiscal year and $10,000 in the
1997 fiscal year). The increase in depreciation and amortization reflects the
increase in property and equipment of the Company and goodwill from the five
acquisitions. The change in accounts payable indicates the cash flow
difficulties created by the aggressive expansion program undertaken by the
Company in the 1997 fiscal year and the short-term seller financing entered into
in connection with that expansion. The change in other assets and prepaid
expenses relates to deposits and insurance costs related to adding five new
clinics since late fiscal 1996.
Cash used in investing activities totaled $825,000 in the 1997 fiscal
year, which was accounted for principally by cash acquired of $283,000, net
redemptions of investments of $230,000 offset by purchases of property and
equipment of $581,000, the purchase of intangibles of $637,000 (consisting
primarily of goodwill and loan costs), and restrictions on cash and short-term
investments of $119,000.
Cash used in investing activities totaled $1.823 million in the 1996
fiscal year, which was accounted for principally by cash acquired,
predominantly from the acquisition of RMAC, of $1.139 million, offset by
purchases of property and equipment of $483,000, purchase of investments of
$1.881 million, increase in restricted cash of $500,000 as collateral for a
secured bank loan and purchase of intangibles of $97,000.
Cash used in financing activities totaled $3,730,000 in the 1997 fiscal
year, which was principally attributed to payments on the line of credit and
notes payable, including those to the Physicians, and payments on equipment
leases totaling $6,401,000, offset by net proceeds from HCFP financing of
$2,779,000. In the 1996 fiscal year, cash provided by financing activities was
$8.4 million, primarily attributable to the net proceeds of $8.3 million from
the equity offerings undertaken in that fiscal year and proceeds of $506,000
from a note payable, offset by payments on equipment leases totaling $371,000
and payments on notes payable of $33,000.
Financing. Historically, the Company has utilized a combination of
debt and equity financing to fund working capital and capital expenditure
requirements. The equity financing has involved one private offering and one
public offering. In November 1995, the Company raised $500,000 of gross
proceeds ($397,500 in net proceeds) by the sale of 400,000 shares of Series A
Convertible Preferred Stock, which automatically converted into one share of
the Company's Common Stock on the completion of the Company's initial public
offering. In February 1996, the Company completed its initial public offering
of 1,840,000 units, each unit consisting of one share of Common Stock and one
warrant to purchase one share of Common Stock. The Company realized net
proceeds from the public offering of approximately $7.5 million after deducting
stock offering costs of approximately $2.1 million.
Debt financing has been obtained from a variety of sources. In January
1995, the Company entered into a promissory note for a line of credit in the
principal amount of $50,000 with Regions Bank of Louisiana. The $50,000 line
of credit accrued interest at the bank's prime rate and required quarterly
payments with unpaid interest and principal due on demand. The note was
collateralized by all of the
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<PAGE> 23
equipment of Andicare, a wholly owned subsidiary of the Company. The balance
outstanding under the line of credit was paid in full prior to June 30, 1996.
In June 1995, the Company and St. Vincent established a facility, now
owned by HealthFirst, to provide occupational medical services in the Little
Rock, Arkansas metropolitan area. Under the joint venture agreement the
Company holds 50% of the ownership interest of HealthFirst, a limited liability
company, and manages the operations of HealthFirst, and St. Vincent owns the
remaining 50% interest. After repayment of the initial capitalization of
$500,000 provided by St. Vincent, the Company and St. Vincent will receive
equal distributions of any profits generated by the joint venture. The Company
has no obligation to repay any portion of the $500,000 invested by St. Vincent
if the joint venture is unsuccessful. The Company borrowed $30,000 from St.
Vincent to purchase medical equipment and establish operations of the Little
Rock facility prior to the formation of HealthFirst and is owed $30,000 by
HealthFirst for such equipment.
Subsequent to September 1995, the Company borrowed $53,000 from
Regions Bank of Louisiana for a six-month term with principal and interest
payable at maturity. The $53,000 loan accrued interest at the Regions Bank of
Louisiana prime rate, was secured by certificates of deposit pledged by all of
the directors of the Company and the personal guarantee of Dr. Angle, and was
repaid in November 1995 from the proceeds of the private placement described
above. Proceeds of this loan were used to pay overdue withholding taxes the
payment of which had been deferred because of cash flow difficulties in the
last nine months of the 1995 fiscal year. Management attributes the cash flow
difficulties to the startup of operations in the Garland and Arlington
practices in mid-1994 and the failure of the management of those practices to
effectively implement the Company's marketing plan, which caused revenues to
fall below expectations and which required the Company to fund operating
expenses from working capital. In the 1995 fiscal year, the Company changed
administration and management for these two practices and implemented a new
marketing plan which resulted in significant revenue increases in these
practices.
In May 1996, the Company obtained a $491,000 bank loan from BankOne and
used the proceeds to pay the outstanding balance of certain then existing
capital lease obligations which carried interest rates ranging from 10.83% to
20% per annum, resulting in future minimum lease payments for the remaining
terms of the leases being reduced from $504,000 to $132,000. The loan accrued
interest at 6.75%, payable monthly, matured in November, 1996, and was
collateralized by a $500,000 certificate of deposit. During fiscal 1997, the
note was paid in full.
To fund the rapid growth in the number of practices managed by the
Company and growth in the number of client employees served, as well as to
reduce shorter maturity debt to the Physicians, the Company obtained in April
1997 two credit facilities from HCFP Funding, Inc., a wholly owned subsidiary
of HealthCare Financial Partners II, L.P. ("HCFP"). The facilities include a
$5 million revolving line of credit secured by a first lien on all accounts
receivable (the "Accounts Receivable Facility") and a $1.5 million term loan
secured by all of the Company's assets, including an assignment of the
Company's Practice Management Agreement (the "Term Loan"). The Accounts
Receivable Facility allows the Company to borrow up to 80% of the eligible
receivables at an interest rate of prime plus 2%, and obligates the Company to
pay a .083% monthly collateral management fee. The Term Loan bears interest at
the rate of prime plus 4%. The Accounts Receivable Facility had a $25,000
commitment fee, and the Term Loan required a 2% commitment fee and issuance of
warrants (the "HCFP Warrants") bearing registration rights. Both facilities
have a two-year final maturity. The Company borrowed $2.9 million under the
HCFP credit facilities at the time of closing and used $2.7 million to
refinance the Physicians' promissory notes, $100,000 for transaction expenses
and $100,000 for working capital
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<PAGE> 24
purposes. As of June 30, 1997, borrowings in the aggregate amount of $2.779
million were outstanding under the HCFP credit facilities.
The Company anticipates that its working capital needs and capital
expenditures will continue to increase as the Company continues its expansion.
The expense of opening of new facilities, which may include the leasing or
purchase of capital equipment including office, computer and medical equipment,
can be substantial. The Company estimates that each of the facilities it
manages requires a minimum of $80,000 of medical equipment. To the extent
capital equipment can be leased at a reasonable cost the Company anticipates
leasing such capital equipment in order to conserve working capital.
Conversely, if the interest expense associated with the leasing of capital
equipment is unacceptable to the Company, the Company may purchase such
equipment from the funds allocated to the opening of new facilities. The
Company may also acquire equipment in connection with the addition of existing
practices to its management portfolio. The Company will continue to seek
additional practices for its management portfolio, and will continue to explore
potential sources and arrangements to obtain growth capital.
PREVIOUSLY DISCLOSED POTENTIAL NON-CASH CHARGE
As a condition to the public offering, the representative of the
several underwriters required the Company's stockholders to deposit an
aggregate of 150,000 shares of Common Stock of the Company in an escrow
account. The Common Stock deposited in the escrow account was subject to
release to such stockholders only in the event the Company's earnings per share
for the calendar year ending December 31, 1996 were equal to or exceeded $.25
per share. In reports previously filed, the Company disclosed that if the
Company attained the pre-determined earnings target, the market value of the
escrowed shares held by officers, employees and consultants at the time the
escrowed shares were released would be deemed to be additional compensation
expense to the Company, and the Company would be required to recognize what
could be a significant charge to income, and which could reduce or eliminate
earnings, if any. Such 150,000 shares have been cancelled as a result of the
Company's failure to satisfy the earnings test and accordingly, no compensation
expense for the escrowed shares has been or will be required to be recognized.
SEASONALITY
The Company's business exhibits some seasonality. From November
through January, factors such as plant closings, vacations and holidays result
in fewer occupational injuries and illnesses. In addition, employers generally
hire fewer employees during the last three months of the year, thereby reducing
the number of pre-hiring physical examinations and drug and alcohol tests
during this period. Patient visits also decline in summer months due to plant
closings, vacations and fewer illnesses related to adverse weather.
Accordingly, results of operations during the Company's second and fourth
fiscal quarters of each year will tend to be somewhat lower than the remaining
quarters of the fiscal year. The Company anticipates that this seasonality
will continue for the foreseeable future.
INFLATION
When faced with increases in operating costs due to inflation, the
Company has implemented cost control measures intended to contain or reduce its
expenses. However, the Company cannot predict its ability to control future
cost increases or to increase its charges for certain management services
covered by state and federal workers' compensation laws.
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<PAGE> 25
INVESTMENT BANKING RELATIONSHIPS
In early 1997, the Company engaged Southcoast Capital Corporation to
assist the Company in exploring strategic alternatives for increasing
shareholder value. The Company is continuing to work with these investment
bankers for such purposes.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are included beginning at F-2. See page F-1
for the Index to the Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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<PAGE> 26
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following material contains information concerning the directors,
including their recent employment, positions with the Company, other
directorships and age as of the date of this Form 10-KSB.
<TABLE>
<CAPTION>
CAPACITIES IN DIRECTOR OR
NAME AGE WHICH SERVED OFFICER SINCE
- - - ---------------------------- --- ---------------------------- -----------------
<S> <C> <C> <C>
Donald F. Angle, M.D. 42 Chairman of the Board, President, 1992
Secretary and Treasurer
Carl S. Luikart, M.D.(1)(2) 43 Director 1992
John P. Kennedy 47 Director 1992
Dale W. Willetts(1)(2) 46 Director 1995
W. Howard Haun 65 Director 1996
Stephen W. Cavanaugh 46 Director 1996
Fred G. Parrish 40 Chief Financial and Operating Officer 1993
Robert Kenneth Aiken 41 Vice President - Business Development 1996
</TABLE>
- - - ----------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Donald F. Angle, M.D. has been the Chairman of the Board, President,
Secretary and Treasurer of the Company since its inception. He serves as
President of Andicare, Inc., which he founded in 1987, and President of EOPS,
which he co-founded in 1990, both wholly-owned subsidiaries of the Company. In
1994, Dr. Angle founded Donald F. Angle, M.D. P.A., now renamed as The
Physician Group, P.A. ("The Physician Group") with which the Company contracts
for physicians services. Dr. Angle is the sole stockholder of the Physician
Group. He also served as Medical Director for the Emergency Department of
Highland Hospital in Shreveport, Louisiana from 1989 to 1992. Dr. Angle was the
Medical Director for Operations at Louisiana Downs in Bossier City, Louisiana
from 1982 to 1992 and was the Medical Director in the Emergency Department of
Riverside Community Hospital in Bossier City from 1982 to 1991. Dr. Angle has
been certified as an Emergency Medicine Physician by the American Board of
Emergency Medicine. He is licensed to practice medicine in Louisiana, Texas and
Arkansas. Dr. Angle received his M.D. degree from the Louisiana State
University School of Medicine in 1980.
Carl S. Luikart, M.D. currently serves as Chief of the Section of
Cardiovascular Disease at Our Lady of the Lake Regional Medical Center in Baton
Rouge, Louisiana. He is also Chief of the Cardiology Section at the Earl K.
Long Memorial Hospital in Baton Rouge. Dr. Luikart is a member of the Board of
Directors of Louisiana Blue Cross and Blue Shield. He has engaged in the
practice of cardiology medicine since 1985. Dr. Luikart received his M.D.
degree from the Louisiana State University School of Medicine in 1980.
John P. Kennedy is the President of Corporate International Services,
Venice, California, an investment advisory firm that he founded in 1986 to
provide private investment banking services to
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<PAGE> 27
companies in the United States and Canada. Mr. Kennedy received a Bachelor of
Arts degree from California State University in 1974.
Dale W. Willetts has been president of Magnum Industries, Huntington
Beach, California, a lease financing company and broker of capital equipment
leases to various financial sources, since 1987. In 1992, Mr. Willetts became
a registered investment advisor. In this capacity, Mr. Willetts advises public
and private companies with respect to finance, business and marketing
strategies.
W. Howard Haun is currently the President of RMAC, the Company's
insurance subsidiary. He served as a consultant to Employers General Insurance
Group and its predecessor, Employers Insurance of Texas, from 1993 until
assuming his current position with RMAC. From 1953 through 1993, Mr. Haun was
employed in various capacities by Employers Insurance of Texas. Employers
Insurance of Texas was placed in conservatorship in 1992 and thereafter into
receivership in 1994. Mr. Haun is a certified Life Underwriter, a certified
Property and Casualty Underwriter, a past president of the Dallas chapter of
the Society of Property and Casualty Underwriters, a past president of the
Underwriting Executives Counsel and former chairman of the Texas Automobile
Assigned Risk Plan.
Stephen W. Cavanaugh is the president and chief executive officer of
Louisiana Workers' Compensation Corporation, a private domestic mutual insurer,
and has served in that capacity since December 1991. From January 1988 to
December 1991, he was the Assistant Secretary of the Louisiana Department of
Employment and Training, Director of the Office of Workers' Compensation, a
position to which he was appointed by the Governor of Louisiana. Mr. Cavanaugh
received a Bachelor of Arts degree from Northwestern State University in
Natchitoches, Louisiana and his Juris Doctor degree from the Louisiana State
University School of Law in Baton Rouge, Louisiana.
Fred G. Parrish has been the chief operating officer of the Company
since July 1993 and has been chief financial officer from July 1993 through
December 1996 and again from July 1997 to the present. He is responsible for
operational and financial management aspects of the Company and its
subsidiaries. From 1991 to 1993, Mr. Parrish served as a management consultant
to several firms in the United States and Canada, specializing in development
and implementation of strategies related to corporate structure, domestic and
international joint venture opportunities, business policy, resource allocation,
and business operations. From 1980 to 1992, Mr. Parrish held a series of
management positions including Vice President of Finance, Executive Vice
President, and President and Chief Executive Officer of Composite Technology,
Inc., an international aerospace company headquartered in Dallas, Texas. Mr.
Parrish received a Bachelor of Science degree from Slippery Rock University in
Slippery Rock, Pennsylvania in 1979.
Robert Ken Aiken is the Vice-President of Business Development and
also serves as the director of information systems. He joined the Company in
1993 and was named to his present position in 1996. Prior to joining the
Company, Mr. Aiken served in various active duty assignments with the United
States Marine Corps, with emphasis on developing new operational capabilities
and organizations. Mr. Aiken graduated from the United States Naval Academy
and has completed numerous Department of Defense and civilian training courses.
Each director holds office until the next annual meeting of
shareholders or until a successor has been duly elected and qualified. There
is currently a vacancy on the board of directors. The Board is seeking a
qualified nominee to fill the vacancy and anticipates that the nominee will be
presented to shareholders at the Company's next annual meeting. Officers are
appointed by and serve at the discretion of the Board of Directors. All of the
Company's officers devote full-time to the Company's business and affairs.
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<PAGE> 28
COMMITTEES OF THE BOARD
The Board of Directors has delegated certain of its authority to a
Compensation Committee and an Audit Committee. The members of both the
Compensation Committee and Audit Committee are Messrs. Luikart and Willetts.
Neither of these members is a former or current officer or employee of the
Company. There is currently a vacancy on both of these committees. The Board
expects to fill such vacancies after it has filled the vacancy on the Board of
Directors.
The Compensation Committee held two meetings in the 1997 fiscal year.
The primary function of the Compensation Committee is to review and make
recommendations to the Board with respect to the compensation, including
bonuses, of the Company's officers and to administer the Company's Option Plan.
The Audit Committee held two meetings in the 1997 fiscal year. The
function of the Audit Committee is to review and approve the scope of audit
procedures employed by the Company's independent auditors, to review and approve
the audit reports rendered by both the Company's independent auditors and to
approve the audit fee charged by the independent auditors. The Audit Committee
reports to the Board of Directors with respect to such matters and recommends
the selection of independent auditors.
BOARD AND COMMITTEE ATTENDANCE
In the 1997 fiscal year, the Board of Directors held four meetings.
All directors attended more than 75% of the aggregate of board and committee
meetings held during the 1997 fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the annual
and long-term compensation for services in all capacities to the Company for
the 1995, 1996 and 1997 fiscal years of Donald F. Angle, M.D., Chairman of the
Board and President of the Company (the "Named Officer"). No other officer of
the Company received total annual salary and bonus in excess of $100,000 during
the year ended June 30, 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
FISCAL -------------------- ------------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS(SHARES)(2) COMPENSATION(3)
- - - --------------------------- ------ ---------- ----- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Donald F. Angle, M.D., 1997 $ 189,742 -- 12,500 $16,338
Chairman of the Board and 1996 143,692 -- 107,500 $13,420
President 1995 160,196 -- --- -0-
</TABLE>
- - - -------------------
(1) Includes all compensation received as a physician through The Physician
Group and as President of the Company. In
the 1997, 1996 and 1995 fiscal years, compensation received by Dr. Angle
for his services as a contract physician through The Physician Group
totalled $9,742, $27,730 and $7,666, respectively. See "Item 12. -
Certain Relationships and Related Transactions" and "Item 1. Description
of Business - Physician Services, Recruitment and Duties."
(2) Options were granted under the 1995 Omnibus Stock Option Plan.
(3) Consists of automobile lease payments and related expenses, disability
insurance premiums and, in the 1997 fiscal year, contributions by the
Company to the Company's 401(k) Plan for Dr. Angle's account.
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<PAGE> 29
Option Grants Table. The following table sets forth information on grants
of stock options made to the Named Officer pursuant to the Company's 1995
Omnibus Stock Option Plan during the 1997 fiscal year.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE
NAME GRANTED (SHARES) FISCAL YEAR ($/SHARE) EXPIRATION DATE
- - - -------------------- ---------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Donald F. Angle, M.D. 12,500(1) 100% $ 5.78 7/14/02
</TABLE>
- - - ---------------
(1) On July 15, 1997, the right to purchase 9,722 of such shares vested and
the right to purchase the remaining shares
vests at a rate of 694 options per month thereafter.
Fiscal Year-End Options/Option Values Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDER- VALUE OF UNEXERCISED IN-
LYING UNEXERCISED OPTIONS THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - ---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald F. Angle . . . . . . . . . . . . . 99,166 20,834 -0- -0-
</TABLE>
- - - ----------------
(1) The dollar values are calculated by determining the difference between the
exercise price of the options ($5.78)
and the closing bid price for the Common Stock of $3.94 on June 30, 1997,
the last trading day of the 1997 fiscal year.
No employee of the Company receives any additional compensation for his
services as a director. Non-management directors receive no salary for their
services as such, but are entitled to receive reasonable travel or other
out-of- pocket expenses incurred by non-management directors in attending
meetings of the Board of Directors and a fee of $500 per meeting attended.
The Company has no retirement, pension or profit sharing program for
the benefit of its directors, officers or other employees other than the
Company's Option Plan and a 401(k) Plan recently adopted, but the Board of
Directors may recommend one or more such programs for adoption in the future.
Employment Agreement. The Company has entered into an employment
agreement with Dr. Angle which provides for a five-year term that commenced
January 1, 1996, with a right on the part of the Company to extend the agreement
for additional one-year periods. The employment agreement calls for Dr. Angle
to receive a salary of a minimum of $135,000 in the first year of employment,
$180,000 in the second year of employment, and $180,000 in each year thereafter,
subject to increase upon agreement of the Compensation Committee of the Board of
Directors. Effective July 1, 1996, the Board of Directors increased Dr. Angle's
compensation to $180,000. The employment agreement for Dr. Angle also contains
bonus provisions which empower the Compensation Committee to grant bonuses to
Dr. Angle based upon his performance, the overall performance of the Company and
its financial condition. In addition, as of July 1, 1997, Dr. Angle became
eligible to receive a one-time bonus of $45,000. The agreement requires him to
devote his full business time to the Company, may be terminated by the Company
for "cause" (as defined in the agreement), and prohibits him from competing with
the Company for two years following termination of the agreement.
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<PAGE> 30
The employment agreement for Dr. Angle contains provisions which
provide that, upon the occurrence of a "triggering event" (defined to include a
change in ownership of 80% or more of the outstanding shares of the Company, a
merger of the Company into another corporation, or a liquidation of the
Company) during the period that he is acting as an officer of the Company or
for up to one year after acting in such capacity, Dr. Angle will receive a lump
sum payment equal to 2.9 times the last year's base pay in the event of
termination other than for just cause.
STOCK OPTION PLAN
The Company's 1995 Omnibus Stock Option Plan (the "Plan") was adopted
effective January 1, 1995 and amended effective December 1, 1995 and March 10,
1997. The Plan provides for the granting of incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), nonqualified stock options and
stock appreciation rights ("SARs"), up to a maximum number of 1,040,875 shares.
Nonqualified stock options may be granted to employees, directors and advisors
of the Company, while Incentive Stock Options may be granted only to employees.
No options may be granted under the Option Plan subsequent to December 31,
2004.
The Option Plan is administered by the Compensation Committee of the
Board of Directors, which determines the terms and conditions of the options
and SARs granted under the Option Plan, including the exercise price, number of
shares subject to the option and the exercisability thereof. Messrs. Luikart
and Willetts are currently the members of the Compensation Committee.
The exercise price of all Incentive Stock Options granted under the
Option Plan must be at least equal to the fair market value of the Common Stock
of the Company on the date of grant. In the case of an optionee who owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company, the exercise price of Incentive Stock Options
shall be not less than 110% of the fair market value of the Common Stock on the
date of grant. The exercise price of all nonqualified stock options granted
under the Option Plan shall be determined by the Compensation Committee, but
shall not be less than 85% of the fair market value of the Common Stock. The
term of all nonqualified stock options granted under the Option Plan may not
exceed ten years and the term of all incentive stock options may not exceed
five years. The Option Plan may be amended or terminated by the Board of
Directors, but no such action may impair the rights of a participant under a
previously granted option.
The Option Plan provides the Board of Directors or the Compensation
Committee the discretion to determine when options granted thereunder shall
become exercisable and the vesting period of such options. Upon termination of
a participant's employment or consulting relationship with the Company, all
unvested options terminate and are no longer exercisable. Vested options shall
remain exercisable for a specified period of time following the termination
date. The length of such extended exercise period generally ranges from 60
days to one year, depending on the nature and circumstances of the termination.
The Option Plan provides that, in the event the Company enters into an
agreement providing for the merger of the Company into another corporation or
the sale of substantially all of the Company's assets, any outstanding
unexercised option shall become exercisable at any time prior to the effective
date of such agreement. Upon the consummation of the merger or sale of assets,
such options shall terminate unless they are assumed or another option is
substituted therefor by the successor corporation.
The Option Plan provides the Board of Directors or the Compensation
Committee discretion to grant SARs in connection with any grant of options.
Upon the exercise of a SAR, the holder shall be entitled to receive a cash
payment in an amount equal to the difference between the exercise price per
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<PAGE> 31
share of options then exercised by him and the fair market value of the Common
Stock as of the exercise date. The holder is required to exercise options
covering twice the number of shares which are subject to the SAR so exercised.
SARs are not exercisable during the first six months after the date of grant,
and may be transferred only by will or the laws of descent and distribution.
As of June 30, 1997, a total of 351,481 nonqualified and Incentive
Stock Options were outstanding, each with an exercise price of $5.25 (except in
the case of Dr. Angle, whose exercise price is $5.78). Also as of June 30,
1997, there were no SARs outstanding. All such options vest over a period of
18 months commencing generally two to six months from the date of grant.
401(k) PLAN
Effective January 1, 1997, the Company adopted a defined contribution
savings plan (the "401(k) Plan") to provide retirement income to employees of
the Company. The 401(k) Plan is intended to conform to and qualify under
Sections 401 and 501 of the Internal Revenue Code of 1986, as amended. The
401(k) Plan covers all employees who are at least age 18 and have been employed
at least six months. It is funded by voluntary pre-tax contributions from
employees up to a maximum amount equal to 15% of annual compensation and
through matching contributions by the Company of up to 100% of the initial
$1,000 of an employee's contributions and thereafter 25% of such contributions
up to 6% of the employee's annual compensation. Upon leaving the Company, each
participant is 100% vested with respect to the participant's contributions and
is vested based on years of service with respect to the Company's matching
contributions. Contributions are invested as directed by the participant in
investment funds available under the 401(k) Plan. Full retirement benefits are
payable to each participant in a single payment following the participant's
retirement. Because the 401(k) Plan was not in effect prior to January 1,
1997, the Company incurred no administrative expense and made no contributions
prior to such time on behalf of employees of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's
directors, its executive officers, and any persons holding more than ten
percent of the Company's Common Stock are required to report their initial
ownership of the Company's Common Stock and any subsequent changes in that
ownership to the Commission, The Nasdaq Stock Market, Inc. and the Company.
Specific due dates for these reports have been established and the Company is
required to disclose any failure to file, or late filing, of such reports.
Based solely on the Company's review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company and written representations with respect to filing of
such Forms, the Company is aware that a Form 3 to report his initial ownership
of 174 shares and 22,500 options was not timely filed by R. Kenneth Aiken upon
his appointment as an executive officer of the Company and that a Form 5 to
report the cancellation of 5,493 escrow shares was filed one day late by Dr.
Carl Luikart. Mr. Aiken's Form 3 was filed with the Securities and Exchange
Commission as soon as he became aware of the omission.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of September 23, 1997 by (i) each person known by
the Company to own beneficially more than 5% of the outstanding Common Stock,
(ii) each director, and (iii) all executive officers and directors as a group.
Each person has sole voting and sole investment or dispositive power with
respect to the shares shown except as noted.
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<PAGE> 32
<TABLE>
<CAPTION>
SHAREHOLDINGS ON
SEPTEMBER 23, 1997
------------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS (1) SHARES (2) CLASS
- - - ------------------------------- ----------- ------------
<S> <C> <C>
Donald F. Angle, M.D. (3)(4) . . . . . . . . . . . . . . . . . . . . . 1,298,255 25.8%
Carl S. Luikart, M.D. (3)(5) . . . . . . . . . . . . . . . . . . . . . 107,560 2.2%
Jack P. Kennedy (3)(5) . . . . . . . . . . . . . . . . . . . . . . . . 148,578 3.0%
Dale W. Willetts (3)(5) . . . . . . . . . . . . . . . . . . . . . . . . 143,539 2.9%
W. Howard Haun (6) . . . . . . . . . . . . . . . . . . . . . . . . . . 12,500 *
Stephen W. Cavanaugh . . . . . . . . . . . . . . . . . . . . . . . . . -- *
All directors and executive officers as a group
(nine persons) (3)(7) . . . . . . . . . . . . . . . . . . . . . . . . 1,765,606 34.1%
</TABLE>
- - - -----------------
* Less than 1% of the class.
(1) The address for Messrs. Angle and Haun is Suite 1800, 5215 North O'Connor
Boulevard, Irving, Texas 75039; the address for Dr. Luikart is 5228 Dijon,
Baton Rouge, Louisiana 70808; the address for Mr. Kennedy is 878
Commonwealth Avenue, Venice, California 90291; the address for Mr. Willetts
is 19581 Pompano Lane, #103, Huntington Beach, California 92648; and the
address for Mr. Cavanaugh is 3252 Emily Drive, Brusly, Louisiana 70764.
(2) Ownership includes both outstanding Common Stock and shares issuable upon
exercise of options that are currently exercisable or will become
exercisable within 60 days after the date hereof.
(3) Shares exclude a prorata share of an aggregate of 150,000 shares of Common
Stock held in escrow and cancelled when the Company failed to reach certain
performance objectives as of December 31, 1996.
(4) Includes 120,000 shares of Common Stock under options which are currently
exercisable or will become exercisable within 60 days.
(5) Includes 28,269 shares of Common Stock under options which are currently
exercisable or will become exercisable within 60 days.
(6) Consists solely of shares of Common Stock under options which are currently
exercisable or will become exercisable within 60 days.
(7) Includes 272,307 shares of Common Stock under options which are currently
exercisable or will become exercisable within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the transactions described below, the Company did
not secure an independent determination of the fairness and reasonableness of
such transactions and arrangements with affiliates of the Company. However, in
each instance described below, the disinterested directors reviewed and
unanimously approved the fairness and reasonableness of the terms of the
transactions. The Company believes that the transactions described below were
fair and reasonable to the Company on the basis that such transactions were on
terms at least as favorable as could have been obtained from unaffiliated third
parties. The transactions between officers and directors of the Company, on
the one hand, and the Company, on the other, have inherent conflicts of
interest.
The Company was incorporated in June 1992 and commenced operations
after acquiring all of the outstanding stock of Andicare and EOPS, which had
been operating since 1987 and 1990, respectively. Prior to their acquisition
by the Company, all of the outstanding shares of capital stock of EOPS were
owned equally by Donald F. Angle, M.D., Chairman of the Board and President,
Jan Kohout, M.D., then a director and stockholder of the Company, and Dennis M.
Sullivan, M.D., a stockholder of the Company. Pursuant to the terms of an
Exchange Agreement (the "EOPS Exchange Agreement") entered into in July 1992 by
and among the Company, Dr. Angle, EOPS and Drs. Kohout and Sullivan, each of
the latter two individuals exchanged all of the shares of EOPS held by him for
(i) 67,827 shares of Common Stock of the Company, (ii) the right to payment to
him of an aggregate of $80,000, constituting the payment of $48,000 of
outstanding indebtedness from EOPS and a bonus of $32,000, (iii) the right to a
grant (the
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<PAGE> 33
"Contingent Stock Grant") of 4,239 shares of Common Stock of the Company each
time a new facility is opened by the Company in Dallas/Fort Worth metroplex,
and (iv) the right to 2.5% of gross revenues from facility services rendered in
all Dallas/Fort Worth metroplex Company facilities or $8,000 per month,
whichever is greater (the "Contingent Revenue Payment"). The right to
Contingent Stock Grants terminated by its terms on the date of the Company's
public offering. The right to Contingent Revenue Payments payable to Drs.
Kohout and Sullivan ceased in August 1994 and March 1995, respectively,
pursuant to the terms of the EOPS Exchange Agreement. The Company paid Drs.
Kohout and Sullivan the Contingent Revenue Payment due in the amount of $60,000
in the 1996 fiscal year, and issued 16,957 shares of Common Stock required to
satisfy the Contingent Stock Grants. No Contingent Revenue Payments nor
Contingent Stock Grants were due or paid in the 1997 fiscal year.
John P. Kennedy, a director and stockholder of the Company, entered
into a consulting agreement with EOPS in March 1992, which agreement was
subsequently assumed by the Company, pursuant to which Mr. Kennedy provided
investment banking services to the Company for a three year term. Under the
consulting agreement, Mr. Kennedy was entitled to receive $14,000 upon
completion of a private offering for four months of consulting services
rendered prior to that time and was to receive $3,500 per month through
November 1995, the termination date of the consulting agreement pursuant to its
terms. Through February 1996, Mr. Kennedy was owed $84,500 in consulting fees
which were paid in the 1996 fiscal year. The consulting agreement has expired
and no amounts were paid to Mr. Kennedy in the 1997 fiscal year.
In March 1992, Messrs. Kennedy and Willetts entered into an agreement,
as amended (the "Capital Agreement") with EOPS, pursuant to which they were
required to assist the Company in raising equity capital in a 1992 private
offering, which was concluded in July 1993. Pursuant to the terms of the
Capital Agreement, Messrs. Kennedy and Willetts purchased an aggregate of
355,074 shares of Common Stock and were granted certain anti-dilution rights.
In November 1995, the Company and Messrs. Kennedy and Willetts executed an
amendment to the Capital Agreement pursuant to which each of Messrs. Kennedy
and Willetts agreed to the issuance of 53,356 shares of Common Stock of the
Company (or an aggregate of 106,712 shares of Common Stock) as a full
satisfaction of the shares of Common Stock issuable to such persons pursuant to
the terms of the anti-dilution provisions of the Capital Agreement.
In November 1995, the Company entered into the Practice Management
Agreement with The Physician Group, a Texas professional association. Dr.
Angle was the founder, and is the sole stockholder, of The Physician Group and
is the President, Chairman of the Board of Directors and owns approximately 24%
of the Company's outstanding Common Stock. See "Item 1. Business - Physician
Services, Recruitment and Duties."
In July 1991, the Company entered into a lease agreement with Rockford
Industries for the lease of certain office, computer and medical equipment.
Dr. Angle personally guaranteed payments on the equipment lease and, upon its
modification in January 1995, again guaranteed the payments under the lease as
modified. Dr. Angle received no compensation from the Company for providing
such guarantees. All of these leases were paid in the 1996 fiscal year.
In September 1995, the Company entered into a loan agreement with
Regions Bank of Louisiana, for borrowings in the amount of $53,000. This loan
accrued interest at the Regions Bank of Louisiana prime rate, and required
payment of principal and interest in six months. This loan was secured by
certificates of deposit pledged by all of the directors of the Company and the
personal guarantee of Dr. Angle. The directors and Dr. Angle were not
compensated by the Company for providing such security. The loan was repaid in
November 1995.
At June 30, 1997, Dr. Angle was indebted to the Company in the amount
of approximately $28,000. This indebtedness represents amounts advanced in the
normal course of business for travel and related costs.
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<PAGE> 34
The Company has adopted a policy that future transactions between the
Company and its officers, directors and 5% or more stockholders are subject to
approval by a majority of the disinterested directors of the Company. Any such
transactions will be on terms believed to be no less favorable than could be
obtained from unaffiliated parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed herewith or have been included as
exhibits to previous filings with the Commission and are incorporated herein by
this reference:
EXHIBIT NO. DOCUMENT
- - - ----------- --------
# 2.2 Stock Purchase Agreement by and between Rubus Realty Company
and the Company.
## 2.3 Asset Purchase Agreement by and between C.A. Riser, M.D. and
the Company.
## 2.4 Asset Purchase Agreement by and between C.A. Riser, M.D. and
Donald F. Angle, M.D., P.A.
+ 2.5.1 Stock Purchase Agreement by and among Doctors' Inn,
Incorporated, Henry H. Calderoni, Francisco J. Guerra and the
Company.
oo 2.5.2 Amendment to Stock Purchase Agreement by and among Doctors'
Inn, Incorporated, Henry H. Calderoni, Francisco J. Guerra and
the Company.
+ 2.6 Stock Purchase Agreement by and among Francisco J. Guerra,
M.D., P.A., Francisco J. Guerra, M.D. and Donald F. Angle,
M.D., P.A.
+ 2.7 Stock Purchase Agreement by and between Henry H. Calderoni,
M.D., P.A., Henry H. Calderoni, M.D. and Donald F. Angle, M.D.,
P.A.
++ 2.8 Asset Purchase Agreement by and among Northside Family Medical
Clinic Professional Association, J. W. Czewski, D.O., and The
Company Doctor.
++ 2.9 Stock Purchase Agreement by and among Northside Family Medical
Clinic Professional Association, J. W. Czewski, D.O., and
Donald F. Angle, M.D., P.A.
** 2.10 Stock Purchase Agreement by and among Robert G. Duchouquette,
M.D., P.A., Robert G. Duchouquette, M.D. and The Physician
Group, P.A.
** 2.11 Stock Option Agreement by and between Robert G. Duchouquette,
M.D. and the Company.
** 2.12 Registration Rights Agreement by and between Robert G.
Duchouquette, M.D. and the Company.
* 3.1.1 Certificate of Incorporation of the Company as filed on June 4,
1992 with the Secretary of State of the State of Delaware.
* 3.1.2 Certificate of Amendment to Certificate of Incorporation of the
Company as filed on October 5, 1995 with the Secretary of State
of the State of Delaware.
* 3.2.1 Amended and Restated By-Laws of the Company.
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<PAGE> 35
EXHIBIT NO. DOCUMENT
- - - ----------- --------
* 4.1 Form of specimen certificate for Common Stock of the Company.
* 4.2 Form of specimen certificate for Warrants of the Company.
* 4.4 Form of Unit Purchase Option issued by the Company to Royce
Investment Group, Inc.
* 4.5.1 Form of Warrant Agreement by and among the Company, Continental
Stock Transfer & Trust Company and Royce Investment Group, Inc.
x 4.5.2 Amendment to Warrant Agreement by and among the Company,
Continental Stock Transfer & Trust Company and Royce Investment
Group, Inc.
xx 4.6 Letter Agreement, dated April 15, 1997, by and between the
Company and HealthCare Financial Partners - Funding II, L.P.
* 10.1.1 Employment Agreement by and between Donald F. Angle and the
Company.
* 10.1.2 Employment Agreement by and between Fred G. Parrish and the
Company.
*** 10.2 Amended and Restated Omnibus Stock Plan, effective January 1,
1995, as amended on March 10, 1997.
* 10.3.1 Lease Agreement, dated June 21, 1991, by and between Twin
Towers Investment Partnership and Emergency Occupational
Physician's Services, Inc. and Addendum Number One, dated
September 30, 1993.
* 10.3.2 Lease Agreement, dated September 30, 1993, by and between
Dallas Forest Park Corporation and Emergency Occupational
Physician's Services Incorporated.
* 10.3.3 Lease Agreement, dated June 19, 1993, by and between AGF
Stadium Place, Ltd. and the Company.
** 10.3.4 Commercial Real Estate Lease, dated October 1, 1996, by and
among Quad Corners Investments, Ltd., a Texas Limited
Partnership, The Physician Group, P.A., and the Company.
o 10.3.5 Sublease Agreement, dated April 23, 1996, by and between
Dominion Oil and Gas Corporation and the Company.
o 10.3.6 Sublease Agreement, dated on or about January 1, 1992, by and
between San Jacinto Methodist Hospital and Dr. C. A. Riser (as
predecessor in interest to the Company).
o 10.3.7 Lease and Addendum, dated December 15, 1991 and December 30,
1991, respectively, by and between Dr. Jim W. Czewski (as
predecessor in interest to the Company) and John D. Willbanks,
et al.
o 10.3.9 Lease Agreement, dated April 1, 1996, by and between HCT
Management & Ventures Company and the Company.
x 10.3.10 Lease Agreement, dated February 20, 1997, by and between Rudd
Properties and the Company.
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<PAGE> 36
EXHIBIT NO. DOCUMENT
x 10.3.11 Lease Agreement, dated June 11, 1997, by and between Dr. Nabil
A. Mouffarej, M.D. and Hanan T. Mouffarej and Andicare
Incorporated, a wholly owned subsidiary of the Company.
x 10.3.12 Lease Agreement, dated September 18, 1996, by and between
Westwood Crown Partners, Ltd. and Emergency Occupational
Physicians Services, Inc., a wholly owned subsidiary of the
Company.
x 10.3.13 Second Amendment to Lease Agreement, dated December 18, 1996,
by and between Twin Towers Investment Partnership and Emergency
Occupational Physician's Services, Inc., a wholly owned
subsidiary.
* 10.5 Joint Marketing Agreement, dated March 23, 1995, by and between
Employers General Insurance Group and the Company.
* 10.6.1 Practice Management, Consulting and Clinic Services Agreement,
dated November 1, 1995, by and between Donald F. Angle, M.D.
P.A. and the Company.
x 10.6.2 Amendment to Practice Management, Consulting and Clinic
Services Agreement, dated November 1, 1995, by and between
Donald F. Angle, M.D. P.A. and the Company.
* 10.7.1 Practice Management Agreement, dated April 1, 1995, by and
between Doyle L. Sharp, M.D. P.A. and the Company.
* 10.7.2 Addendum to Practice Management Agreement, effective December
19, 1995, by and among the Company, Doyle Sharp M.D. P.A. and
Donald F. Angle, M.D. P.A.
* 10.8.1 Operating Agreement of HealthFirst Center, L.L.C., by and among
HealthFirst Center, L.L.C., St. Vincent Infirmary Medical
Center and the Company.
* 10.8.2 MSO Management Agreement by and between HealthFirst Center,
L.L.C. and the Company.
* 10.8.3 Loan and Security Agreement, dated July 27, 1995, by and
between St. Vincent Infirmary Medical Center and HealthFirst
Center, L.L.C.
* 10.8.4 Form of Secured Promissory Note from HealthFirst Center, L.L.C.
to St. Vincent Infirmary Medical Center.
* 10.8.5 Practice Management Agreement by and between HealthFirst
Center, L.L.C. and Donald F. Angle, M.D. P.A.
* 10.9 Form of Preferred Employee Plan agreement between various
employer customers and the Company.
* 10.9.1 Form of Amendment to Letter of Agreement between Preferred
Employee Plan customers, the Company and Donald F. Angle, M.D.
P.A.
* 10.10.1 Equity Capital Formation Letter Agreement, dated March 10,
1992, among EOPS, Dale Willetts and Jack P. Kennedy.
* 10.10.2 Amendment No. 1 to Equity Capital Formation Letter Agreement,
dated August 24, 1992, among EOPS, Dale Willetts and Jack P.
Kennedy.
* 10.10.3 Memorandum of Understanding, dated June 22, 1994, by and among
Dale W. Willetts, John P. Kennedy and the Company.
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<PAGE> 37
EXHIBIT NO. DOCUMENT
* 10.10.4 Amendment No. 2 to Letter Agreement, dated November 1, 1995,
among the Company, John P. Kennedy and Dale W. Willetts.
* 10.11 Consulting Agreement, dated March 10, 1992, between Jack P.
Kennedy and EOPS.
* 10.12.1 Exchange Agreement, dated July 24, 1992, by and among EOPS,
Andicare, Donald F. Angle, M.D. and the Company.
* 10.12.2 Exchange Agreement, dated July 20, 1992, by and among Andicare,
Donald F. Angle, M.D., Carl S. Luikart, M.D., Ann Angle and the
Company.
* 10.12.3 Exchange Agreement, dated July 24, 1992, by and among EOPS,
Donald F. Angle, M.D., Jan Kohout, M.D., Dennis Sullivan and
the Company; Settlement Agreement, dated September 26, 1995, by
and between Dennis M. Sullivan, M.D. and the Company; and
Settlement Agreement, dated September 26, 1995, by and between
Jan Kohout, M.D. and the Company.
o 10.13 Promissory Note, dated May 6, 1996, from the Company to
BankOne, Texas, N.A.
x 10.14.1 Loan and Security Agreement, dated April 15997, by and between
The Company, Andicare, Inc., Emergency Occupational Physician's
Services, Inc., (collectively, the "Borrower"), and HCFP
Funding, Inc.
x 10.14.2 Amendment to Loan and Security Agreement, dated April 15997, by
and between The Company, Andicare, Inc., Emergency Occupational
Physician's Services, Inc., (collectively, the "Borrower"), and
HCFP Funding, Inc.
* 21 Subsidiaries of the Company.
x 23 Consent of Ehrhardt Keefe Steiner & Hottman PC, independent
certified public accountants for the Company.
x 27 Financial Data Schedule
- - - ----------------
x Filed herewith.
* Incorporated by reference from the issuer's Registration Statement on Form
SB-2 (S.E.C. File No. 33-74876-D) as declared effective on February 6,
1996.
# Incorporated by reference from the Issuer's Form 8-K for event date of
July 9, 1996.
## Incorporated by reference from the Issuer's Form 8-K for event date of
August 15, 1996.
+ Incorporated by reference from the Issuer's Form 8-K for event date of
August 21, 1996.
++ Incorporated by reference from the Issuer's Form 8-K for event date of
August 28, 1996.
** Incorporated by reference from the Issuer's Form 8-K for event date of
September 20, 1996.
o Incorporated by reference from the Issuer's Form 10-KSB for the fiscal year
ended June 30, 1996.
xx Incorporated by reference from the Issuer's Form S-3 Registration
Statement (S.E.C. File No. 333-30977).
xxx Incorporated by reference from the Issuer's Form S-8 Registration
Statement (S.E.C. File No. 333-32305).
oo Incorporated by reference from the Issuer's Form S-3 Registration
Statement (S.E.C. File No. 333-21705).
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of
the 1997 fiscal year.
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<PAGE> 38
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE COMPANY DOCTOR
By: /s/ Donald F. Angle
--------------------------------------
Donald F. Angle, M.D., Chairman of
the Board and President
Date: September 26, 1997
------------------------------------
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------- ---------------------------------- ---------------------------
<S> <C> <C>
/s/ Donald F. Angle Chairman of the Board, President September 26, 1997
- - - ------------------------------- (Principal Executive Officer) and
Donald F. Angle Treasurer
/s/ Fred G. Parrish Principal Financial and Operating September 26, 1997
- - - ------------------------------- Officer
Fred G. Parrish
/s/ Carl S. Luikart Director September 26, 1997
- - - -------------------------------
Carl S. Luikart
/s/ John P. Kennedy Director September 26, 1997
- - - -------------------------------
John P. Kennedy
/s/ Dale W. Willetts Director September 26, 1997
- - - -------------------------------
Dale W. Willetts
/s/ W. Howard Haun Director September 26, 1997
- - - -------------------------------
W. Howard Haun
Director
- - - -------------------------------
Stephen W. Cavanaugh
</TABLE>
<PAGE> 39
THE COMPANY DOCTOR AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report.............................................................F - 2
Financial Statements
Consolidated Balance Sheet - June 30, 1997...........................................F - 3
Consolidated Statements of Operations - Years Ended June 30, 1997 and 1996...........F - 4
Consolidated Statement of Changes in Stockholders' Equity -
Years Ended June 30, 1997 and 1996..................................................F - 5
Consolidated Statements of Cash Flows - Years Ended June 30, 1997 and 1996...........F - 7
Notes to Consolidated Financial Statements...............................................F - 9
</TABLE>
F-1
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Company Doctor and Subsidiaries
Irving, Texas
We have audited the accompanying consolidated balance sheet of The Company
Doctor (a Delaware corporation) and Subsidiaries as of June 30, 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended June 30, 1997 and 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Company Doctor and Subsidiaries as of June 30, 1997, and the consolidated
results of their operations and their cash flows for the years ended June 30,
1997 and 1996, in conformity with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
August 8, 1997
Denver, Colorado
F-2
<PAGE> 41
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
ASSETS (NOTE 6)
Current assets
<S> <C>
Cash and cash equivalents (Notes 2 and 11) $ 414,422
Short-term investments (Notes 3, 10 and 11) 350,000
Accounts receivable
Trade, less allowance for doubtful accounts of $210,000 (Note 2) 1,920,719
Related parties (Note 8) 215,189
Other 16,932
Prepaid expenses (Note 2) 144,034
Total current assets 3,061,296
Property and equipment (Notes 2, 4, and 7) 2,549,493
Less accumulated depreciation and amortization (939,935)
1,609,558
Other assets
Restricted cash (Note 11) 618,881
Restricted short-term investments (Notes 3, 10, and 11) 400,768
Intangibles, net (Notes 2, 5 and 12) 9,528,963
Other assets (Notes 5 and 9) 386,300
Investments (Notes 3, 10 and 11) 1,900,114
------------
Total other assets 12,835,026
Total assets $ 17,505,880
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (Notes 2 and 6) $ 2,049,744
Current maturities of capital lease obligations (Note 7) 121,913
Accounts payable and accrued expenses 1,152,043
Claims payable (Note 10) 236,796
------------
Total current liabilities 3,560,496
Claims payable (Note 10) 1,065,962
Long-term debt (Notes 2 and 6) 1,375,000
Capital lease obligations, net of current maturities (Note 7) 182,209
------------
Total liabilities 6,183,667
Commitments and contingency (Notes 8, 11 and 13)
Stockholders' equity (Notes 2, 11, and 12)
Preferred stock, $.01 par value, 5,000,000 shares authorized
Series A convertible, no shares issued --
Common stock; $.01 par value; 25,000,000 shares authorized; 4,906,949 shares issued
and outstanding at June 30, 1997 49,070
Additional paid-in capital 13,807,152
Accumulated deficit (2,534,009)
------------
Total stockholders' equity 11,322,213
Total liabilities and stockholders' equity $ 17,505,880
============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 42
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended June 30,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
Revenues $ 11,034,467 $ 4,193,906
Cost of services provided 5,460,919 1,433,170
General and administrative expenses 5,954,044 2,536,751
Marketing expenses 299,307 94,964
Development and acquisition costs 313,015 202,468
------------ ------------
12,027,285 4,267,353
------------ ------------
Loss from operations (992,818) (73,447)
Other (expense) income
Interest income 300,097 139,082
Interest expense (480,488) (82,665)
------------ ------------
(180,391) 56,417
------------ ------------
Net loss before income tax (expense)
benefit (1,173,209) (17,030)
Income tax (expense) benefit (Note 9) (127,000) 100,000
------------ ------------
Net (loss) income $ (1,300,209) $ 82,970
============ ============
Net (loss) income per common share $ (.27) $ .02
============ ============
Weighted average common shares outstanding 4,765,004 4,091,775
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 43
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Preferred Stock ----------------------
Series A Number Additional
-------------------- of Par of
Shares Value Shares Value Capital
--------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 -- $ -- 2,208,443 $ 22,085 $ 1,003,009
Stock issued for services in conjunction with a private
placement completed in 1993, valued at $5.50 (Note 12) -- -- 106,712 1,067 (1,067)
Issuance of preferred, Series A at $1.25 per share net of
$102,500 of offering costs (Note 12) 400,000 4,000 -- -- 393,500
Issuance of common stock net of $2,126,569 of offering costs
(Note 12) -- -- 1,840,000 18,400 7,570,031
Imputed costs associated with stock options granted to
underwriter in conjunction with initial public offering
(Note 12) -- -- -- 312,245 --
Conversion of preferred, Series A to common stock in
conjunction with the initial public offering (Note 12) (400,000) 400,000 4,000 -- --
Exercise of stock options and warrants (Note 12) -- -- 1,200 12 6,638
Issuance of stock in conjunction with acquisitions of medical
practices, valued at $5.25 and $10.25 per share (Note 2) -- -- 120,139 1,201 970,990
Net income -- -- -- -- --
------------ -------- ------------ --------- ------------
Balance at June 30, 1996 -- -- 4,676,494 46,765 10,255,346
<CAPTION>
Accumulated Stockholders'
Deficit Equity
-------------- -------------
<S> <C> <C>
Balance at June 30, 1995 $ (1,316,770) $ (291,676)
Stock issued for services in conjunction with a private
placement completed in 1993, valued at $5.50 (Note 12) -- --
Issuance of preferred, Series A at $1.25 per share net of
$102,500 of offering costs (Note 12) -- 397,500
Issuance of common stock net of $2,126,569 of offering costs
(Note 12) -- 7,588,431
Imputed costs associated with stock options granted to
underwriter in conjunction with initial public offering
(Note 12) -- 312,245
Conversion of preferred, Series A to common stock in
conjunction with the initial public offering (Note 12) -- --
Exercise of stock options and warrants (Note 12) -- 6,650
Issuance of stock in conjunction with acquisitions of medical
practices, valued at $5.25 and $10.25 per share (Note 2) -- 972,191
Net income 82,970 82,970
------------ ------------
Balance at June 30, 1996 (1,233,800) 9,068,311
</TABLE>
Continued on the following page
See notes to consolidated financial statements.
F-5
<PAGE> 44
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Continued from previous page.
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Series A ---------------------
----------------- Number Additional
Number of Par of Par Paid-in
Shares Value Shares Value Capital
--------- ------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 -- -- 4,676,494 46,765 10,255,346
Escrow shares returned (Note 12) -- -- (150,000) (1,500) 1,500
Imputed value of stock options and warrants granted for
consulting services and debt acquisition (Note 12) -- -- -- -- 259,982
Issuance of stock in conjunction with acquisitions of medical
practices, valued at $9.75, $9.92 and $8.87 per share (Note 2) -- -- 338,337 3,384 3,278,616
Additional shares issued in conjunction with acquisition of
medical practice to adjust $350,000 of stock to $6.38 per
share which was originally valued at an estimated $10.25 per
share at the acquisition date (Note 2) -- -- 19,943 199 (199)
Exercise of stock options and warrants (Note 12) -- -- 2,177 22 12,107
Additional shares issued to extend registration rights related
to stock issued in conjunction with acquisitions (Note 2) -- -- 19,998 200 (200)
Net loss -- -- -- -- --
----- ----- --------- -------- ------------
-- $ -- 4,906,949 $ 49,070 $ 13,807,152
===== ===== ========= ======== ============
<CAPTION>
Accumulated Stockholder's
Deficit Equity
------------ ------------
<S> <C> <C>
Balance at June 30, 1996 (1,233,800) 9,068,311
Escrow shares returned (Note 12) -- --
Imputed value of stock options and warrants granted for
consulting services and debt acquisition (Note 12) -- 259,982
Issuance of stock in conjunction with acquisitions of medical
practices, valued at $9.75, $9.92 and $8.87 per share (Note 2) -- 3,282,000
Additional shares issued in conjunction with acquisition of
medical practice to adjust $350,000 of stock to $6.38 per
share which was originally valued at an estimated $10.25 per
share at the acquisition date (Note 2) -- --
Exercise of stock options and warrants (Note 12) -- 12,129
Additional shares issued to extend registration rights related
to stock issued in conjunction with acquisitions (Note 2) -- --
Net loss (1,300,209) (1,300,209)
------------ ------------
$ (2,534,009) $ 11,322,213
============ =---=========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 45
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
June 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $(1,300,209) $ 82,970
----------- -----------
Adjustments to reconcile net (loss) income to net cash used in
operating activities
Depreciation and amortization 752,484 163,620
Deferred taxes 100,000 (100,000)
Imputed value of options granted for services 9,982 --
Change in assets and liabilities
Accounts receivable (165,506) (385,711)
Prepaid expenses (28,001) (77,517)
Other assets (247,057) (110,958)
Checks written in excess of bank balance -- (18,265)
Accounts payable and accrued expenses 211,913 (501,117)
----------- -----------
633,815 (1,029,948)
----------- -----------
Net cash used in operating activities (666,394) (946,978)
----------- -----------
Cash flows from investing activities
Cash acquired from medical practices 282,802 1,139,056
Purchases of property and equipment (581,740) (482,825)
Redemption (purchase) of investments 229,928 (1,881,469)
Change in restricted cash (118,881) (500,000)
Purchase of intangibles (637,276) (97,863)
----------- -----------
Net cash used in investing activities (825,167) (1,823,101)
----------- -----------
Cash flows from financing activities
Payments on notes payable to sellers (2,831,010) --
Payments from notes payable (3,569,684) 506,250
Net proceeds from sales of stock 12,129 8,304,826
Proceeds on notes payable 2,779,071 (33,143)
Payments on equipment leases (120,956) (371,421)
----------- -----------
Net cash (used in) provided by financing activities (3,730,450) 8,406,512
----------- -----------
Cash and cash equivalents (decrease) increase (5,222,011) 5,636,433
Cash and cash equivalents at beginning of period 5,636,433 --
----------- -----------
Cash and cash equivalents at end of period $ 414,422 $ 5,636,433
=========== ===========
</TABLE>
Supplemental disclosures of interest paid:
Interest paid on borrowings for the years ended June 30, 1997 and 1996
was $454,446 and $95,528, respectively
Supplemental disclosures of noncash investing and financing activities:
Purchases of medical equipment through capital leases for the year
ended June 30, 1997 and 1996 was $292,933 and $0, respectively
Continued on next page
See notes to consolidated financial statements.
F-7
<PAGE> 46
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued from previous page.
During the year ended June 30, 1997, the Company acquired three medical
practices located in Dallas, El Paso and Fort Worth, Texas (Note 2).
The combined aggregate purchase price of $8,070,000 was paid in 358,335
shares of common stock valued at $3,282,000, $1,844,000 cash and notes
payable totaling $2,944,0000.
The assets acquired were as follows:
<TABLE>
<CAPTION>
Total
-----------
<S> <C>
Assets acquired
Cash $ 283,000
Accounts receivable 692,000
Fixed assets 139,000
Other 18,000
-----------
1,132,000
Liabilities assumed
Accounts payable and accrued expenses
(162,000)
Net assets acquired 970,000
Aggregate purchase price 8,070,000
Goodwill $ 7,100,000
===========
</TABLE>
During 1997, the Company granted 400,000 warrants to a financing company in
connection with obtaining debt financing. The imputed value of the warrants at
the date of grant was recorded as loan costs with a corresponding increase in
paid-in-capital.
See notes to consolidated financial statements.
F-8
<PAGE> 47
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Organization
The Company Doctor (TCD) was incorporated in the state of Delaware in June 1992
for the purpose of managing and providing industrial/occupational medical and
related services exclusively to the employees and prospective employees of
subscribing businesses.
Andicare, Inc. (Andicare), Emergency Occupational Physician's Services, Inc.
(EOPS), and Risk Management Assurance Corporation ("RMAC") are wholly owned
subsidiaries of TCD and are in the business of providing services identical to
TCD, except for RMAC which is in the business of providing insurance. Andicare
services its patients from one clinic in Louisiana, EOPS from six clinics in
the Dallas/Fort Worth Metroplex, one in Lancaster, Baytown and El Paso Texas.
RMAC underwrote a workers' compensation policy for its former stockholder and
its affiliates from approximately July 1, 1987 to January 1, 1992 when the
company became inactive. Currently, the only operations of RMAC are the payment
on approximately 60 outstanding claims filed prior to December 31, 1991.
Principles of Consolidation
The accompanying consolidated financial statements contain the accounts of TCD,
Andicare, EOPS, and RMAC. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, certificates of deposit
and other highly-liquid investments with maturities of three months or less,
when purchased, to be cash and cash equivalents for cash flow purposes.
Accounts and Notes Receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers related to providing industrial/occupational
medical and related services. All customers are located in close proximity to
the Company's clinics which are located in the Dallas/Fort Worth Metroplex,
Shreveport, Louisiana, Baytown and El Paso Texas and Little Rock, Arkansas
areas.
Because of the credit risk involved, management has provided an allowance for
doubtful accounts which reflects its opinion of amounts which will eventually
become uncollectible. In the event of complete non-performance by the Company's
customers, the maximum exposure to the Company is the outstanding accounts
receivable balance at the date of non-performance.
F-9
<PAGE> 48
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments
The Company invests in long-term and short-term certificates of deposit,
T-bills, and U.S. Treasury notes which are classified as held-to-maturity or
available-for-sale. The investments are held with financial institutions. The
Company performs periodic reviews of its investments and the financial
institutions in order to limit credit risk.
Investments which are held-to-maturity are recorded at amortized cost while
available-for-sale investments are recorded at fair value. During fiscal 1997,
there were no material unrealized gains or losses on available-for-sale
investments.
Property and Equipment
Property and equipment are stated at cost; equipment under capital lease is
stated at the lower of fair market value or net present value of minimum lease
payments at inception of the lease. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets which is
five to ten years.
Intangibles
Goodwill is recorded at the difference between net asset acquired and the
purchase price and is amortized over the estimated useful life of twenty years.
Loan Origination Fees
Direct costs incurred for the origination of loans are deferred and amortized
to expense on a straight-line basis over the contractual terms of the loans.
Claims Payable
Unpaid claims are based on estimates of reported claims. While management
believes the reserve for claims is adequate, the reserve is continually
reviewed and as adjustments become necessary, they are reflected in current
operations.
F-10
<PAGE> 49
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Physicians Group
Due to legislative requirements concerning the practice of medicine in the
state of Texas, the Company has entered into an agreement with the Physicians
Group (a company owned 100% by a stockholder of the Company) for the services
of physicians.
The Physicians Group employs doctors who provide medical 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 agreement
between the Company for its Texas clinics and the Physicians Group requires
that all income be paid to the Company for management services or to the
physicians for compensation and performance bonuses. The accompanying
consolidated financial statements reflect transactions with the Physicians
Group on a basis as if the Company and Physicians Group were "combined" or
"consolidated" as revenue reflects all Texas clinic revenue billed to patients
and expenses reflect compensation paid to the Physicians Group doctors.
Total revenue billed to third parties and compensation paid associated with the
Physicians Group is as follows:
<TABLE>
<CAPTION>
June 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenue billed to third parties $9,005,279 $2,865,602
========== ==========
Compensation to doctors $2,507,502 $ 534,674
========== ==========
</TABLE>
Investment in Limited Liability Company
In June 1995, the Company, along with St. Vincent Infirmary Medical Center (St.
Vincent), formed a business called HealthFirst to provide medical services. The
Company owns 50% of the outstanding stock of the limited liability company
(LLC) and manages the operations of HealthFirst; St. Vincent owns the other 50%
and has agreed to provide up to $500,000 of the initial capitalization of the
LLC. Under the terms of the agreement, the Company and St. Vincent will split
profits based on ownership after the initial capitalization of $500,000 has
been repaid to St. Vincent. If the new LLC is not successful, the Company has
no obligation to repay any portion of the $500,000 initial capitalization. The
Company receives a $4,000 per month fee to manage the facility and has loaned
$30,000 at June 30, 1997 to start operations which is to be repaid out of the
$500,000 capitalization (Note 6). The Company accounts for its 50% investment
in HealthFirst using the equity method of accounting. The Company's total
investment of $1,000 was fully used by its share of the June 30, 1995 net
operating loss of HealthFirst and the Company has recorded a liability for
approximately $30,000 for its share of losses exceeding the $500,000 of initial
capitalization which arose in fiscal 1997.
F-11
<PAGE> 50
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company calculates and records the amount of taxes payable or refundable
currently or in future years for temporary differences between the financial
statement basis and income tax basis based on the current enacted tax laws.
Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the consolidated financial statements
that will result in taxable or deductible amounts in future years. The
Company's temporary differences result primarily from the allowance for bad
debts and net operating loss carryforwards.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, restricted cash, receivables, accounts payable, notes payable and
accrued expenses approximated fair value as of June 30, 1997 because of the
relatively short maturity of these instruments.
It is not applicable to estimate the fair value of the receivables from related
parties due to the inability to estimate fair value without incurring excessive
costs.
The fair value of held-to-maturity investments approximated fair value at June
30, 1997. As noted above, available-for-sale investments are recorded at fair
value.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The Company has recorded approximately $1,300,000 of claims payable (Note 10)
for the estimated liability related to unpaid losses from workers' compensation
claims. Such reserves are continually reviewed based upon changes in the nature
of the claims outstanding. Accordingly, the reserve is subject to changes due
to circumstances not presently known.
Net (Loss) Income Per Common Share
Net (loss) income per common share has been computed based on the weighted
average number of common shares outstanding during each year. Common stock
equivalents are included in weighted average number of common shares
outstanding unless they are anti-dilutive.
F-12
<PAGE> 51
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassification
Certain amounts in the June 30, 1996 consolidated financial statements have
been reclassified to conform with the June 30, 1997 presentation.
NOTE 2 - ACQUISITIONS
In August of 1996, the Company entered into agreements to purchase Doctor's Inn
(Dr. Inn) in El Paso, Texas and Northside Family Medical Clinic, P.A.
(Northside) in Fort Worth, Texas and in September of 1996, the Company entered
into an agreement to purchase Beltline North Medical Clinic (Beltline) in
Dallas, Texas.
The accompanying consolidated financial statements includes the results of
operations from the effective date of the acquisitions, or July 1, 1996 for Dr.
Inn and Beltline and from August 21, 1996 for Northside.
The acquisitions are accounted for under the purchase method of accounting
applying the provisions of Accounting Principles Board Opinion No. 16 ("APB
16"). Pursuant to the requirements of APB 16, the aggregate purchase price,
based on fair values, will be allocated to the tangible and intangible assets
and liabilities assumed based on their estimated fair value at the date of the
acquisitions. Goodwill is amortized over its estimated useful life of 20 years.
The aggregate purchase price allocated to the assets acquired and liabilities
assumed which are included in the consolidated financial statements consists
of:
<TABLE>
<S> <C>
Asset acquired
Cash $ 283,000
Accounts receivable 692,000
Fixed assets and other 157,000
-----------
1,132,000
Liabilities assumed:
Accounts payable and accrued expenses (162,000)
Net assets acquired 970,000
Costs associated with acquisition 558,000
Fair value of common stock issued 3,282,000
Notes payable incurred 2,944,000
Cash 1,844,000
-----------
Goodwill $ 7,658,000
===========
</TABLE>
F-13
<PAGE> 52
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS (CONTINUED)
The common stock issued in the acquisitions of Drs. Inn, Northside and Beltline
were recorded at the market value of the stock at the date of the individual
acquisition which was $9.72, $9.75 and $8.87, respectively.
Pursuant to the Acquisition Agreements described above, the Company was
obligated to give registration rights on the related common stock issued. As
the registration rights were not completed by the agreed upon date, the Company
was required to issue 19,998 additional shares in exchange for an extension. As
of June 30, 1997, all related common stock had been registered.
In fiscal year 1996, the Company entered into agreements to purchase Doyle M.
Sharp, M.D. (Sharp) in Lancaster, C.A. Riser MD, d/b/a Occupational and Family
Medicine (OFM) in Baytown, and RMAC for approximately $2,709,000 including
120,139 shares of common stock.
Per the acquisition document for the Baytown clinic, the seller was to receive
33,334 of stock upon closing and an estimated 34,959 additional shares in
February 1997 equal to $350,000. To account for a change in the market value of
the stock from the date of grant to the issuance date, an additional 19,943
shares were issued.
Pro Forma Statement of Operations
As the acquisition date was near or at the beginning of fiscal year 1997 for
Dr. Inn, Beltline and Northside, respectively, the pro forma results of
operations for the year ended June 30, 1997 are not presented.
The unaudited pro forma results of operations had the Company acquired Dr. Inn,
Beltline and Northside, Inc. as of July 1, 1995 are as follows for the year
ended June 30, 1996:
<TABLE>
<S> <C>
Revenues $9,145,000
==========
Net income $ 541,000
==========
Net income per common stock .12
</TABLE>
F-14
<PAGE> 53
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVESTMENTS
The following is a summary of investments at June 30, 1997:
<TABLE>
<CAPTION>
Amortized Cost or Fair Value*
------------------------------------
Current Long-Term Total
---------- ---------- ----------
<S> <C> <C> <C>
U.S. treasury notes $ 350,382 $1,900,114 $2,250,496
Municipal and agency bonds 400,386 -- 400,386
---------- ---------- ----------
$ 750,768 $1,900,114 $2,650,882
========== ========== ==========
</TABLE>
* As the cost or amortized cost approximates fair value of all investments at
June 30, 1997, there were no material unrealized gains or losses during
fiscal 1997.
The amortized cost and fair value of held-to-maturity and available-for-sale
fixed maturities at June 30, 1997, by contractual maturity, are shown below:
<TABLE>
<S> <C>
Due in one year or less $ 750,768
Due after one year through five years 1,550,114
Due after five years through ten years 350,000
----------
$2,650,882
==========
</TABLE>
There were no sales of available-for-sale investments during fiscal 1997 and
therefore there were no proceeds from sales or realized gains or losses.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 1997:
<TABLE>
<S> <C>
Medical equipment $1,427,886
Furniture, fixtures and office equipment 976,265
Leasehold improvements 145,342
----------
2,549,493
Less accumulated depreciation and
amortization (939,935)
----------
$1,609,558
==========
</TABLE>
F-15
<PAGE> 54
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLES AND OTHER ASSETS
Intangibles consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
Cost
-----------
<S> <C>
Goodwill $ 9,635,313
Loan origination fees (Note 12) 390,097
Accumulated amortization (496,447)
-----------
$ 9,528,963
===========
Other assets consist of the
following at June 30, 1997
Prepaid tax deposit $ 324,163
Other 62,137
-----------
$ 386,300
===========
</TABLE>
The State of Texas has established an assessment under the provisions of the
Texas Property and Casualty Insurance Guaranty Act whereby a company makes
contributions to the Texas Property and Casualty Insurance Guaranty Association
and can use these contributed funds as a credit against future premium tax
liabilities. As of June 30, 1997, the Company has deposited $324,163 of
contributions, net of credits used in 1989 to 1991. No impairment is necessary
as the Company anticipates generating premium income in future years from
underwriting new workers' compensation insurance policies.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1997:
$5,000,000 revolving loan with a finance company, principal
and interest payable monthly based on collections of accounts
receivable - trade; interest is at bank prime (8.50% at June 30,
1997) plus 2%. Borrowings are limited to 80% of eligible
receivables as defined in the agreement. The loan matures
April 1999 and is collateralized by trade receivables.
$1,279,321
Note payable - finance company, interest at bank prime
(8.50% at June 30, 1997) plus 4%. Interest only payments
through March 1998 at which time monthly principal payments
of $41,667 plus accrued interest commence. The note matures
April 1999 and is collateralized by substantially all assets
of the Company.
1,500,000
F-16
<PAGE> 55
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LONG-TERM DEBT (CONTINUED)
Note payable - sellers, interest at 9.5%, due in monthly
installments of $25,000 including interest through June 1998
when unpaid principal and interest are due. Collateralized by
the assets of the El Paso clinic with a net book value of
approximately $525,000. 523,354
Note payable - seller, interest at 9.5%, due in monthly
installments of $11,965, plus accrued interest through February
1998 when unpaid principal and interest are due. Collateralized
by the assets of the Fort Worth Clinic with a net book value of
approximately $217,000. 92,069
Note payable to a limited liability affiliate (Note 1), interest
at 9%. The note is collateralized by the equipment of HealthFirst. 30,000
----------
3,424,744
Less current portion (2,049,744)
----------
$1,375,000
==========
Installments due on long-term debt subsequent to June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending June 30,
--------------------
<S> <C>
1998 $ 2,049,744
1999 1,375,000
------------
$ 3,424,744
============
</TABLE>
The Company is subject to various financial and restrictive covenants on
long-term notes to the finance company.
NOTE 7 - CAPITAL LEASES
The Company leases medical and office equipment under capital leases which
require monthly payments ranging from $112 to $1,947 including interest and
expire between September 1997 and October 2001. The following is a summary of
assets under capital leases at June 30, 1997:
<TABLE>
<S> <C>
Medical equipment $ 171,531
Office equipment 313,718
Accumulated amortization (114,254)
---------
$ 370,995
=========
</TABLE>
F-17
<PAGE> 56
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CAPITAL LEASES (CONTINUED)
Future minimum lease payments for capital lease obligations are as follows at
June 30, 1997:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1998 $ 158,339
1999 110,960
2000 58,921
2001 43,825
2002 6,759
----------
Total minimum lease payments 378,804
Less amounts representing interest (74,682)
----------
Present value of minimum lease payments 304,122
Less current maturities (121,913)
----------
$ 182,209
==========
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
Related Party Receivables
At June 30, 1997, the Company had advanced funds to four shareholders in the
normal course of business for travel and other related costs totaling
approximately $80,000. Additionally, the Company has receivables due from
HealthFirst of approximately $79,000 for advances to assist in funding
operations and $96,000 for management fees.
Lease Financing
A director and stockholder of the Company has assisted the Company in procuring
lease financing to obtain medical equipment and has received commissions from
providers of capital leasing funds as compensation for these services. The
director and stockholder will continue to offer similar services to the Company
in the future and will receive commissions from providers of such funding in
the amount of between 5% and 10% of the amount of each transaction. No amounts
have been paid by the Company under this agreement.
F-18
<PAGE> 57
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
The Company has the following temporary differences which result in deferred
tax asset or liabilities at June 30, 1997:
<TABLE>
<S> <C>
Allowance for credit loss $ 77,000
Net operating loss carryforward 736,000
---------
813,000
Valuation allowance (813,000)
---------
$ --
=========
</TABLE>
At June 30, 1996, the Company has approximately $2,164,000 of net operating
loss carryforwards for income tax reporting purposes which expire in 2008
through 2012. The valuation allowance related to the deferred tax asset has
been increased $275,000 in the current year due to the current year operating
losses.
NOTE 10 - CLAIMS PAYABLE
The consolidated financial statements include the estimated liability for
unpaid losses from workers' compensation claims of approximately $1,300,000 at
June 30, 1997. The liabilities for losses are determined using case-basis
evaluations and represent estimates of the ultimate net cost of all unpaid
losses as of June 30, 1997. These estimates are continually reviewed and, as
experience develops and new information becomes known, the liability is
adjusted as necessary. The Company anticipates the liability in fiscal 1998
could increase if it begins to underwrite new policies. Such adjustments will
be reflected in current operations.
NOTE 11 - COMMITMENTS AND CONTINGENCY
Leases
The Company leases office and clinic space and equipment under noncancellable
operating leases, expiring through October 2006.
F-19
<PAGE> 58
NOTE 11 - COMMITMENTS AND CONTINGENCY
Leases (continued)
Future minimum lease payments for the remaining terms of the leases are as
follows:
<TABLE>
<CAPTION>
Year ending June 30,
- - - --------------------
<S> <C>
1998 $ 717,376
1999 636,936
2000 594,734
2001 417,002
2002 287,729
Thereafter 753,561
----------
$3,407,338
==========
</TABLE>
Rent expense for the years ended June 30, 1997 and 1996 was $711,552 and
$291,887, respectively.
Marketing Agreement
The Company previously entered into a five year joint marketing program with an
insurance carrier to market a worker's compensation insurance product under the
name "Comp 2000". Expenses of the program are to be approved by the Company and
insurance carrier prior to their expenditure or they are an expense to the
party which incurred them.
Employment Agreement
The Company has entered into an employment agreement with its majority
stockholder and officer of the Company. The agreement provides for a five-year
term, with a right on the part of the Company to extend the agreement from year
to year on written notice to the stockholder/officer given not less than 90
days prior to expiration of the initial term and any extension, as applicable.
The employment agreement calls for the stockholder/officer to receive a salary
of $135,000 in the first year of employment, $180,000 in the second year of
employment, and a minimum of $180,000 in each year thereafter, subject to
increase upon agreement of the Compensation Committee of the Board of
Directors. The employment agreement also contains bonus provisions which
empower the Compensation Committee to grant bonuses to the stockholder/officer
based upon his performance, the overall performance of the Company and its
financial condition.
F-20
<PAGE> 59
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND CONTINGENCY (CONTINUED)
Employment Agreement (continued)
The employment agreement contains provisions which provide that, upon the
occurrence of a "triggering event" (defined to include a change in ownership of
80% or more of the outstanding shares of the Company, a merger of the Company
into another corporation, or a liquidation of the Company) during the period
that the stockholder/officer is acting as an officer of the Company or for up
to one year after acting in such capacity, the stockholder/officer will receive
a lump sum payment equal to 2.9 times the last year's base pay in the event of
termination other than for just cause.
Statutory Reporting, Capital Requirements, and Dividend and Retained Earnings
Restrictions
Insurance companies are required to prepare statutory financial statements in
conformity with practices prescribed or permitted by their state of domicile.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners, as well as state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices are used when prescribed statutory practices do not address the
accounting for transactions.
The State of Texas imposes certain capital requirements of insurance companies
on a statutory basis. Under the applicable regulations, RMAC is required to
maintain minimum capital stock of $1,000,000 and minimum surplus of $1,000,000
at June 30, 1997. Additionally, cash and short-term investments in excess of
the current claims payable of $236,796 are restricted in their use and cannot
be used in any Company operations other than RMAC's operations.
NOTE 12 - STOCKHOLDERS' EQUITY
Public Offering
In February 1996, the Company completed a public offering of 1,840,000 units,
each unit consisting of one share of common stock and one warrant to purchase
one share of common stock at $7.00 per share, at $5.25. The proceeds of the
offering were $7,588,431, net of offering costs of $2,126,569.
Additionally, the Company issued options to the underwriter to purchase
1,660,000 units at $8.14. Compensation expense related to the options has been
recorded in the accompanying consolidated financial statements as deferred
offering costs related to the initial public offering.
F-21
<PAGE> 60
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Public Offering (continued)
In conjunction with the public offering, the Company's stockholders were
required by the underwriter to deposit an aggregate of 150,000 shares of common
stock of the Company in an escrow account. The release of the shares was
subject to the Company meeting certain earnings per share amounts for the
period ending December 31, 1996. The earnings requirement was not met and the
related escrowed shares were returned and canceled. This transaction is
reflected as a reduction in common stock and additional paid-in-capital during
the year ended June 30, 1997 in the accompanying consolidated financial
statements.
Equity Agreement
During 1993, the Company entered into an agreement with two unrelated
individuals to raise equity for the Company. Under the terms of the agreement,
the individuals received a non-diluted 5% interest each in the Company if they
were successful in raising $1,000,000 in financing. The 5% was to increase to
7.5% each if the Company did not reach certain performance criteria by January
1995. In connection with the agreement, the Company issued 355,074 shares in
1993 upon the completion of the private placement. The Company did not meet the
performance criteria and issued an additional 106,712 shares in 1995. Since the
issuance of the 106,712 shares results from a contract to raise equity
financing, the value of the shares has been reflected as "offering costs"
associated with the 1993 private placement and accordingly charged to
additional paid-in capital.
Sale of Stock in a Private Offering
During November 1995, the Company sold 400,000 shares of its Series A preferred
stock at $1.25 per share. The Series A preferred stock automatically converted
into common stock in February 1996 upon completion of the initial public
offering. The proceeds of this offering were $397,500, net of offering costs of
$102,500.
Stock Option Plan
Effective January 1, 1995, the Company adopted a Stock Option Plan that
provides incentive for qualified and non-qualified options. The plan covers an
aggregate of 1,040,875 shares. The plan is administered by a committee
appointed by the Board of Directors (Committee). Options must be granted at an
exercise price of 100% of the fair value of the common stock of the Company on
the date of the grant. Incentive options granted to stockholders who possess
more than 10% of the outstanding common stock have a required exercise price of
the greater of 110% of fair value of the common stock on the date of grant. The
incentive options are exercisable six months after the date of grant and expire
up to ten years from date of grant or up to five years from the date of grant
for incentive options to stockholders who possess more than 10% of the
outstanding common stock.
F-22
<PAGE> 61
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plan (continued)
Non-Qualified options may be granted at exercise prices not less than 85% of
the fair value of the common stock of the Company on the date of grant. The
Non-Qualified options become exercisable six months from the date of grant and
expire ten years from the date of grant.
Additionally, the Committee can grant stock appreciation rights in tandem with
a stock option, in addition to a stock option, or free-standing and unrelated
to a stock option. A stock appreciation right entitles the participant to
receive from the Company an amount equal to the positive difference between (i)
the fair market value of common stock on the date of exercise of the stock
appreciation right and (ii) the grant price or some other amount as the
Committee may determine at the time of grant and may only be exercised during a
period which (i) begins on the third business day following a date when the
Company's quarterly summary statement of sales and earnings is released to the
public and (ii) ends on the 12th business day following such date (iii) or
automatically on the date when a related stock option expires. Stock
appreciation rights are payable in cash, shares of common stock or a
combination of both. No stock appreciation rights have been granted.
The Committee may grant Restricted Stock in exchange for consideration in an
amount determined by the Committee to be paid in cash, or at the discretion of
the Committee, in the form of a promissory note, or delivery of common stock
already owned by the participant for at least six months and valued at its fair
value, or any combination thereon, provided no less than the par value of the
common stock is paid in cash. The Restricted Shares can be awarded to a
participant who has rendered no less than three months of services and are
subject to such restrictions as the Committee imposes. No Restricted Stock has
been granted.
The Committee can award Performance Units or Performance Shares to participants
who attain certain objectives as set forth by the Committee and are payable in
cash, common stock, or a combination of both. Performance Units or Performance
Shares do not entitle the holder to voting rights and at the Committee's
discretion, a dividend equivalent can be attached. No Performance Units or
Performance Shares have been awarded.
F-23
<PAGE> 62
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plan (continued)
The following is a summary of options and warrants at June 30, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Price Per Price Per
Options Warrants Share Share
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance - June 30, 1995 -- -- $ -- $ --
Granted 560,500 2,000,000 $5.25-$8.14 $ 6.71
Exercised (1,000) (200) $ 5.25 $ 5.25
----------- ----------- ----------- ------
Balance - June 30, 1996 559,500 1,999,800 $5.25-$8.14 $ 6.71
Granted 16,310 400,000 $5.25-$7.00 $ 6.85
Exercised (1,777) (400) $5.25-$7.00 $(5.57)
Canceled (59,742) -- $ 5.25 $(5.25)
----------- ----------- ----------- ------
Balance - June 30, 1997 514,291 $ 2,399,400 $5.25-$8.14 $ 6.76
=========== =========== =========== ======
</TABLE>
Stock Options and Warrants
The Corporation has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" for options and warrants granted to employees. Accordingly, no
compensation cost has been recognized for the stock option plans.
Had compensation cost for the Corporation's two stock option plans been
determined based on the fair value at the grant date for awards in 1997 and
1996 consistent with the provisions of SFAS No. 123, the Corporation's net
earnings and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
June 30,
---------------------------
1997 1996
------------- ----------
<S> <C> <C>
Net (loss) income - as reported $ (1,300,209) $ 82,970
Net loss - pro forma $ (1,329,436) $ (68,073)
(Loss) income per share - as reported $ (.27) $ .02
Loss per share - pro forma $ (.28) $ (.02)
</TABLE>
F-24
<PAGE> 63
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Options and Warrants (continued)
Options and warrants granted to non-employees for services and loan fees
resulted in the Company recording compensation expense of $9,982 and loan costs
of $250,000 which are being amortized over a two year term of the notes.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 0%; expected volatility of
34.82%; discount rate of 10.00%; and expected lives of 5 to 10 years.
NOTE 13 - PROFIT SHARING PLAN
Effective January 1, 1997, the Company adopted a 401(k) plan. Under this plan,
all employees are eligible to participate in the 401(k) plan following their
six month anniversary of employment on specified entry dates and upon attaining
age 18.
Employer contributions for each participant is a matching contribution up to
100% of the initial $1,000 of salary deferral and thereafter equal to 25% of
the participants eligible contributions for the year which does not exceed 6%
of compensation. Employees may contribute through salary reductions up to 15%
of their compensation. Employer contributions become 100% vested with an
employee reaching the age of 65.
Prior to this date, the contributions become vested as follows:
<TABLE>
<CAPTION>
Percent of
Nonforfeitable
Years of Service Interest
---------------- --------------
<S> <C> <C>
1 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
Contributions of approximately $49,000 were accrued to the 401(k) plan for the
year ended June 30, 1997. Matching employer contributions are satisfied with
the Company's common stock.
F-25
<PAGE> 64
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - PROFIT SHARING PLAN (CONTINUED)
The Company also has a Profit Sharing Trust with the same eligibility and
vesting requirements as the 401(k) plan. Employer contributions are at the sole
discretion of the Company's Board of Directors. Contributions are allocated to
participants based on their eligible compensation. No contributions were
allocated to the profit sharing trust for the year ended June 30, 1997.
F-26
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
- - - ---------- -----------
<S> <C>
# 2.2 Stock Purchase Agreement by and between Rubus Realty Company
and the Company.
## 2.3 Asset Purchase Agreement by and between C.A. Riser, M.D. and
the Company.
## 2.4 Asset Purchase Agreement by and between C.A. Riser, M.D. and
Donald F. Angle, M.D., P.A.
+ 2.5.1 Stock Purchase Agreement by and among Doctors' Inn,
Incorporated, Henry H. Calderoni, Francisco J. Guerra and the
Company.
oo 2.5.2 Amendment to Stock Purchase Agreement by and among Doctors'
Inn, Incorporated, Henry H. Calderoni, Francisco J. Guerra and
the Company.
+ 2.6 Stock Purchase Agreement by and among Francisco J. Guerra,
M.D., P.A., Francisco J. Guerra, M.D. and Donald F. Angle,
M.D., P.A.
+ 2.7 Stock Purchase Agreement by and between Henry H. Calderoni,
M.D., P.A., Henry H. Calderoni, M.D. and Donald F. Angle, M.D.,
P.A.
++ 2.8 Asset Purchase Agreement by and among Northside Family Medical
Clinic Professional Association, J.W. Czewski, D.O., and The
Company Doctor.
++ 2.9 Stock Purchase Agreement by and among Northside Family Medical
Clinic Professional Association, J.W. Czewski, D.O., and
Donald F. Angle, M.D., P.A.
** 2.10 Stock Purchase Agreement by and among Robert G. Duchouquette,
M.D., P.A., Robert G. Duchouquette, M.D. and The Physician
Group, P.A.
** 2.11 Stock Option Agreement by and between Robert G. Duchouquette,
M.D. and the Company.
** 2.12 Registration Rights Agreement by and between Robert G.
Duchouquette, M.D. and the Company.
* 3.1.1 Certificate of Incorporation of the Company as filed on June 4,
1992 with the Secretary of State of the State of Delaware.
* 3.1.2 Certificate of Amendment to Certificate of Incorporation of the
Company as filed on October 5, 1995 with the Secretary of State
of the State of Delaware.
* 3.2.1 Amended and Restated By-Laws of the Company.
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- - - ---------- --------
<S> <C>
* 4.1 Form of specimen certificate for Common Stock of the Company.
* 4.2 Form of specimen certificate for Warrants of the Company.
* 4.4 Form of Unit Purchase Option issued by the Company to Royce
Investment Group, Inc.
* 4.5.1 Form of Warrant Agreement by and among the Company, Continental
Stock Transfer & Trust Company and Royce Investment Group, Inc.
x 4.5.2 Amendment to Warrant Agreement by and among the Company,
Continental Stock Transfer & Trust Company and Royce Investment
Group, Inc.
xx 4.6 Letter Agreement, dated April 15, 1997, by and between the
Company and HealthCare Financial Partners - Funding II, L.P.
* 10.1.1 Employment Agreement by and between Donald F. Angle and the
Company.
* 10.1.2 Employment Agreement by and between Fred G. Parrish and the
Company.
*** 10.2 Amended and Restated Omnibus Stock Plan, effective January 1,
1995, as amended on March 10, 1997.
* 10.3.1 Lease Agreement, dated June 21, 1991, by and between Twin
Towers Investment Partnership and Emergency Occupational
Physician's Services, Inc. and Addendum Number One, dated
September 30, 1993.
* 10.3.2 Lease Agreement, dated September 30, 1993, by and between
Dallas Forest Park Corporation and Emergency Occupational
Physician's Services Incorporated.
* 10.3.3 Lease Agreement, dated June 19, 1993, by and between AGF
Stadium Place, Ltd. and the Company.
** 10.3.4 Commercial Real Estate Lease, dated October 1, 1996, by and
among Quad Corners Investments, Ltd., a Texas Limited
Partnership, The Physician Group, P.A., and the Company.
o 10.3.5 Sublease Agreement, dated April 23, 1996, by and between
Dominion Oil and Gas Corporation and the Company.
o 10.3.6 Sublease Agreement, dated on or about January 1, 1992, by and
between San Jacinto Methodist Hospital and Dr. C. A. Riser (as
predecessor in interest to the Company).
o 10.3.7 Lease and Addendum, dated December 15, 1991 and December 30,
1991, respectively, by and between Dr. Jim W. Czewski (as
predecessor in interest to the Company) and John D. Willbanks,
et al.
o 10.3.9 Lease Agreement, dated April 1, 1996, by and between HCT
Management & Ventures Company and the Company.
x 10.3.10 Lease Agreement, dated February 20, 1997, by and between Rudd
Properties and the Company.
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- - - ----------- --------
<S> <C>
x 10.3.11 Lease Agreement, dated June 11, 1997, by and between Dr. Nabil
A. Mouffarej, M.D. and Hanan T. Mouffarej and Andicare
Incorporated, a wholly owned subsidiary of the Company.
x 10.3.12 Lease Agreement, dated September 18, 1996, by and between
Westwood Crown Partners, Ltd. and Emergency Occupational
Physicians Services, Inc., a wholly owned subsidiary of the
Company.
x 10.3.13 Second Amendment to Lease Agreement, dated December 18, 1996,
by and between Twin Towers Investment Partnership and Emergency
Occupational Physician's Services, Inc., a wholly owned
subsidiary.
* 10.5 Joint Marketing Agreement, dated March 23, 1995, by and between
Employers General Insurance Group and the Company.
* 10.6.1 Practice Management, Consulting and Clinic Services Agreement,
dated November 1, 1995, by and between Donald F. Angle, M.D.
P.A. and the Company.
x 10.6.2 Amendment to Practice Management, Consulting and Clinic
Services Agreement, dated November 1, 1995, by and between
Donald F. Angle, M.D. P.A. and the Company.
* 10.7.1 Practice Management Agreement, dated April 1, 1995, by and
between Doyle L. Sharp, M.D. P.A. and the Company.
* 10.7.2 Addendum to Practice Management Agreement, effective December
19, 1995, by and among the Company, Doyle Sharp M.D. P.A. and
Donald F. Angle, M.D. P.A.
* 10.8.1 Operating Agreement of HealthFirst Center, L.L.C., by and among
HealthFirst Center, L.L.C., St. Vincent Infirmary Medical
Center and the Company.
* 10.8.2 MSO Management Agreement by and between HealthFirst Center,
L.L.C. and the Company.
* 10.8.3 Loan and Security Agreement, dated July 27, 1995, by and
between St. Vincent Infirmary Medical Center and HealthFirst
Center, L.L.C.
* 10.8.4 Form of Secured Promissory Note from HealthFirst Center, L.L.C.
to St. Vincent Infirmary Medical Center.
* 10.8.5 Practice Management Agreement by and between HealthFirst
Center, L.L.C. and Donald F. Angle, M.D. P.A.
* 10.9 Form of Preferred Employee Plan agreement between various
employer customers and the Company.
* 10.9.1 Form of Amendment to Letter of Agreement between Preferred
Employee Plan customers, the Company and Donald F. Angle, M.D.
P.A.
* 10.10.1 Equity Capital Formation Letter Agreement, dated March 10,
1992, among EOPS, Dale Willetts and Jack P. Kennedy.
* 10.10.2 Amendment No. 1 to Equity Capital Formation Letter Agreement,
dated August 24, 1992, among EOPS, Dale Willetts and Jack P.
Kennedy.
* 10.10.3 Memorandum of Understanding, dated June 22, 1994, by and among
Dale W. Willetts, John P. Kennedy and the Company.
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- - - ---------- --------
<S> <C>
* 10.10.4 Amendment No. 2 to Letter Agreement, dated November 1, 1995,
among the Company, John P. Kennedy and Dale W. Willetts.
* 10.11 Consulting Agreement, dated March 10, 1992, between Jack P.
Kennedy and EOPS.
* 10.12.1 Exchange Agreement, dated July 24, 1992, by and among EOPS,
Andicare, Donald F. Angle, M.D. and the Company.
* 10.12.2 Exchange Agreement, dated July 20, 1992, by and among Andicare,
Donald F. Angle, M.D., Carl S. Luikart, M.D., Ann Angle and the
Company.
* 10.12.3 Exchange Agreement, dated July 24, 1992, by and among EOPS,
Donald F. Angle, M.D., Jan Kohout, M.D., Dennis Sullivan and
the Company; Settlement Agreement, dated September 26, 1995, by
and between Dennis M. Sullivan, M.D. and the Company; and
Settlement Agreement, dated September 26, 1995, by and between
Jan Kohout, M.D. and the Company.
o 10.13 Promissory Note, dated May 6, 1996, from the Company to
BankOne, Texas, N.A.
x 10.14.1 Loan and Security Agreement, dated April 15997, by and between
The Company, Andicare, Inc., Emergency Occupational Physician's
Services, Inc., (collectively, the "Borrower"), and HCFP
Funding, Inc.
x 10.14.2 Amendment to Loan and Security Agreement, dated April 15997, by
and between The Company, Andicare, Inc., Emergency Occupational
Physician's Services, Inc., (collectively, the "Borrower"), and
HCFP Funding, Inc.
* 21 Subsidiaries of the Company.
x 23 Consent of Ehrhardt Keefe Steiner & Hottman PC, independent
certified public accountants for the Company.
x 27 Financial Data Schedule
</TABLE>
- - - ----------------
x Filed herewith.
* Incorporated by reference from the issuer's Registration Statement on Form
SB-2 (S.E.C. File No. 33-74876-D) as declared effective on February 6,
1996.
# Incorporated by reference from the Issuer's Form 8-K for event date of
July 9, 1996.
## Incorporated by reference from the Issuer's Form 8-K for event date of
August 15, 1996.
+ Incorporated by reference from the Issuer's Form 8-K for event date of
August 21, 1996.
++ Incorporated by reference from the Issuer's Form 8-K for event date of
August 28, 1996.
** Incorporated by reference from the Issuer's Form 8-K for event date of
September 20, 1996.
o Incorporated by reference from the Issuer's Form 10-KSB for the fiscal year
ended June 30, 1996.
xx Incorporated by reference from the Issuer's Form S-3 Registration
Statement (S.E.C. File No. 333-30977).
xxx Incorporated by reference from the Issuer's Form S-8 Registration
Statement (S.E.C. File No. 333-32305).
oo Incorporated by reference from the Issuer's Form S-3 Registration
Statement (S.E.C. File No. 333-21705).
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of
the 1997 fiscal year.
<PAGE> 1
EXHIBIT 4.5.2
FIRST AMENDMENT TO
WARRANT AGREEMENT
THIS FIRST AMENDMENT TO WARRANT AGREEMENT ("Amendment"), dated as of
this ___ day of August, 1997, is entered into by and among The Company Doctor,
a Delaware corporation ("Company"), Continental Stock Transfer & Trust Company
("Warrant Agent"), and Royce Investment Group, Inc., a New York corporation
("Royce").
W I T N E S S E T H:
WHEREAS, the parties entered into a Warrant Agreement dated as of
February 7, 1996 ("Warrant Agreement") in connection with the Company's initial
public offering; and
WHEREAS, the Warrant Agreement, in material part, authorizes the
Warrant Agent to act on the Company's behalf with respect to the issuance,
registration, transfer, exchange and redemption of the Company's Warrants (as
defined in the Warrant Agreement) and establishes certain terms and conditions
of the Warrants; and
WHEREAS, the Company desires to issue warrants ("HealthCare Warrants")
to purchase a total of 400,000 shares of Common Stock to HealthCare Financial
Partners-Funding II, L.P., a Delaware limited partnership ("HealthCare"); and
WHEREAS, the HealthCare Warrants are to be issued on terms and
conditions which are identical to the terms and conditions of the Warrants; and
WHEREAS, Section 16 of the Warrant Agreement provides that the parties
may modify the Warrant Agreement in order to increase the number of Warrants
which are to be governed by the Warrant Agreement or to make any changes or
corrections that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; and
WHEREAS, the parties desire to amend the Warrant Agreement in order to
cause the HealthCare Warrants to be governed by the Warrant Agreement and to
authorize the Warrant Agent to act on the Company's behalf with respect to the
HealthCare Warrants;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth below, the parties hereto agree as follows:
1. Definitions. Except as otherwise provided herein, all
capitalized terms appearing in this Amendment are used herein as defined in the
Warrant Agreement.
2. HealthCare Warrants. Effective as of the date of this
Amendment, the term "Warrant," as used in the Warrant Agreement, shall mean a
total of 2,400,000 Warrants consisting of (i) the 1,840,000 redeemable warrants
issued in the Company's initial public offering, (ii) the 160,000 redeemable
warrants underlying the Royce and Americorp Unit Purchase Options, and (iii)
the 400,000 HealthCare Warrants. Accordingly, all references in the Warrant
Agreement to 2,000,000 Warrants or to 2,000,000 shares of Common Stock
underlying the Warrants shall mean 2,400,000 Warrants or 2,400,000 shares of
Common Stock underlying the Warrants, as the case may be. As a result of the
foregoing, the HealthCare Warrants shall in all respects be governed by the
terms and conditions of the Warrant Agreement, and the Warrant Agent shall have
full power and authority to act on the Company's behalf with respect to the
issuance, registration, transfer, exchange and redemption of the HealthCare
Warrants in accordance with the terms and conditions of the Warrant Agreement
as amended hereby.
<PAGE> 2
3. Registration. Warrants to purchase 450,000 shares of Common
Stock (the "private placement warrants") were issued to HealthCare in a private
transaction without registration under the Securities Act of 1933, as amended
(the "Act") in April, 1977. The HealthCare Warrants and the underlying shares
were subsequent registered on a Registration Statement on Form S-3 (SEC File
No. 333-30977) declared effective on the date hereof. Upon effectiveness, the
private placement warrants to purchase 450,000 shares of Common Stock are to be
exchanged for the HealthCare Warrants to purchase 400,000 shares of Common
Stock and the HealthCare Warrants will bear no restrictions on transfer upon
such exchange.
4. Effect of Amendment. Except as expressly modified by this
Amendment, all terms and conditions of the Warrant Agreement shall remain in
full force and effect and shall be unchanged by this Amendment.
5. Counterparts. This Agreement may be executed in any number of
counterparts and all so executed shall constitute one agreement, binding on all
the parties hereto, notwithstanding that all of the parties are not signatory
to the original or the same counterpart.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
as of the date hereinabove set forth.
THE COMPANY DOCTOR
By: /s/ Donald F. Angle, M.D.
-----------------------------------
Donald F. Angle, M.D., President
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By: /s/ H.R. Drews
-----------------------------------
H.R. Drews, Vice President
ROYCE INVESTMENT GROUP, INC.
By: /s/ John Higgins
-----------------------------------
John Higgins, Senior Vice President
2
<PAGE> 1
EXHIBIT 10.3.10
OFFICE LEASE AGREEMENT
ARTICLE ONE : BASIC TERMS
1.01 DATE OF LEASE: 2/20/97
1.02 LANDLORD: Rudd Properties
1.03 TENANT: The Company Doctor
1.0.4 WITNESSETH: That Landlord is consideration of the
covenants and agreements to be performed by Tenant and upon the terms and
conditions hereinafter stated does here by lease, demise and let unto Tenant
certain office space in the Vinnedge Bldg. located at 2106 N. Main known as
Suite # N/A, as shown on the floor plan attached hereto as exhibit "A" and
containing the floor area indicated on said exhibit "A".
1.05 LEASE TERM 72 months commencing on the 15th day of
March and ending on the 14th day of March 2003.
1.06 RENT: Five Thousand Dollars ($5,000.00) per month
beginning the Commencement Date of 15th March, 1997, through March 2003, 1998.
Five Thousand, Six Hundred Thirty-Five
Dollars ($5,635.00) per month beginning the Commencement Date of 15th March
1998 through March 14, 1999.
Six Thousand, Two Hundred Seven Dollars
($6,207.00) per month beginning the Commencement Date of March 15 through March
14, 2003.
1.07 SECURITY DEPOSIT: (See Section 3.03): Six Thousand Two
Hundred Seven Dollars ($6,207.00) (If none, so state)
1.08 MONTHS RENT PAYABLE IN
ADVANCE: $,6207.00
1.09 PERMITTED USE: Medical Clinic
1.10 RENT TO BE PAID TO: Rudd Properties
Address: 2100 N. Main St. Suite #104
Fort Worth, Texas 76106
1.11 DAILY RATE CHARGE: (See Section 3.02) Twenty-Five ($25.00) per
day. (If none, so state)
ARTICLE TWO: LEASE AND LEASE TERM
2.01 LEASE OF PROPERTY. Landlord hereby leases the property to Tenant and
Tenant hereby lease the Property from Landlord for the Least Term stated in
Section 1.05. As used herein, the "Commencement Date" shall be the date
,specified in Section 1.05 for the beginning of the Lease Terms.
2.02 EARLY OCCUPANCY. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all
of this Lease, Early occupancy of the Property shall not advance the expiration
date of this Lease.
2.03 HOLDING OVER. Tenant shall vacate the Property upon the expiration or
earlier termination of this Lease. Tenant shall reimburse Landlord for aid
indemnify Landlord against all damages incurred by Landlord from andy delay by
Tenant in vacating the Property. If Tenant does not vacate the property upon
the expiration or earlier termination of this Lease, Tenant's occupancy of the
<PAGE> 2
Property shall be a "month-to-month" tenancy, subject to all the terms and
provisions applicable to a month-to-month tenancy, except that the rent then in
effect shall be increased by fifty percent (50 %).
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01 RENT. Tenant agrees to pay rent for the Property at the rate
specified in Section 1.06. Tenant shall pay the rent for the first and last
(if applicable under Section 1.08) months of the Lease Term upon the execution
of this Lease. One monthly rental installment shall be due and payable on or
before the same day of the second calendar month of the Lease Term as the
Commencement Date, and a like monthly installment shall be due and payable on
or before the same.
3.02 LATE CHARGE. If any rent due hereunder is not received within five(5)
days after its duo date. Tenant shall pay the party named in Section 1.10
above a late charge equal to the sum stated in Section 1.11 above, for each day
from its due date until such delinquent sum is received. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
the Landlord will incur by reason of such late payment.
3.03 SECURITY DEPOSIT. Upon execution hereof, Tenant shall deposit with
the party named in Section 1.10 above a cash Security Deposit in the sum stated
in Section 1.07. Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other defaults of
Tenant. No interest shall be paid on the Security Deposit. Landlord shall not
be required to keep the Security Deposit separate from its other accounts and
no trust relationship is created in respect to the Security Deposit. Upon any
termination of this Lease no resulting from Tenant's default, and after Tenant
has vacated the Property in (he manner required by this Lease, Landlord shall
refund the unused portion of the Security Deposit to Tenant.
ARTICLE FOUR: USE OF PROPERTY
4.01 PERMITTED USE. Tenant may use the Property only for Permitted Use
stated In Section 1.09.
4.02 COMPLIANCE WITH LAW. Tenant shall comply with all governments laws,
ordinances and regulations applicable to the use of the Property, and shall
promptly comply with all governmental orders and directives for the correction,
prevention and abatement of nuisances on or upon, or connected with the
Property, all at Tenant's sole expense. Tenant agrees to not store or permit
hazardous or toxic substances to be placed on the premises without prior
written permission from the Landlord. Hazardous of toxic substances as
referred to in this paragraph shall be defined by U.S. Environmental Protection
Agency Regulations and/or Texas Water Commission Regulations. Tenant further
agrees to not place underground or above ground storage tanks on the leased
premises without prior written consent of Landlord. Tenant shall comply with
building rules and regulations attached hereto as Exhibit B.
4.03 SIGNS. Without the prior written consent of Landlord, Tenant shall
not place or affix any signs or other objects upon or to property, including
but no limited to the roof or exterior walls of the building or other
improvements thereon, or paint or other-wise deface said exterior walls. An
sign installed by Tenant shall conform with applicable laws and deed and other
restrictions. Tenant shall remove all signs at the termination of this Lease
and shall repair any damage, and close any holes caused or revealed by such
removal.
4.04 UTILITIES. Landlord covenants that the demised premises are served by
water, sewer, and electric but Tenant shall pay all utility connection charges.
if any, and all charges incurred for any utility services used on the demised
premises, and shall furnish all electric light bulbs and tubes.
4.05 LANDLORD'S ACCESS. Landlord and its authorized agents shall have the
right, during normal business hours, to enter ft Property and any building and
other improvements thereon to view, inspect, repair or show the Property.
Landlord shall attempt to advise Tenant of the intent of Landlord or its
authorized agents to enter the Property.
4.06 INTERRUPTION OF SERVICE. Interruption or curtailment of services
furnished to the Property, it caused by strikes, mechanical difficulties, or
any cause beyond Landlord's control, whether similar or dissimilar to those
enumerated, shall not entitle Tenant to any claim against Landlord or to any
abatement in rent, nor shall the same constitute constructive or partial
eviction, unless Landlord falls to take such measures as may be reasonable in
the circumstances to restore the service without undue delay. if the premises
are rendered untenantable in whole or in put for fifteen (15) business days
because of such interruption or curtailment of
<PAGE> 3
services (other than caused by any act of omission of Tenant or its invites,
employees or customers there shall be a proportionate abatement of rent during
period of such untenantability).
4.07 EXEMPTIONS FROM LIABILITY. Landlord shall not be liable for any
damage of injury to the person. business (or any loss of income therefrom),
goods wares, merchandise or other property of Tenant, Tenant's employees,
invitees, customers or any other person in or about the Property, whether such
damage or injury is caused by results from: (a) fire, steam, electricity,
water, gas, or rain; (b) the breakage, leakage, obstruction or other defeats of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures or any other cause; (c) conditions arising on or about the Property or
upon other portions of any building of which the Property is a part, or from
other sources or places; or (d) any act or omission of any other tenant of any
building of which the Property is a part. Landlord shall not be liable for any
such damage or injury even though the cause of the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this Section
4.07 shall not, however, exempt Landlord form liability for Landlord's gross
negligence or will misconduct.
ARTICLE FIVE: MAINTENANCE, REPAIRS AND ALTERATION
5.01 ACCEPTANCE OF PREMISES. Tenant acknowledges that Tenant has fully
inspected the Property. Tenant hereby accepts the property and the. buildings
and improvements situated thereon, as suitable for the purpose for which the
same are leased, in their present condition (including all latent or
environmental defects or risks), with such changes therein as they be caused by
reasonable deterioration between the date hereof and the Commencement Date;
provided that Landlord agrees to (a) repair promptly any presently installed
plumbing, plumbing fixtures, electrical wiring, lighting fixtures, air
conditioning or heating equipment or doors that are not in good working
condition on the Commencement Date of which Tenant delivers written notice to
Landlord within thirty days after the Commencement Date; and (b) make any
additional repairs and alterations necessary for Tenant to obtain a Certificate
of Occupancy form the municipality in which the Property is located, except for
those repairs and alterations required solely because of the nature of Tenant's
business. Landlord expressly disclaims and Tenant waives any and all
warranties (including day, warranty o suitability), representations and
obligations of Landlord or Landlord's agents that are not expressly stated
herein.
5.02 MAINTENANCE BY LANDLORD. Landlord shall at his expense maintain only
the roof, foundation, underground pipes, all outside plumbing, and the
structural soundness of the exterior walls (excluding all windows, window
glass, plate g lass, and all doors) of the building in good repair and
condition, except for reasonable wear and tear. Tenant shall give immediate
written notice to Landlord of the need for repairs or corrections and Landlord
shall proceed promptly to make such repairs or corrections.
5.03 MAINTENANCE BY TENANT. Tenant shall at his expense and risk maintain
all other parts to the building and other improvements on the demised premises
in good repair and condition, including but not limited to repairs (including
all necessary replacements) to the interior plumbing, windows, and glass, plate
glass, doors, heating system, air conditioning equipment, fire protection,
sprinkler systems, elevators, and the interior of the building in general.
Provided, however, that if Tenant occupies a portion of the multi-tenant
building, than Tenant shall not have to maintain the landscaping, grass areas,
outside paving or railroad siding, if any. In event Tenant should neglect
reasonable to maintain the demised premises, Landlord shall have the right (but
not the obligation) to cause repairs or corrections to be made and nay
reasonable costs therefor shall be payable by Tenant to Landlord as additional
rental on the next rental Commencement Date. Upon termination or this Lease,
Tenant shall deliver up the demised premises in good repair and condition,
reasonable wear and tear, and damage by fire, windstorm or other casualty only
excepted. Tenant shall repair any damage caused by Tenant's negligence or
default hereunder, or negligence of Tenant's Invitees, employees or customers.
5.04 ALTERATIONS. Tenant shall not create any openings in the roof or
exterior wall, or make any alterations, additions or Improvements to Property
without the prior written consent of Landlord. Consent to nonstructural
alterations, additions or improvements shall not be unreasonably withheld by
Landlord. Tenant shall have the right aid erect or install shelves, bins,
machinery, air conditioning or heating equipment and trade fixtures, provided
that Tenant complies with all applicable governmental laws, ordinances and
regulations. At the expiration or termination of this Lease, Tenant shall
subject to the. restrictions of Section 5.05 below, have the right aid remove
such items so installed by it, provided Tenant is not in default at the time of
such removal and provided further that Tenant shall, at the time of removal of
such items, repair in good and workmanlike manner any damage caused by
installation or removal thereof. Tenant shall pay for all costs incurred or
arising out OF alterations, additions or improvements in or to the Property and
shall not permit a mechanic's lien to be asserted against the Property.
<PAGE> 4
5.05 CONDITION UPON TERMINATION. Upon termination of this Lease, Tenant
shall surrender the Property TO Landlord, broom clean and in same condition as
received except for ordinary wear and tear which Tenant was not otherwise
obligated to remedy under any provision OF this Lease. However, Tenant shall
not be obligated to repair any damage which Landlord is required to repair
under Article Five. In addition, Landlord may require Tenant to REMOVE any
alterations, additions or Improvements (whether or not made with Landlord'
consent) prior to the termination of this Lease. In the event, however, Tenant
shall not, move any of the following material or equipment without Landlord's
prior written consent: any power wiring or power.
Panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other
window coverings; carpets or other floor coverings; heaters; AIR conditioners
or any other heating air conditioning equipment; fencing or security gates; or
OTHER similar building operation equipment and decorations.
ESCALATION CLAUSE
5.06 On each anniversary date of the lease, the total monthly cost of the
resulting contract may be adjusted by changes in the Consumer Price Index
reflecting percentage increases or decreases. The Lessor must request by
letter any increase in rent no later than thirty (30) days from the anniversary
date.
2. The formula for determining the amount of escalation allowable in any
given contract year shall be:
Base Factor X Percent Escalation Allowable =
Amount of Escalation Allowed:
The new monthly rental-would be the monthly rental in effect for the previous
year of the contract increased by the "Amount of Escalation Allowed."
3. PERCENT ESCALATION ALLOWABLE will be based on a percent change in the
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W, U.S.
City Average) published by the United States Department of Labor, Bureau of
Labor Statistics, Washington, D.C. 20212. Percent changes shall be -rounded to
the nearest one tenth of one percent.
FOR ILLUSTRATIVE PURPOSES ONLY:
January, 1985 = 312.6
January, 1986 = 324.3 represents 3.7% increase
ARTICLE SIX: INSURANCE AND INDEMNITY
6.01 PROPERTY INSURANCE. Tenant shall not keep anything upon the Property,
or do anything in or about Property except the usage specified herein, which
will increase the rates for fire and standard extended coverage insurance upon
the building or building which are part of the Property. Tenant agrees to pay
on demand any increases in insurance premiums that may be-charged to Landlord
during the term of this Lease resulting from a deviation from the usage
specified herein of from any other cause within the Tenant's control. Tenant
shall be responsible for maintaining insurance on Tenant's equipment and other
personal property located on- the Property.
6.02 . LIABILITY INSURANCE. During the Lease Term', Tenant shall maintain
a policy of comprehensive public liability insurance, at Tenant's expense,
insuring Landlord against liability arising out of the ownership, use occupancy
or maintenance of the Property. The initial amount of such insurance shall be
at least $1,000,000.00. Such policy shall contain a provision which prohibits
cancellation or modification of the policy except upon thirty (30) days prior
written notice to Landlord. Tenant shall deliver a copy of such policy or
certificate (or a renewal thereof) to Landlord prior to the Commencement Date
and prior to the expiration of any such policy during the Lease Term. If
Tenant fails to maintain such policy, Landlord may elect to maintain such
insurance at Tenant's expense.
6.03 INDEMNITY. Tenant hereby agrees to indemnify Landlord and hold
harmless from any loss, expense or claims arising out of any injury to persons
or damage to property on or about the Property or any adjacent area owned by
Landlord caused by the negligence or misconduct of Tenant, its employees,
subtenants, licensees or concessionaires or any other person entering the
Property under express or implied invitation of Tenant, or arising out of the
use of the Property by Tenant and the conduct of its business
<PAGE> 5
therein, or arising out of any breach or default by Tenant in the performance
of its obligations hereunder. Tenant shall not be liable for any injury or
damage caused by the negligence or misconduct of Landlord, or its employees or
agents and Landlord agrees to indemnify Tenant and hold it harmless from any
loss, expense or damage arising out of such damage or injury.
6.04 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive any and
all rights of 'recovery against the other, or against the officers, employees,
agents or representative of the other, for loss of or damage to its property,
or the property of others under its control, if such loss or damage is covered
by any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage; provided, however, such waiver is made only on
the condition that it does not adversely affect the right of the insured to
recover under the applicable insurance policy or policies.
ARTICLE SEVEN: ASSIGNMENT AND SUBLETTING
Tenant shall not assign this agreement or sublet the premises, or any part
thereof without the consent of the Landlord in writing, which consent Landlord
agrees it will not unreasonably withhold, but no assignment or subletting shall
release Tenant from any obligation hereunder,
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
8.01 PARTIAL DAMAGE. In event the improvements situated on the property
are partially damaged, or rendered partially unfit for occupancy, by fire or
other casualty, Tenant shall give immediate written notice thereof to Landlord.
If Landlord's insurance proceeds arc sufficient to pay for the necessary
repairs, and if the repairs can reasonable by made within 90 days after
Landlord receives such written notice from Tenant, Landlord shall forthwith
cause such repairs to be made and this Lease shall not terminate. :While such
repairs arc being made, Landlord shall allow Tenant a fair reduction in rent in
proportion to the extent-the improvements are partially unfit for occupancy, is
due to the act or omission of Tenant or Tenant's employees, invitees or
licensees.
8.02 UNINSURED PARTIAL DAMAGE OR TOTAL OR SUBSTANTIAL DESTRUCTION.
In the event of total or substantial destruction of the improvements situated
on the Property by fire or other casualty, Tenant shall give immediate written
notice thereof to Landlord. If Landlord's insurance proceeds are insufficient
to pay for the necessary repairs or restoration, or the repairs or restoration
cannot reasonably be made within 90 days after Landlord receives such written
notice from Tenant, this Lease shall terminate and the rent shall be paid the
to. the date of such casualty. However, if such damage or destruction is due
to the act or omission of Tenant or Tenant's employees, invitees or licensees,
Tenant shall pay to landlords within 60 days after: the occurrence of such
casualty, any portion of the anticipated cost or repairing or restoring the
improvements to the same condition as on the date of this Lease that arc. not
reimbursed to Landlord by insurance proceeds. Such anticipated cost shall be
determined by Landlord. Tenant shall make such payment to Landlord, whether or
not Landlord repairs or restores the improvements.
ARTICLE NINE: DEFAULT AND REMEDIES
9.01 DEFAULT. The following events shall be deemed to be events of default
under this Lease:
a. Failure of Tenant to pay any installment of the rent or other sum payable
to Landlord hereunder on the date that same is due and such failure shall
continue for a period of five (5) days after written notice thereof to Tenant;
b. Failure of Tenant to comply with any term, condition or covenant of
this Lease, other than the payment of rent or other sum of money, and such
failure shall not be cured .within thirty (30) days after written notice
thereof to Tenant;
c. Tenant shall make an assignment for the benefit of creditors;
d. Abandonment by Tenant of any substantial portion or the Property or
cessation of the use of the property for the purpose leased for a period of
more than five (5) consecutive calendar days.
9.02 REMEDIES. Upon the occurrence of any of the events of' default listed
in Section 9.01, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever.
<PAGE> 6
a. Terminate this Lease, in which event Tenant shall immediately
surrender the Property to Landlord. If Tenant fails to so surrender such
premises, Landlord may, without prejudice to any other remedy which it may have
for possession of the Property. or arrearages in rent, enter upon and take
possession of the Property and expel or remove Tenant and any other person who
may be occupying such premises or-any part thereof. Landlord may hold Tenant
liable for all rent and other indebtedness accrued to the date of such
termination, plus, as liquidated damages and not as a penalty, an amount equal
to the then present value of rent provided for hereunder for the remaining
portion of the Lease Term (had this Lease not been terminated) using a ten
percent (10%) value-discount factor. In the event Landlord. elects to
terminate this Lease by reason of an event of default, in lieu of recovering
from Tenant under the preceding sentence, Landlord may hold Tenant liable for
the amount of all loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Property on satisfactory
terms or otherwise.
b. Enter upon and take possession of the Property without terminating
this Lease, and expel or remove Tenant and any other person who may be
occupying such premises or any part thereof. Landlord- may relet the Property
and receive the rent therefore. Tenant agrees to pay to Landlord monthly or on
demand from time to time any deficiency that may arise by reason of any such
reletting. In determining the amount of such deficiency, the brokerage
commission, attorneys fees, remodeling expenses and other costs of reletting
shall be subtracted from the amount of rent received under such reletting.
c. Enter upon the Property without terminating the Lease, and do whatever
Tenant is obligated to due under the terms of this Lease. Tenant agrees to pay
Landlord on demand for expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease, together with interest
thereon at the rate of eighteen percent (18%) per annum from the date expended
until paid. Landlord shall not be liable for . any damages resulting to Tenant
from such action, whether caused by negligence of Landlord or otherwise.
d. Tenant is presumed to have abandoned the Property if Tenant's goods,
equipment, other property arc removed from the Property in an amount
substantial enough to indicate a probable intent to abandon the Property and
such removal is not within the normal course of Tenant's business. In the
event that Tenant is presumed to have abandoned the Property, Landlord may
remove and store- any property of Tenant that remains on the Property.
Landlord may store such property at any' location satisfactory to Landlord.
Landlord may dispose of such stored property after the expiration of sixty (60)
days from the date such property is so stored. Landlord shall deliver .by
certified mail to Tenant at Tenant's last known address as shown by Landlord's
records a notice stating that Landlord may dispose of Tenant's property if
Tenant does not claim the same within , sixty (60) days after the property was
stored.
c. In the event Tenant is in default under this Lease by reason of
Tenant's failure to pay rent as set forth above, then Landlord may, at
Landlord's option, change all door locks and leave a written notice on a door
to Tenant's leased premises stating the name and address or telephone number of
the individual from whom-a new key can be obtained during Tenant's regular
business hours, -which arc defined for this purpose as being between 9:00 a.m.
and 5:00 p.m. on Monday through Friday of each week. Tenant hereby waives the
three (3) days written notice is sufficient to vacate required by Texas
Property Code Section 24.005 and agrees that one (1) day written notice to
vacate is sufficient for purposes of Texas Property Code 24.005 and the filing
of a Forcible Entry and Detainer lawsuit.
Upon the occurrence or any of such events of default, Landlord may enter upon
and take possession of the Property by force, if necessary, without bring
liable for prosecution of any claim for damages therefore Pursuit of any of the
foregoing. remedies shall not preclude pursuit of any of the other remedies
herein provided or any other remedies provided by law, nor shall pursuit of any
remedy herein provided constitute a forfeiture or waiver of any rent due to
landlord hereunder or of any damages accruing to Landlord by reason of the
violation of any of the terms, conditions and covenants herein contained.
ARTICLE TEN: CONDEMNATION
Landlord shall notify Tenant if Landlord receives notice of any potential
condemnation of the Property or portion thereof. if all or any portion of the
Property is taken under the power of. eminent domain or sold under the threat
of that power (all of which arc called "Condemnation'), this Lease shall
terminate as to the part taken or sold on the date the condemning authority
takes title or possession, by delivering written notice to the other within ten
(10) days after receipt of written notice of such taking (or in the absence of
such notice, within ten (10).days after the condemning authority takes
possession). If neither Landlord nor Tenant terminates this Lease, this Lease
shall remain in effect as to the portion of the Property not taken, except that
the rent shall be reduced in proportion to the reduction in floor area of the
Property. Any Condemnation award or payment shall be distributed in the
following order; a) first, to
<PAGE> 7
any. ground lessor, mortgagee or beneficiary under a deed of trust encumbering
the Property, the amount of its interest in the Property; (b) second, to
Tenant, only the amount of any award specifically designated for loss of or
damage to Tenant's trade fixtures or removable personal property; and.. (c)
third, to Landlord, the remainder of such award, whether as compensation for
reduction in the value of the leasehold, the taking of the fee, or otherwise.
If this Lease is not terminated, Landlord shall repair any damage to the
Property caused by the Condemnation,' except that Landlord shall not be
obligated to repair any damage for which Tenant has been reimbursed by received
by Landlord arc not sufficient to the condemning authority. If the severance
damages pay for such repair, Landlord shall have the right to either terminate
this Lease or make such repair at Landlord's expense.
ARTICLE ELEVEN: TAXES
PAYMENT BY LANDLORD. Landlord shall pay the real estate taxes on the Property
during the Lease Term.
ARTICLE TWELVE: LANDLORD'S LIEN
In addition to the statutory' landlord's lien, Tenant hereby grants to Landlord
a security interest to secure payment of all rent and other sums of money
becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures,
furniture and other personal property of Tenant situated in or upon the
Property, together with the proceeds from the sale or lease thereof. Such
property shall not be removed without the consent of Landlord until all
arrearages in rent and other sums of money then due to Landlord hereunder shall
first have been paid and discharged. Upon request by Landlord, Tenant agrees
to execute and deliver to Landlord a financing statement in form sufficient to
perfect the security interest of Landlord in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial Code in force
in the State of Texas.
ARTICLE THIRTEEN: SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
13.01 SUBORDINATION. Landlord shall have the right to subordinate this
lease to any ground lease, deed of trust or mortgage emcumbering the Property,
and advances made on the security thereof and any renewals, modifications,
consolidations, replacements or extensions thereof, whenever made or recorded.
However, Tenant's right to quiet possession of' the Property during the lease
term shall not be disturbed if Tenant pays the rent and performs all of
Tenant's obligation under this Lease and is not otherwise in default. If any
ground lessor, beneficiary or mortgagee elects to have this Lease prior to the
lien of its ground lease, deed of trust or mortgage and gives written notice
thereof to Tenant, this lease shall be deemed prior to such ground lease, deed
of trust or mortgage whether this Lease is dated prior or subsequent to the
date of said ground lease, deed of trust or mortgage or the date of recording
thereof.
13.02 ATTORNMENT. If Landlord's interest in the Property is acquired by any
ground lessor, beneficiary under a deed of trust, mortgage or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statue or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the property upon the transfer of Landlord's
interest.
13.03 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instruments or
documents necessary of appropriate to evidence any such attornment of
subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
13.04 ESTOPPEL CERTIFICATES
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying (i) that none of the terms
or provisions of this Lease have been changed (or if they have been
changed, stating how they have been changed)-, (ii) that this Lease has not
been canceled or terminated; (iii) the last due date of payment of the rent and
other charges and the time period covered by such payment; and (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be
in default, stating why). Tenant shall deliver such statement to Landlord
within then within ten (10) days after Landlord's request. Any such statement
by Tenant may be given by Landlord to any prospective purchaser or encumbrancer
of the Property. Such purchaser or encumbrancer may rely conclusively upon
such statement as true and correct.
<PAGE> 8
(b) If Tenant does not deliver such statement to Landlord within such ten
(10) day period, Landlord, and any prospective purchaser or encumbrancer may
conclusively presume and rely upon the following facts: (i)that the terms and
provision of this lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been canceled, or terminated except
as otherwise represented by the Landlord; (iii) that not more than one month's
rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from
denying the truth of such facts.
ARTICLE FOURTEEN: MISCELLANEOUS
14.01 EXHIBITS. All exhibits, attachments, annexed instruments and addenda
referred to effect as if herein shall be considered a part hereof for all
purposes with the same force and copied at full length herein.
14.02 INTERPRETATION. Words of any gender used in this Lease shall be held
and construed include any other gender, and words in the singular shall be held
to include the plural, unless the context otherwise requires. In any provision
relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall
include Tenant's agents, employees, contractors, invitees, successors permitted
assigns or others using the Property with Tenant's expressed or implied
permission.
14.03 CAPTIONS. The captions or headings of paragraphs in the Lease arc
inserted for convenience only, and shall not be considered in construing the
provisions hereof in any question of intent should arise.
14.04 WAIVERS. All waivers must be in writing and signed by the waiving
party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a check from Tenant or in a letter accompanying a payment check
shall be binding on Landlord. Landlord may, with or without notice to Tenant,
negotiate such check without being bound to the conditions of such statement.
<PAGE> 9
EXHIBIT "D"
LEASEHOLD IMPROVEMENTS AGREEMENT
I Introduction. The terms used in this Exhibit shall have the same
definitions as set forth in the Lease. THE provisions of this Exhibit shall
prevail over any inconsistent or conflicting provisions of THE Lease.
2. Description of Improvements. Tenant shall, at Tenant's expense,,
construct Tenant's leasehold improvements (the "Tenant Improvements") in
accordance with certain plans and specifications as set out below. The Tenant
Improvements shall be constructed by Tenant through contractors selected by
Tenant and consented to in writing by Landlord. The contract for construction
of the ,Tenant Improvements shall be in a form reasonably acceptable to
landlord and shall also incorporate THE Vinnedge Building Instruction to
Contractors, a copy of which is attached hereto as Addendum 1, and all work
shall be done in a way that does NOT unreasonably interfere with Landlord's
operation of THE Project or the operation by other tenants of their business in
THE Project.
3 . Preliminary Plans. (a) On or before thirty (30) days after the
execution of this Lease, Tenant's space planner and engineer will prepare
preliminary plans and specifications for the Tenant Improvements (the
"Preliminary Plans"), Within fifteen (15) business days after the Preliminary
Plans are delivered to Landlord, Landlord shall approve (which approval shall
not be unreasonably withheld), or disapprove them in writing. If Landlord
disapproves the Preliminary Plans, then Landlord shall provide Tenant specific
reasons for disapproval. Tenant shall then revise THE Preliminary Plans in
accordance with Landlord's comments and resubmit to Landlord for approval or
disapproval as set forth above. The foregoing process shall continue until the
Preliminary Plans are approved by Landlord. The Preliminary Plans when approve
,by Landlord shall be called the "Final Plans". THE Final Plans shall comply
with all applicable design criteria of the Project.
(b) Landlord must approve Final Plans in writing prior to the commencement of
construction. When Landlord have approved the Final Plans, Landlord and Tenant
shall initial two (2) sets of approved Final Plans and THE same shall become a
part hereof and shall be incorporated herein by this reference.
4. Completion of the Tenant Improvements. Tenant shall complete the
Tenant Improvements described in the Final Plans prior to sixty (60) days after
Lease execution. The Tenant Improvements shall be conclusively deemed to be
substantially completed when all Tenant Improvements described in THE Final
Plans are completed, except for minor items of work (e.g., punch list items)
which can be completed with only minor interference with Tenant's conduct of
business on the Leased Premises.
<PAGE> 1
EXHIBIT 10.3.11
LEASE AGREEMENT
STATE OF LOUISIANA
PARISH OF CADDO
THIS AGREEMENT OF LEASE is made and entered into this the 11th
day of 1997, by and between;
Dr. Nabil A. Mouffarej, M.D. and Hanan T. Mouffarej, represented
herein by Dr. Nabil A. Mouffarej, M.D., duly authorized,
hereinafter called "LESSOR",
AND
Andicare Incorporated d/b/a The Company Doctor, qualified to do
business in the State of Louisiana, herein represented by A. N.
Tooke, its duly-authorized Secretary and Registered Agent
hereinafter referred to as "LESSEE".
I PREMISES LEASED
Lessor hereby leases to Lessee, and Lessee leases and accepts, subject to the
terms and conditions of this lease, the premises referred to as the Leased
Premises, as outlined in yellow on the attached site plan and incorporated
herein and marked Exhibit A, upon which site the Lessor has constructed a
building, the Leased premises herein being located in the City of Shreveport,
Caddo Parish, Louisiana, with a municipal address of. 2205 E. 70th Street,
Suite 200, Shreveport, Louisiana 71105. Said Leased Premises contains
approximately 4,844 useable square feet of space.
II PURPOSE AND TERM
The initial term of this lease shall be one (1) year and fifteen (15)
days beginning June 15, 1997, and ending June 30, 1998. Any holding over in
the Leased Premises by Lessee following the expiration of the initial term
shall constitute an occupancy month-to-month by Lessee for the same terms and
conditions as contained herein, except that the monthly base rental for the
Leased Premises in any holdover period after the initial term of this lease
shall be calculated at 125% of the monthly base rental during the last month
of the initial term; provided, however, holding over by Lessee shall be
allowed only with the consent of Lessor.
The herein Leased premises are to be used for the following purposes
by Lessee and none other, viz.: general medical offices.
III DEFINITIONS AND INTERPRETATION OF TERMS USED
A. Demised Premises. The term "demised premises" and/or "leased
premises" shall mean the parcel of real property occupied by Lessee in
performance of its business operations in the building described herein-
B. Building- The term "building" shall mean all of the building
and parking facilities constituting the building located at 2205 E. 70TH
Street, identified in Article I., in which the Demised Premises are located.
C. Parking Area. The term "parking area" shall mean all areas
(exclusive of footways, loading zones, Lessee or employee parking) existing,
or as hereafter modified in and/or around the building, as identified in
Article I.
D. Rent Installment Period. The term "rent installment period"
shall mean each calendar month within the annual term or fiscal year of this
lease.
<PAGE> 2
E. Notice to Lessor by Lessee. The term "notice to Lessor by
Lessee" shall mean a written notice directed by registered or certified mail,
return receipt requested, to said Lessor as herein defined.
Lessor: Dr. Nabil A. Moufarrej, M.D. and
Hanan T. Moufarrej
2205 East 70th Street
Shreveport Louisiana 71105
Lessee: Andicare Incorporated d/b/a The Company Doctor
Attn.- A. N. Tooke
2406 Ashland Avenue
Bossier City, Louisiana 71111
IV. RENTALS
The consideration hereby shall be;
A. A Guaranteed Annual (fiscal year of twelve months) Rental of Fifty
Three Thousand Two Hundred Eighty Four and No/100 Dollars ($53,284.00) which
sum shall be payable in twelve (12) monthly installments of Four Thousand Four
Hundred-Forty and 33/100 Dollars ($4,440.33), due in advance the fifth day of
each calendar month commencing on July 1, 1997. Lessor agrees to lease the
said premises to Lessee for a fifteen (15) day period beginning on June 15,
1997, through June 30, 1997, for the sum of Two Thousand Two Hundred Twenty and
16/100 Dollars ($2,220.16). Payment for any partial period shall be adjusted
at the beginning of occupancy; plus
B. FOR THE FIRST YEAR OF THE LEASE TERM, LESSEE SHALL PAY TO LESSOR ITS
PRO RATA SHARE OF THE AD VALOREM TAXES IMPOSED UPON THE REAL PROPERTY OF THE
BUILDING. LESSEE'S PRO RATA SHARE SHALL BE BASED UPON THE FOLLOWING FORMULA.
2,422 SQ. FT. (GLA OF LEASED PREMISES) DIVIDED BY 10,185 SQ. FT. (GLA OF
BUILDING), THAT IS 23.78 PERCENT OF THE TOTAL AD VALOREM TAXES IMPOSED. THIS
SUM SHALL BE ACCRUED IN TWELVE MONTHLY INSTALLMENTS.
FOR ANY SUBSEQUENT YEARS LESSEE AGREES TO PAY ITS FULL PRO RATA SHARE
OF THE AD VALOREM TAXES IMPOSED UPON THE REAL PROPERTY OF THE BUILDING.
LESSEE'S PRO RATA SHARE SHALL BE BASED UPON THE FOLLOWING FORMULA: 4,844 SQ.
FT. (GLA OF LEASED PREMISES) DIVIDED BY 10,185 SQ. FT. (GLA OF BUILDING), THAT
IS 47.56 PERCENT OF THE TOTAL AD VALOREM TAXES IMPOSED. THIS SUM SHALL BE
ACCRUED IN TWELVE MONTHLY INSTALLMENTS.
C. (This section was intentionally deleted.)
D. (This section was intentionally deleted.)
E If Tenant should fail (I) to pay, when due, any rental, charge or other
sum payable hereunder, within (10) days after written notice shall
have been given to Tenant; or (ii) to keep, observe, or per-form any
of the other terms, covenants, and conditions herein to be kept
observed and performed by Tenant for more than thirty (30) days after
written notice shall have been given to Tenant specifying the nature
of such default, or, if said default so specified (other than a
default under subdivision (1) hereof) shall be of such nature that the
same cannot reasonably be cured or remedied within said thirty (30)
day period and thereafter to completion, Landlord shall also have the
right at its option in addition to and not in limitation of any other
right or remedy available to it, to terminate this lease by giving
Tenant a written three (3) days' notice of Termination and ,upon the
expiration of said three (3) days, the term hereof shall end and
expire fully and completely.
In the event that Lessor is required by Lessee's default to
place in the hands of an attorney its claim for rent due hereunder,
then and in that event there shall be added to the amount of its claim
ten (10%) percent of the amount to be collected, both principal and
interest, as attorney's fees, and it is stipulated that all past due
rent shall bear interest at the rate of twelve (12%) percent per annum
from maturity until paid.
<PAGE> 3
V. UTILITIES AND MAINTENANCE
A. Maintenance - Demised Premises. Lessor shall maintain in good repair
the roof, foundation, and exterior walls of the building. In addition, all
interior maintenance and repair work of any kind or character whatsoever that
may hereinafter become necessary during the term of this lease shall be done by
and at the expense of Lessor, except those repairs necessitated by Lessee's
tenancy. Lessee herein agrees that said Lessor shall not be held responsible
or liable for any damage to Lessee or Lessee's stock, furniture, fixtures, and
equipment due to defects or delays in connection with making these necessary
repairs; however, Lessor agrees to exercise due diligence in making said
repairs. Lessee further agrees to return said demised premises to Lessor's
possession at the end of occupancy or upon termination of this lease for any
cause whatsoever in substantially good order and repair, considering normal
usage.
B. Utilities. Lessee agrees to pay all utilities for electricity, and trash
removal, and fuel used on demised premises during the term of this lease.
VI. USE AND OCCUPANCY
Lessee's business shall be established and conducted at all times
during the term of this lease in a diligent and first class manner. Lessee
shall not permit any use of the leased premises for any purpose calculated to
injure the reputation of said building of which said demised premises are a
part nor for any purpose or use in violation of the statutory laws of the
United States or of the State of Louisiana or of the ordinances or the
municipality of parish have jurisdiction, nor for any immoral or unlawful
purposes whatsoever, nor suffer nor permit nuisances, noises, vibrations, or
odors thereon and therefrom which are obnoxious to other tenants or their
patients or clients in the building.
Lessee shall use and maintain all equipment which might be harmful,
hazardous, or infectious in a manner consistent with OSHA regulations and any
other applicable governmental regulations. Lessee shall dispose of all trash
including but not limited to bio-hazardous and medical materials, in a manner
consistent with OSHA regulations and any other applicable governmental
regulations.
The Lessor shall not be responsible to Lessee for any loss or damage
which may be caused by the overflow or backing up of any sewer, gas, or caused
by any gas connected in said building or for damages caused by the overflow of
any revetments, drainage basins, or by the back-flow of any city sewer or water
main, or for other overflow or backing up.
Lessor agrees to provide all systems In working order and/or to put
all systems in working order as quickly after final lease execution as
possible. Lessee agrees at all times to keep said demised premises in a neat
clean, and sanitary condition and comply with all valid laws, ordinances, rules
and regulations made now or hereafter by the municipality or parish having
jurisdiction, or the State of Louisiana, or the United States, or any
governmental authority applicable to the occupancy or use of said premises,
including all laws, rules and regulations respecting fire, fire hazard, and
safety measures.
Lessee further agrees that it will be solely responsible for all
injuries to persons and property resulting from any accident explosion, leak,
cause, or catastrophe arising in or about the building and its appurtenances,
and the parking lot and area around the building unless the Lessor knew or
should have known of the defect causing such injury or had received notice
thereof and failed to remedy it within a reasonable time and said defect is in
the category of defects which Lessor is obligated under terms of this lease to
repair. Lessee agrees to indemnify Lessor against loss, cost, damage, or
expense by reason of any accident, loss, casualty, catastrophe, or damage
resulting to any person or property through any use of the demised premises and
the building or- any part thereof caused by failure to comply with Lessee's
covenants contained in this lease, or caused by the negligence of Lessee or
Lessee's family, agent servants, employee, contractor, guests, or customers.
<PAGE> 4
INSURANCE
Lessor shall not be held responsible, accountable, or liable to
Lessee, Lessee's employees, patrons, visitors, or others for any damage to
person or property caused by the act of negligence of the Lessee, his
employees, patrons, or other, or by catastrophe Lessee, at his own expense,
shall obtain and maintain during the continuation of this lease, "Owners,
Landlords, and Tenants Liability In cc", written by an insurance company or
companies approved by Lessor, licensed to do business in the State of
Louisiana, which will fully protect Lessor against any and all liability for
property damages and personal injuries suffered by reason of the use of the
demised premises in the limits of $1,000,000.00 to apply in the case of a
person injured and $1,000,000.00 to apply in case of any one accident and
$1,000,000,.00 property damage, and NOT LATER THAN THE DATE OF OCCUPANCY LESSEE
SHALL FURNISH PROPERLY CERTIFIED COPIES OF SUCH INSURANCE CONTRACTS TO LESSOR
(OR IN THE ABSENCE THEREOF A WRITTEN BINDER THEREOF) and Lessee shall hold
Lessor harmless from any and all liability and from any injury or damage
occasioned and shall keep said demised premises in proper and safe condition.
The policy shall stipulate that the insurer will not cancel the same for any
cause, EXCEPT AFTER ten (10) days written notice to Lessor.
If at any time prior to the commencement date of this lease or at any time
during the term hereof the improvements located on the herein demised
premises should be destroyed or damaged to an extent which require repairs in
an amount in excess of forty (40%) percent of the replacement cost, less
reasonable depreciation under the straight line method, of the entire
improvement located upon said demised premises, Lessor shall have the option
of either;
a. terminating this lease with neither party having any rights
against the other party from and after the occurrence or
destruction;
b. repairing or rebuilding such improvements in substantially the
same or better condition than they were prior to destruction,
or damages, in which event rental shall be abated
proportionately to the loss of occupancy suffered by Lessee.
Within thirty (30) days after the occurrence of such
destruction under the straight line method, of the entire
improvements located on the herein demised premises, Lessor
shall notify Lessee of the alternative which Lessor chooses to
make, and if during such thirty (30) day period Lessor does
not give Lessee notice of its decision, this lease shall
continue in full effect and the right of termination shall be
deemed to have been waived.
No goods, merchandise, or materials shall be kept stored, or sold by Lessee
in the d premises specified as hazardous by standard stock insurance company
rules and regulations for the State of Louisiana, and Lessee shall not suffer
or permit any act of omission or commission to be done on or in the premises
which will increase the fire insurance premium rate. If the said insurance
rate is increased by such an act, then the increased cost of such insurance
on the building of which the demised premises form a part shall be paid by
Lessee to Lessor with the next succeeding payment of rental unless done or
caused to be done by Lessor under the terms of this lease.
VIII. SIGNS AND PARKING
Lessee agrees to abide by any reasonable rules for loading,
unloading, parking of vehicles, or other controls of walks, drives, and open
spaces within the building (the building herein defined) instituted by Lessor
which are for the general or specific benefit of said the building or the
tenants therein, as determined by Lessor. Lessee agrees that due to the
limited size of the parking area that "18 wheel" trucks will be prohibited
from parking at anytime in the parking area of the building.
Signs: Tenant shall, at its own expense, provide a suitable
identification sign of such size, design, and character as Landlord shall
first approve in writing and shall install the same at a place or places on
the demised premises, designated by Landlord and maintain such sign or other
installation in sight by and good condition and repair. Other than such
permitted signs, Tenant shall not place or install or suffer to be placed or
installed or maintain on the exterior of the demised premises any awning,
canopy, banner, flag, pennant, aerial antenna, or the like without the
approval of the Landlord. Landlord shall have the right, after five (5) days
notice to Tenant, to
<PAGE> 5
remove any signs not approved and installed by Tenant and to be reimbursed
for the reasonable cost of such removal and/or any repairs necessitated
thereby, without suffering any liability to Tenant for such removal.
IX. ACCEPTANCE,. ALTERATIONS- AND ADDITIONS
Lessee shall accept the demised premises in the condition in which
they are at the time of commencement of this lease.
X. RIGHT TO INSPECT, WAIVER, ETC.
Access to Premises: Landlord and its authorized representatives shall
have the right to enter upon the demised premises during all regular business
hours for the purpose of inspecting or exhibiting the same to prospective
purchasers, mortgages, and tenants. Landlord shall have the right to
maintain and repair all utility equipment, in, upon, or under the demised
premises as may be necessary for the servicing of the demised premises and/or
other portions of the building; the right to enter upon the demised premises
during all regular business hours (and in emergencies at all times) for the
purpose of making any repairs thereto and thereon or to the building of which
it forms a part, as Landlord reasonably may deem necessary, and for any other
lawful purpose without the same effecting an actual or constructive eviction
of Tenant from the demised premises or any part thereof. Landlord shall also
have the right during the last sixty (60) days of the lease term to show the
space to other prospective tenants.
XI.
It is further agreed this lease cannot be changed, varied, or
extended except by instrument in writing signed by Lessor and Lessee. One or
more waivers by Lessor of any covenant, term, provision, or option of this
lease shall not constitute a waiver of any other, violation of Lessee or his
assignees or employees; and shall not constitute a waiver of any other rights
accruing to Lessor under this lease. The various rights, powers, options,
elections, and remedies of Lessor herein contained shall be construed as
cumulative and none of them as exclusive of any other o r exclusive of any
rights or remedies as are or shall be allowed Lessor by law.
XII
Lessee agrees that neither this lease nor any interest therein shall
be assigned or transferable or by operation of law and in the event of any
proceeding seeking a receivership of Lessee or his assets or any proceeding
under the Bankruptcy Act or any amendment thereto be commenced by or against
Lessee (or should there be more than one, then any Lessee) or in the event
Lessee (or should there be more than one, then any Lessee) be adjudged
insolvent or made an assignment for the benefit of his creditors, or if a
writ of execution levied on the business of the Lessee conducted, or the
assets thereof situated in the demised premises or on the leasehold estate
created hereby, be not discharged within five (5) days thereafter, this
lease, at the option of Lessor, shall immediately cease and terminate and
shall not be treated as an asset of Lessee after the exercise of the
aforesaid option, to forthwith enter and repossess itself of said premises as
of its original estate.
Lessee shall not assign this lease or any right hereunder or sublet
the premises, or any part thereof, nor permit any sub- Lessee or
concessionaire to operate in said premises or permitting any concessionaire
or sublease to operate in said premises shall constitute a waiver or
discharge of the provisions of this paragraph, except as to the specific
instance covered thereby, or shall release Lessee from obligations of this
agreement, without Lessor's consent which shall not be unreasonably withheld.
<PAGE> 6
X III . LANDLORD'S LIEN
LESSOR shall have and is hereby granted a valid lien SUBORDINATE ONLY
TO A FIRST LIEN CREATED IN FAVOR OF THE HEALTHCARE FINANCIAL PARTNER PURSUANT
TO THE LOAN AND SECURITY AGREEMENT BETWEEN HEALTHCARE FINANCIAL PARTNERS AND
THE COMPANY DOCTOR WHICH WAS AGREED TO APRIL 14,1997 on all goods, chattels,
furniture fixtures, and equipment which Lessee may have on or own upon the
said demised premises or which Lessee may have on or own thereon at any time
during this lease as well as any such rights against such movable properties
belonging to strangers as the Landlord may enjoy under the law as well as
upon the proceeds of any insurance accruing to Lessee by reason of the
destruction of or damage to any such personal property, to secure all rent
and other sums due or to become due Lessor hereunder, any and all exemption
laws hereby being expressly waived in favor of said lien, and it is agreed
that said expressed lien shall not be construed as a waiver of any statutory
lien given or which may be given Lessor, but shall be additional thereto.
The lien herein granted by Lessee to Lessor as distinguished from any
statutory lien which Lessee may have is hereby subordinated by Lessor to any
and all present or future mortgages which Lessee may grant covering any
equipment purchased m order to make such purchase and covering inventory in
order to finance purchase of said inventory,
If said Lessor shall be in default or shall fail or refuse to perform
or comply with any of Lessor's obligations under this lease, Lessee, after
giving Lessor notice in writing of such default failure or refusal and demand
to remedy the same, may at Lessee's option, if Lessor has not remedied said
default failure or refusal within ten (10) days after receipt of said notice,
exercise such right or remedy which Lessee may have, including the right to
remedy the condition or matter referred to in such notice, if necessary, and
Lessor agrees to reimburse Lessee for any expense reasonably incurred in
connection with exercise of said right to
remedy the condition or such expense or any part thereof at Lessee's option
may be deducted in whole or in part from subsequent installments or rent; and
in the event of any dispute between the parties as to the right of the Lessee
any notice of default or termination of lease unless Lessee shall fail to
make good to Lessor for such deduction within ten (10) days after receipt of
notice by Lessee of a judgment in favor of the Lessor.
X IV EXPROPRIATION
If during the term hereof all said leased premises shall be taken,
for public or quasi-public purposes, this lease shall terminate, but if only
part of said premises be so taken, this lease shall cease only as to the part
so taken and continue as to the part not so taken, and the rent herein
reserved shall be abated in proportion that the area so taken bears to the
total area of the leased premises, and it is expressly agreed and understood
that all sums awarded for such taking, of said leased premises, or any part
thereof, or for damages for any such taking, shall belong to Lessor, and
Lessee shall have no interest in or claim to such award, or any part thereof,
however, these provisions do not deprive Lessee of claim against authority
expropriating the premises as Lessee's interest may appear, unless Lessee's
ability to conduct business is impaired.
X V . RIGHT TO MORTGAGE
The Lessor reserves the right to subject and subordinate this lease
at all times to the lien of any mortgage or mortgages hereafter placed upon
the Lessor's interest in the said premises, and upon the land or premises of
which the leased premises are a part, or upon the building hereafter placed
upon the land of which the leased premises form a part. The Lessee covenants
and agrees to execute and deliver, upon demand of Lessor, its successors and
assigns, such further instrument subordinating this lease to the lien of any
such mortgage or mortgages provided, further, however, that such mortgage
shall recognize the validity and continuance of this lease in the event of
conveyance in lieu of foreclosure as long as the Lessee shall not be in
default under the terms of this lease.
<PAGE> 7
X VI. ATTORNMENT
Tenant agrees that in the event of a sale, transfer, or assignment of
the Landlord's interest in the building or any part thereof, including the
demised premises, or in the event any proceedings are brought for the
foreclosure of any mortgage name by Landlord covering the building or any
part thereof, including the demised premises, to attorn to and to recognize
such transferee, purchaser, ground, or mortgages as Landlord under this
lease.
X VII. TENANT'S FIXTURES, EQUIPMENT, ETC.
Lessee has the right and the privilege, subject to the compliance by
Lessee with all the duties and obligations imposed by the terms of this
lease, of installment and operating in the leased premises fixtures and such
electrical and mechanical equipment as may be necessary and proper in the
operation of Lessee's business, provided that in so doing Lessee shall comply
with all lawful requirements, state, federal, and city, and with all rules
and regulations of authorized bodies and agencies.
Lessor initially provides and installs heating and air conditioning
equipment for the demised space Further Lessor agrees to have all units
inspected and if necessary repaired and in good working order upon
commencement of the lease term. Subsequent to the inspection and necessary
repairs upon commencement of the lease term, Lessor will be responsible for
operation, maintenance and repair of all HVAC equipment.
Lessor covenants and agrees that the title to all fixtures, signs,
electrical or otherwise, shelving, and similar equipment (whether attached to
the land or building or otherwise) placed furnished, and/or installed in
and/or on the leased premises by the Lessee, except replacements of
installations originally made by Lessor, shall remain the property of Lessee
and may be removed at any time that Lessee may desire, provided that Lessee
shall not be in default in the payment of rent hereunder and/or of any of the
terms and provisions of this lease. Notwithstanding these provisions, Lessee
shall be entitled to remove such items at the expiration of the term of this
lease, provided all monies due as provided herein have been paid, All such
removals shall be accomplished in a good workmanlike mariner so as not to
damage the primary structure or structural qualities of the building and
other improvements situated in the building.
Subject to the foregoing, all alterations; installations, additions.
and improvements, whether temporary or permanent in character, made in, to or
on the demised premises except as stated above, and being made only after prior
written approval by Lessor, shall immediately, upon the installation thereof,
become and be the property of Lessor and shall remain upon and be surrendered
with the premises, except that Lessee will ascertain from Lessor within thirty
(30) days prior- to the termination of this lease whether Lessor desires to
have ft premises, or any part thereof, restored to their condition prior to the
malting of such additions, alterations, installations, and improvements,
including fixtures and improvements as provided, shall become the property of
Lessor as stated, as liquidated damages without reimbursement to Lessee for
same or loss of use for same. All electrical wiring and plumbing and the
location thereof shall be subject to written approval of Lessor prior to the
installation thereof.
X VIII RECONDUCTION
In the event the Lessee remains in possession of the Premises after
the expiration of this lease and without the, execution of a new lease, he
shall be deemed to be occupying the Leased Premises only as a tenant from
month-to-month, subject to all of the conditions, provisions, and obligations
of this lease insofar as the same are applicable to a month-to-month tenancy,
but such occupancy shall not affect a reconduction of the lease.
<PAGE> 8
X IX. REPAIRS
Anything elsewhere herein contained to the contrary notwithstanding it
is specifically agreed and understood that Lessee has inspected the premises
and particularly the interior and exterior doors, door frames, and bucks and
found them in good order and acceptable condition and that the maintenance
thereof and any repairs or replacements required shall be the responsibility
solely of the Lessee, all at his cost arid expense. Landlord shall not be
required to commence any such repair until after notice from Tenant that the
same is necessary, which notice, except in case of an emergency shall be in
writing and shall allow Landlord a reasonable time in which to commence and
complete such repair. Tenant agrees, at Tenant's own cost and expense to keep
and maintain work erected and installed and all fixtures and equipment
installed by Tenant.
X X SECURITY DEPOSIT
Simultaneously with the execution of this lease, Lessor acknowledges
receipt of $4,440.33 to secure complete performance of Lessee's obligations
under this lease. This deposit shall not bear interest or cam income and shall
not be considered an advance payment of rental or a measure of Lessor's damages
in case of default by Lessee. If, during the term of this lease or at its
termination, Lessor incurs any expense because of Lessee's failure to fully
comply with the requirements of this lease, then Lessor may appropriate and
apply so much of the deposit as is necessary to reimburse itself for such
expense(s). Within three (3) days of demand wherefore by Lessor, Lessee shall
restore the security deposit to its original amount and Lessee's failure to do
so shall constitute a default under the Default Section of this lease, except
that the, ten (10) day grace period contained therein shall not be applicable
in case of default hereunder. Any remaining portion of the security deposit
shall be returned to Lessee at Lessee's last known address after termination of
this lease.
X XI RENEWAL
Renewal Option: If at the end of the primary term of this lease,
Lessee is not in default of any of the terms, conditions, or covenants of this
lease, Lessor grants to Lessee, but not any assignee or subtenant of Lessee the
option to renew this lease for two (2) additional terms of two (2) yews each
upon the same terms and conditions contained in this lease with the following
exceptions:
A. The rental rate for the first renewal term shall not be less than
Eleven and No/100 Dollars ($11.00) per square foot per year and not more than
Thirteen and No/100 Dollars ($13.00) per square foot per year. The exact rate
to be determined and mutually agreed to by both Lessor and Lessee.
B. The rental rate for the second two yew renewal term shall be
set at the then prevailing market rate for comparable space. 'The exact rate
to be determined and mutually agreed to by both Lessor and Lessee. Lessee must
notify Lessor ninety (90) days prior to the termination date of the lease as to
its intent to exercise these renewal options. If Lessor and Lessee are unable
to reach a mutual agreement regarding the lease rate sixty (60) days prior to
the lease termination, this renewal option shall become null and void.
C. The successive options provided for in this paragraph shall be
available to Lessee only if Lessor determines, at the sole discretion of
Lessor, that Lessee's business and occupancy of the leased premises does not
interfere with the business of Lessor or of other tenants conducted in the
building. In the event that Lessor determines that such interference has
occurred Lessor shall so notify Lessee at least one HUNDRED TWENTY (120) days
in advance of the expiration of the then current term.
X XI V. REAL ESTATE COMMISSION
Lessor agrees to pay commission to Vintage Realty Company and U. L.
Coleman Company, as agents in connection with negotiations in obtaining of this
lease as follows: One, half of the first monthly rental and six percent (6%) of
each and every monthly rental thereafter throughout the primary lease term to
be divided equally
<PAGE> 9
between Vintage Realty Company and U. L. Coleman Company. Thereafter, for all
extension, expansions and for the renewal and/or any other options of the
leased premises.
Lessor further agrees that the obligation of such commission shall
constitute a real right or covenant running with the property, burdening the
leased premises and binding all successors in interest, title, and ownership
thereof for the full and timely payment of commission. in connection therewith,
Lessor agrees to obtain from any transferee of the leased premises an
assumption agreement in the form of an authentic act or A private act duly
acknowledged, whereby such Transferee shall acknowledge the mission obligations
and agrees to continue payment to Vintage Realty Company of all such commission
payments when and as they thereafter fall due; Lessor to deliver such executed
agreements to the above mentioned agent at the closing of the transfer
transaction. Thereafter, Lessor shall be released from personal liability for
subsequent commission payments. The rights and obligations of the parties
hereto shall extend to their respective heirs, successors and assigns.
XXIV GENERAL PROVISIONS
Time is of the essence of this lease and every term, condition,
covenant, and provision.
This lease shall inure to the benefit of and be binding upon heirs,
executors, administrators, successors, and assigns of the respective parties
hereto, except that nothing in this paragraph contained shall authorize and
assignment of the interest of Lessee herein without prior written consent of
Lessor.
If any clause or provision of this lease shall be invalid or void for
any reason, such invalid or void clause or provision shall not affect the whole
of this instrument but the balance of the provisions hereof shall remain in
full force and effect.
IN TESTIMONY OF, the Lessor and the Lesser, have executed this
instrument in duplicate originals on this day and year first above written and
in the presence of the undersigned competent witnesses.
LESSOR: DR. NABIL A. MOUFARREJ, M-D.
AND HANAN T. MOUFARREJ
BY:.______________________________
Dr. Nabil A. Moufarrej, M.D
BY:_____________________________
Hanan T. Moufarrej
LESSEE: ANDICARE INC. D/B/A THE
COMPANY DOCTOR
By: ______________________________
A. N. Tooke
Secretary and Registered Agent
<PAGE> 1
EXHIBIT 10.3.12
This Lease Agreement is entered into by
1. Landlord:
DataVest Management, L.L.C. as Agent for Westwood Crown Partners, Ltd. and its
General Partner, Texporters, 1,T, Inc., ("Landlord')
2. Tenant:
Emergency Occupational Physicians Services, Inc. d.b.a.
The Company Doctor ("Tenant")
3. Leased Premises:
In consideration of the rents, terms, and covenants of this Lease Agreement
(the "Lease") Landlord hereby leases to Tenant certain premises (the "Leased
Premises") containing approximately 2,890 Square feet within the building or
project known as Westwood Business Park, Phase II located in Suite 11 14 at
1850 Crown Drive in Farmers Branch, Texas in Dallas County, Texas. Such land
which is described in the attached Exhibit A together with the building(s),
landscaping, parking and driveway areas, sidewalks and other improvements
thereon shall be referred to in this Lease as the "Project". In the case of a
multi-building(s) Project, the word "Building " shall refer to the particular
building in which the Leased Premises are located and the tract of land upon
which such building is located. In the case of a single building Project the
term "Building" as used herein shall be synonymous with the term "Project". If
the Leased Premises encompass an entire building, then the term "Leased
Premises" shall be synonymous with "Building". A fuller description of the
Leased Premises, including a floor plan thereof, is contained in Exhibit B to
be attached.
4. Lease Term:
(a) The term of this Lease shall be Thirty-Six (36) months commencing on
November 1, 1996 (the "Commencement Date") and terminating on the last day of
October 31, 1999 (b) (the "Termination Date"). The Commencement Date may be
subject to change, however, pursuant to Subparagraphs (b) and (c) below.
However, any such change in the Commencement Date shall have no effect upon the
Termination Date.
(b) Tenant acknowledges that it has inspected and accepts the Leased
Premises in their present condition as suitable for Tenant's purposes. If this
Lease is executed before the Leased Premises become vacant or otherwise
available for occupancy, or if any present tenant or occupant of the Leased
Premises holds over and Landlord cannot acquire possession of the Leased
Premises prior to the Commencement Date stated above, Tenant agrees to accept
possession of the Leased Premises at such time as Landlord is able to tender
the same, which date shall then be the Commencement Date of the Lease term.
(c) Landlord agrees to install at its cost and expense the improvements if
any, described in the plans and specifications described in Exhibit B. If such
improvements are not completed and the Leased Premises are not ready for
occupancy on the Commencement Date stated above, other than as a result of the
omission, delay or default by Tenant or anyone acting under or on behalf of
Tenant, the rent under this lease shall not commence until substantial
completion of the work described in said plans and specifications and the
Commencement Date of the Lease term shall be the date of such substantial
completion. Landlord shall notify Tenant in writing as soon as such
improvements are substantially completed and ready for occupancy. If such
improvements have not in fact been substantially completed as aforesaid, Tenant
shall notify Landlord in writing of its objections within five (5) days after
receipt of
<PAGE> 2
completion notice from Landlord. Landlord shall have a reasonable time after
receipt of such notice to take such corrective action as may be necessary and
shall notify Tenant in writing as soon as it deems such corrective action has
been completed so that the Leased Premises are completed and ready for
occupancy. In the event of any dispute as to substantial completion or work
performed or required to be performed by Landlord a certificate of a registered
architect selected by Landlord reasonably acceptable to Tenant shall be
conclusive and binding on all parties.
(d) Tenant acknowledges that no representation or promises regarding
repairs, alterations, remodeling or improvements to the Leased Premises have
been made by Landlord, its agents, employees, or the representatives, unless
such are expressly set forth in this Lease, and that Tenant is solely
responsible for applying for and obtaining a certificate of occupancy for the
Leased Premises. Tenant agrees that if its occupancy of the Leased Premises is
delayed under the circumstances described in Subparagraph (b) or (c) above,
this Lease shall nonetheless continue in full force and effect. However, any
rental amounts applicable to such period of delay shall be abated and such
abatement shall constitute full settlement of all claims by Tenant against
Landlord by reason of any such delay in possession of the Leased Premises.
Tenant's taking possession of the Leased Premises shall conclusively establish
that the improvements, if any, to be made by Landlord under the terms of this
Lease, have been completed in accordance with the plans and specifications
therefor and that the Leased Premises are in good and satisfactory condition as
of the date of Tenant's possession, unless Tenant notifies Landlord in writing
specifying any defects within ten (10) days after taking possession. Landlord
shall use reasonable diligence to repair promptly such items but Tenant shall
have no claim for damages or rebate or abatement of rent by reason thereof.
After the Commencement Date and upon completion of any necessary repairs as
provided above, Tenant shall, upon demand, execute and deliver to Landlord a
letter of acceptance of the Leased Premises and acknowledgment of the date of
the Commencement Date.
5. Base Rent and Security Deposit:
Tenant agrees to pay to Landlord the aggregate sum of Seventy-Three Thousand
Six Hundred and Ninety-Five Dollars and No Cents ($73,695.00) [gross Amount Due
over Lease term] which represents the total rental due over the lease term
referenced in Paragraph Four of this agreement subject to adjustment or early
of delayed occupancy under the terms hereof. Such rent shall be payable in
monthly amounts of Two Thousand and Forty Seven Dollars and Eight Cents
($2,047.08) per month for Months 1-36, per month, in advance, without demand
deduction or offset (sometimes referred to in this Lease as the "Base Rent" or
"Base Rental"). Such rental amounts shall be due and payable to Landlord in
lawful money of the United States of America at the address shown below. An
amount equal to one monthly Base Rental payment which shall be due and payable
on the date Tenant executes this lease and such amount shall be applied to the
rent due for the first complete calendar month occurring after the Commencement
Date, provided that if the Commencement Date should be a date other than the
first day of a calendar month the rent for such partial month shall be
prorated. All succeeding installments of rent shall be due and payable on or
before the first day of each succeeding calendar month during the Lease term.
The amount of the Rent shall be adjusted as provided in Paragraph 6 below.
(b) On the date Tenant executes this Lease there shall be due and payable
a security deposit in an amount equal to the last monthly Base Rental
installment by Tenant. Such security deposit shall be held by Landlord
(without any obligation to pay interest thereon or segregate such moneys from
Landlord's general funds) as security for the performance of Tenant's
obligations under this Lease. Tenant agrees to increase such security deposit
from time to time so that it is at all times equal to one monthly Base Rental
installment as adjusted pursuant to Paragraph 6 (a) below, Tenant shall deposit
cash with Landlord
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<PAGE> 3
in an amount sufficient so as to increase the security deposit within five (5)
days after written demand by Landlord. The security deposit is not an advance
payment of rental or a measure of Landlord's damages in the event of Tenant's
default under this lease. Upon the occurrence of any event of default by
Tenant or breach by Tenant of its covenants under this Lease, Landlord may,
from time to time, without prejudice to any other remedy provided herein or
provided by law, use, apply, or retain all or part of the security deposit for
the payment of any rent or other sum in default, or for the payment of any
other amount which Landlord may spend or become obligated to spend by reason of
Tenant's default, or for payment of any other amount which Landlord may spend
or become obligated to spend by reason of Tenant default or breach, or to
compensate Landlord for any damage, injury, expense, or liability caused to
Landlord by such default or breach. If any portion of the security deposit is
so used or applied, Tenant shall, within ten (10) days after written demand
therefore, deposit cash with Landlord in an amount sufficient to restore the
security deposit to the amount required by this Paragraph. Tenant's failure to
so shall be a default under this Lease. The balance of the security deposit
shall be returned by Landlord to Tenant at such time after termination of this
Lease that all of Tenant's obligations have been fulfilled.
(c) Other remedies for nonpayment of rent notwithstanding, if the monthly
Base Rental payment is not received by Landlord on or before the tenth (5th)
day of the month for which such rent is due, or if any other payment due
Landlord by Tenant hereunder (such sums being deemed to be additional Rent) is
not received by Landlord on or before the tenth (5th) day of the month next
following the month in which Tenant was invoiced, a service charge of five
percent (5%) of such past due amount shall be additionally due and payable by
Tenant. Such service charge shall be cumulative of any other remedies Landlord
may have for non-payment of Rent and other sums payable under this Lease.
(d) If three (3) consecutive monthly Rental payments or any five (5)
monthly Rental Payments during the Lease term (or any renewal or extension
thereof) are not received by Landlord on or before the tenth (5th) day of the
month for which such Rent was due, the Base Rent hereunder shall automatically
become due and payable by Tenant in advance in quarterly installments equal to
three (3) months' Base Rent each. The first of such quarterly Base Rent
payment shall be due and payable on the first day of the next succeeding
calendar month and on the first day of every third (3rd) calendar month
thereafter. This remedy shall be cumulative of any other remedies of Landlord
under this Lease for nonpayment of rent.
6. Additional Rent:
(a) Taxes & Insurance
(1) In the event the "Tax and Insurance Expenses" (as defined below) of
the Building shall in any calendar year during the ten-n of this Lease exceed
the actual 1996 cost of these two items, then with respect to such excess (the
"Tax and Insurance Differential"), Tenant agrees to pay as additional rental
Tenant's prorata share of the "Tax and Insurance Differential" within ten (10)
days following receipt of an invoice from Landlord stating the amount due. The
prorata share to be paid by Tenant is approximately Two and Sixty Hundredths
percent (2.60%) and this is computed by dividing square footage referenced in
paragraph three of this lease agreement by the approximate total project square
footage of 111,113 subject, however, to adjustment for any expansion of the
Leased Premises. In the case of a multibuilding Project, if such Tax and
Insurance Expenses are not separately assessed to the Building but are assessed
against the Project as a whole, Landlord shall determine the portion of such
Tax and Insurance Expenses allocable to the Building in which the Leased
Premises are located.
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<PAGE> 4
(2) At or prior to the commencement of this Lease and at any time during
the Lease term, Landlord may deliver to Tenant a written estimate of any
additional rent applicable to the Leased Premises (based on the prorata share
stated above) which may be anticipated for excess Taxes and Insurance Expenses
during the calendar year in which this Lease commences or for any succeeding
calendar year, as the case may be. Based upon such written estimate, the
monthly Base Rental shall be increased by one-twelfth (1/12) of the estimated
additional rent.
(3) Statements showing the actual Tax and Insurance Expenses (as well as
the actual Common Area Maintenance as defined in Paragraph 6 (b) below) and
Tenant's proportionate share thereof (hereinafter referred to as the "Statement
of Actual Adjustment") shall be delivered by Landlord to Tenant after any
calendar year in which additional rental was due by Tenant. Within ten (10)
days after the delivery by Landlord to Tenant of such Statement of Actual
Adjustment, Tenant shall pay Landlord the amount of any additional rental shown
on such statement as being due and unpaid. If such Actual Adjustment shows the
Tenant has paid more than the amount of additional rental actually due from
Tenant for the preceding calendar year and if Tenant is not then in default
under this Lease, Landlord shall credit the amount of such excess to the next
base Rental installment due from Tenant.
(4) "Tax and Insurance Expenses" shall mean: (i) all ad valorem, rental,
sales, use, and other taxes (other than Landlord's income taxes), special
assessments, and other governmental charges, and all assessments due to deed
restrictions and/or owner's associations which accrue against the building
during the term of this Lease; and (ii) all insurance premiums paid by Landlord
with respect to the Building including, without limitation, public liability,
casualty, rental, and property damage insurance. CAM expenditures shall not
exceed a 10% per annum increase.
(b) Common Areas Maintenance:
(1) In addition to the rental payable under Paragraphs 5 and 6 (a) above,
Tenant agrees to pay as additional monthly rental its prorata share (as stated
in Paragraph 6 (a) (1) above) of the "Tax and Insurance Differential" and the
"Common Area Maintenance Expenses" (hereinafter defined) which exceed a base
expense stop which is hereby defined as the greater of $2.25 per square foot or
1996 actual operational expenses. In no event shall such charges set forth in
Paragraph 6 (a) and (b) herein exceed any excluded limitations as may be more
specifically outlined in section 6 (b) Item 3 (e) of this lease agreement. At
or prior to the commencement of the Lease, and at any time during the Lease
term, Landlord may deliver to Tenant a written estimate of any additional rent
applicable to the Leased Premises which may be anticipated for such Common Area
Maintenance Expenses during the calendar year in which this Lease commences or
for any succeeding calendar year, as the case may be. Based upon such written
estimate, the monthly Base Rental shall be increased by one-twelfth (I/ 1 2) of
said estimated additional rent. The statement of Actual Adjustment shall then
include the actual Common Area Maintenance Expenses for the preceding period,
and adjustments effected, as provided in Paragraph 6 (a) (3) above. In the
case of a multi-building Project if such Common Area Maintenance Expenses are
not separately assessed or charged to the building but are assessed or charged
against the Project as a whole, Landlord shall determine the portion of such
Common Area Maintenance Expenses allocable to the building in which the Leased
Premises are located.
With respect to any calendar year or partial calendar year in which the
Building is not occupied to the extent of 95% of the rentable area thereof, the
Tax and Insurance Expenses and Common Area Maintenance Expenses for such period
shall, for the purposes hereof, be increased to the amount which
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<PAGE> 5
would have been incurred had the Building been occupied to the extent of 95% of
the rentable area thereof.
(2) "Common Area Maintenance Expenses" shall mean all expense (other than
the Tax and Insurance Expenses described above) incurred by Landlord for the
maintenance, repair, and operation of the Building, (excluding only structural
soundness of the roof, foundation and exterior walls) including, but not
limited to, management fees, utility expenses (if not separately metered),
maintenance and repair costs, sewer, landscaping, trash and security costs (if
furnished by Landlord), wages and fringe benefits payable to employees of
Landlord whose duties are connected with the operation and maintenance of the
building, amounts paid to contractors or subcontractors for work or services
performed in connection with the operation and maintenance of the Building, all
services supplies repairs, replacements or other expenses for maintaining,
repairing, and operating the Building, including without limitation common
areas and parking area and roof, exterior wall and foundation that is not
related to structural soundness.
(3) The term "Common Area Maintenance Expense" does not include the cost
of any capital improvement to the building other than the reasonably amortized
cost of capital improvements which result in the reduction of Insurance Expense
or Common Area Maintenance Expenses. Further the term "Common Area Maintenance
Expenses" shall not include repair and restoration or other work occasioned by
fire or windstorm or other casualty with respect to which Landlord actually
receives insurance proceeds, income, and franchise taxes of Landlord, expenses
incurred in leasing to or procuring of tenants, leasing commissions,
advertising expenses, expenses for the renovating of space for new tenants
interest or principal payments on any mortgage or other indebtedness of
Landlord, compensation paid to an employee of Landlord above the grade of
building superintendent, or depreciation allowance or expense.
(c) If the Commencement Date of this Lease is a day other than the first
day of a month, or if the Termination Date is a day other than the last day of
a month, the amount shown as due by Tenant on the Statement of Actual
Adjustment shall reflect a proration based on the ratio that the number of days
this Lease was in effect during such month bears to the actual number of days
in said month.
(d) The failure of Landlord to exercise its rights hereunder to estimate
expenses and require payment of same as additional rental shall not constitute
a waiver of such rights which rights may be exercised from time to time at
Landlord's discretion.
(e) In the event that Landlord herein elects to provide Tenant an expense,
stop then those expense escalators referenced in subparagraph 6 (b), with
respect solely to Common Area Maintenance, shall be passed through to Tenant
based upon a 12 month period ending on the one year anniversary date of
Tenant's occupancy of the subject space.
(f) If the nature of Tenant's business or use of the Leased Premises is such
that additional costs are incurred by Landlord for cleaning, sanitation, trash
collection or disposal services, Tenant agrees to pay as additional rental to
Landlord the amount of such additional costs upon demand.
7. Tenant Repairs and Maintenance:
(a) Tenant shall maintain all parts of the Leased Premises and their
appurtenances (except those for which Landlord is expressly responsible under
this Lease) in good clean, and sanitary condition at its own expense. Tenant
shall promptly make all necessary repairs and replacements of the Leased
Premises, including but not limited to, electric light lamps or tubes, windows,
glass and plate glass, interior and
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<PAGE> 6
exterior doors, any special office entry, interior walls and finish work,
floors and floor coverings, downspouts, gutter, heating and air conditioning
systems, dock boards, truck doors, dock bumpers, plumbing work and fixtures
other than common building sewage lines. Tenant shall be obligated to repair
wind damage to glass caused by events other than hurricanes or tornadoes.
Otherwise, however, Tenant shall not be obligated to repair any damage caused
by fire, hurricane, tornado or other casualty covered by the insurance
maintained by Landlord.
(b) Tenant shall not damage or disturb the integrity, structural soundness
or support of any walls roof, or foundation of the Leased Premises. Any damage
to these walls caused by Tenant or its employees, agents or invitees shall be
promptly repaired by Tenant at its sole cost and expense.
(c) In the event that the project is rail served, Landlord shall have the
right to coordinate any repairs and other maintenance of any rail tracks
serving or to serve the project if Tenant uses such rail tracks, Tenant shall
reimburse Landlord from time to time upon demand for a share of the cost of
such repairs and maintenance and any other sums specified in any agreement to
which Landlord is a party respecting such tracks. Tenant's share of such costs
shall be additional rental and shall reflect a proration based on the ratio
that the space contained in the Leased Premises bears to the entire space
occupied by rail users in the Project.
(d) Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
for servicing all heating and air conditioning systems and equipment within the
Leased Premises. The maintenance contractor and the contract must be approved
by Landlord. The service contract must include all services suggested by the
equipment manufacturer with the operation/maintenance manual and must become
effective (and a copy delivered to Landlord) within thirty (30) days of the
date Tenant takes possession of the Leased Premises. If Tenant fails to enter
into such service contract as required, Landlord shall have the right to do so
on Tenant's behalf and Tenant agrees to pay Landlord the cost and expense of
same upon demand.
(e) Tenant shall pay all charges for pest control and extermination around
and within the Leased Premises.
At the termination of the Lease, Tenant shall deliver the Lease Premises "broom
clean" to Landlord in the same good order and condition as existed at the
Commencement Date of this Lease, ordinary wear, natural deterioration beyond
the control of Tenant, damage by fire, tornado or other casualty excepted.
(g) Not in limitation of the foregoing, it is expressly understood that
Tenant shall repair and pay for all damage caused by the negligence of Tenant,
Tenant's employees, agents or invitees, or caused by Tenant's default
hereunder. All requests for repairs or maintenance that are the responsibility
of Landlord under this Lease must be made in writing to Landlord at the address
set forth below.
Notwithstanding anything in this Lease to the contrary, Tenant shall be
responsible for the cost of all non-structural work required to comply with the
retrofit requirements of Title III of the Americans with Disabilities Act of
1990, and all rules, regulations and guidelines promulgated thereunder, as same
may be amended or from time to time, necessitated by any installations,
additions, or alterations made in or to the Leased Premises at the request of
or by Tenant or by Tenant's use of the Leased Premises (other than retrofit
work whose cost has been particularly identified as being payable by Landlord
in an instrument signed by Landlord and Tenant.
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<PAGE> 7
8. Landlord Repairs:
Landlord shall be responsible, at its expense, only for the structural
soundness of the roof, foundation, and exterior walls of the Building. Any
repair to the roof, foundation or exterior walls occasioned by the act or
omission of Tenant, or its agents, employees, guests or invitees shall be the
responsibility of Tenant. The term "walls" as used in this Paragraph 8 shall
not include windows, glass or plate glass, interior doors, special store
fronts, office entries or exterior doors. Landlord's liability with respect to
any defects, repairs or maintenance for which Landlord is responsible at its
expense under this Lease shall be limited to the cost of such repairs or
maintenance or the curing of such defect. As expenses included in Common Area
Maintenance Expenses, Landlord will be responsible for landscaping and
maintenance of common areas and repairs, after which Landlord shall have a
reasonable opportunity to repair same or cure such effect. Landlord shall not
be required to perform any covenant or obligation of this lease, or be liable
in damages to Tenant, so long as the performance or non-performance of the
covenant or obligation is delayed, caused by, or prevented by an act of God or
force majeure. An "act of God" or "force majeure" is defined for purposes of
this Lease as strikes, lockouts, sit-downs, material or labor restrictions by
any governmental authority, riots, floods, washouts, explosions, earthquakes,
fire storms, acts of the public enemy, wars, insurrections and any other
similar cause not reasonably within the control of Landlord, and which by the
exercise of due diligence Landlord is unable, wholly or in part, to prevent or
overcome.
9. Utility Service:
Tenant shall pay the cost of all utility services, including, but not limited
to, initial connection charges and all charges for gas, water, and electricity
used on the Leased Premises. If the Leased Premises are separately metered,
Tenant shall pay such costs directly to the appropriate utility company.
Otherwise, Tenant shall pay such costs pursuant to Paragraph 6(b) above.
Tenant shall pay all costs caused by Tenant introducing excessive pollutants
into the sanitary sewer system, including permits, fees and charges levied by
any governmental subdivision for any pollutants or solids other than ordinary
human waste. If Tenant can be clearly identified as being responsible for
obstructions or stoppage of the common sanitary sewage line, then Tenant shall
pay the entire cost hereof, upon demand, as additional rent. Tenant shall be
responsible for installation and maintenance of any dilution tanks, holding
tanks, settling tanks, sewer sampling devices, sand traps, grease traps or
similar devices which may be required by the appropriate governmental
subdivision for Tenant's use of the sanitary sewer system. Tenant shall also
pay all surcharges (i.e. charges in excess of normal charges) levied due to
Tenant's abnormal use of sanitary sewer or waste removal services so that no
such surcharges shall affect Landlord or other tenant in the Project under
Paragraph 6 (b) above.
10. Signs:
No signs, door plaques, advertisement, or notice shall be displayed, painted or
affixed by Tenant on any part of the Project or Building, parking facilities,
or Leased Premises without prior written consent of Landlord, and subject to
any applicable governmental laws, ordinances, regulations, project
specifications, and other requirements. Signs on doors and entrances to the
Leased Premises, if approved by Landlord, shall be placed thereon by a
contractor approved by Landlord and paid for by Tenant. Tenant shall remove
all such signs at the termination of this lease. Such installations and
removals shall be made in such manner as to avoid injury or defacement of the
Project and other improvements, and Tenant, at its sole expense, shall repair
any injury or defacement, including without limitation, any discoloration
caused by such installation or removal.
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11. Usage:
Tenant warrants and represents to Landlord that the Leased Premises shall be
used and occupied only for the purpose of general office and sales and service
activities of Tenant. Any change in the stated usage purposes or in the scope
or extent of such usage as previously described to Landlord by Tenant shall be
subject to the prior written approval of Landlord. Tenant shall occupy the
Leased Premises, conduct its business and control its agents, employees,
invitees, and visitors in lawful and reputable way and as not to create any
nuisance or other-wise interfere with annoy or disturb any other tenant in its
normal business operations or Landlord in its management of the Project.
Tenant shall not commit, or allow to be committed any waste on the Leased
Premises.
12. Insurance & Indemnity:
(a) Tenant shall not permit the Leased Premises to be used in any way
which would, in the opinion of Landlord, be hazardous or which would in any way
increase the cost of or render void the fire insurance on improvements or
contents in the Project belonging to Landlord or other tenants. If at any time
during the term of this Lease the State Board of Insurance or other insurance
authority disallows any of Landlord's sprinkler credits or imposes an
additional penalty or surcharge in Landlord's insurance premiums because of
Tenant's original or subsequent placement or use of storage racks or in, method
of storage, or nature of Tenants inventory or any other act of Tenant, Tenant
agrees to pay as additional rental the increase in Landlord's insurance
premiums. If an increase in the fire and extended coverage premiums paid by
the Landlord for the Building in which Tenant occupies space is caused by
Tenant's use or occupancy of the Leased Premises, or if Tenant vacates the
Leased Premises and causes an increase, then Tenant shall pay as additional
rental the amount of such increase to Landlord.
(b) Tenant shall procure and maintain throughout the term of this lease a
policy or policies of liability insurance, at its sole cost and expense,
insuring both Landlord and Tenant against all claims, demands or actions
arising out of or in connection with: (i) the Leased Premises; (ii) the
condition of the Leased Premises; (iii) Tenant's operation in and maintenance
and use of the Leased Premises; and (iv) Tenant's liability assumed under this
Lease. The limits of such policy or policies shall not be not less than One
Million Dollars ($ 1,000,000) combined single limit coverage per occurrence for
injury to persons (including death) and/or property damage or destruction,
including loss of use. All such policies shall be procured by Tenant from
responsible insurance companies satisfactory to Landlord. Certified copies of
such policies, together with receipts for payment of premiums, shall be
delivered to Landlord prior to the Commencement Date of this Lease. Not less
than fifteen (15) days prior to the expiration date of any such policies,
certified copies of renewal policies and evidence of the payment of renewal
premiums shall be delivered to Landlord. All such original and renewal
policies shall provide for at least thirty (30) days written notice to Landlord
before such policy may be canceled or changed to reduce insurance coverage
provided thereby. Upon request of Landlord, Tenant further agrees to complete
and return to Landlord an insurance questionnaire (such form to be provided by
Landlord) regarding Tenant's insurance coverage and intended use of the Leased
Premises. Tenant warrants and represents that information contained in such
questionnaire shall be true and correct as of the date thereof and shall be
updated by Tenant from time to time upon Landlord's request.
(c) Landlord shall not be liable to Tenant or those claiming by through,
or under Tenant for any injury to or death of any person or persons or the
damage to or theft, destruction, loss, or loss of use of any property or
inconvenience (a "Loss") caused by casualty, theft, fire, third parties, or any
other matter (including Loses arising through repair or alteration of any part
of the Building, or failure to make repairs,
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or from any other cause), unless such loss is caused by the gross negligence of
Landlord. Landlord and Tenant each waives any claim it might have against the
other for any damage to or theft, destruction, loss, or loss of use of any
property, to the extent the same is insured against under any insurance policy
that covers the Building, the Leased Premises, Landlord's or Tenant's fixtures,
personal property, leasehold improvements, or business, or, in the case of
Tenant's waiver, is required to be insured against under the terms hereof,
regardless of whether the negligence or fault of the other party caused such
loss; however, Landlord's waivers shall not include any deductible amounts on
insurance policies carried by Landlord or apply of any coinsurance penalty
which Landlord might sustain. Each party shall cause its insurance carrier to
endorse all applicable policies waiving the carrier's rights of recovery under
subrogation or otherwise against the other party.
Tenant shall indemnify, defend, and hold harmless Landlord and its agents,
employees, affiliates, successors and assigns from and against any Loss
(including reasonable attorneys fees) arising out of any occurrence in the
Leased Premises unless such loss is caused by the gross negligence of Landlord.
This indemnity provision shall survive termination or expiration of this Lease.
13. Relocation:
This section has been completely deleted.
14. Compliance with Laws, Rules and Regulations:
Tenant shall comply with all applicable laws, ordinances, orders, rules and
regulations of state, federal, municipal, or other agencies or bodies relating
to the use, condition and occupancy of, and business conducted on, the Leased
Premises, including without limitation, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response Act, and the rules, regulations
and directives of the U.S. Environmental Protection Agency. Tenant shall also
comply with the rules of the Project which may hereafter be adopted by
Landlord. Landlord shall have the right at all times to change the rules and
regulations of the Project or to amend them in any reasonable manner as may be
deemed advisable for the safety, care, cleanliness, and good order of the
project and Leased Premises. All rules and regulations of the Project and any
changes or amendments thereto will be sent by Landlord to Tenant in writing and
shall thereafter be carried out and serviced by Tenant.
15. Assignment and Subletting:
The Tenant agrees not to assign, transfer, or mortgage this lease or any right
or interest therein, or sublet the Leased Premises or any part thereof, without
the prior written consent of Landlord. No assignment or subletting made with
the consent of Landlord shall relieve Tenant of its obligations hereunder, and
Tenant shall continue to be liable as a principal (and not as a guarantor or
surety) to the same extend as though no assignment or sublease had been made.
Consent by Landlord to an assignment or sublease shall not be construed to be
consent to any additional assignment or subletting. Each such successive act
shall require similar consent of Landlord. Landlord shall be reimbursed by
Tenant for any costs or expenses incurred as a result of Tenant's request for
consent to any such assignment or subletting. In the event Tenant subleases
the Leased Premises, or any portion thereof, or assigns this Lease with the
consent of the Landlord at an annual Base Rental exceeding that stated herein,
such excess shall be paid by Tenant to Landlord as additional rental hereunder
within ten (10) days after receipt by Tenant. Upon the occurrence of an "event
of default" as defined below, if all or any part of the Leased Premises are
then assigned or sublet, Landlord may, in addition to any other remedies
provided by this lease or provided
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by law, collect directly from the assignee or subtenant all rents due to
Tenant. Landlord shall have a security interest in all properties on the
Leased Premises to secure payment of such sums. Any collection directly by
Landlord from the assignee or subtenant shall not be construed, however to
constitute a novation or a release of Tenant from the further performance of
its obligations under this lease. Notwithstanding the foregoing, it is
expressly agreed that if this lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, I 1 U.S.A. 101 et esq. (the
"Bankruptcy Code"), any and all moneys or other considerations payable or
otherwise to be delivered in connection with such assignment shall be paid or
delivered to Lessor, shall be and remain the exclusive property of Landlord and
shall not constitute property of Tenant or of the estate of Tenant within the
meaning of the Bankruptcy Code. Any and all moneys or other considerations
constituting Landlord's property under the preceding sentence not paid or
delivered to Landlord shall be held in trust for the benefit of Landlord and be
promptly paid or delivered to Landlord. Any person or entity to which this
Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be
deemed without further act or deed to have assumed all the obligations arising
under this Lease on and after the date of such assignment. Any such assignment
shall upon demand be executed and delivered to Landlord in an instrument
confirming such assumption.
16. Alterations and Improvements:
(a) Tenant shall not make or perform, or permit the making or performance
of, any initial or subsequent tenant finish work or any alterations,
installations, decorations, improvements, additions or other physical changes
in or about the Leased Premises (refer-red to collectively as "Alterations")
without Landlord's prior consent. Landlord agrees not to withhold its consent
unreasonably to any nonstructural alterations proposed to be made by Tenant to
adapt the Leased Premises for Tenant's business purposes. Notwithstanding the
foregoing provisions or Landlord's consent of any Alterations, all Alterations
shall be made and performed in conformity with and subject to the following
provisions: All Alterations shall be made and performed at Tenant's sole cost
and expense and at such time and in such manner as Landlord may from time to
time reasonably designate. Alterations shall be made only by contractors or
mechanics approved by Landlord, such approval not to be unreasonably withheld.
No alteration shall affect any part of the building other than the Leased
Premises or adversely affect any service required to be furnished by Landlord
to Tenant or to any other tenant or occupancy of the building or reduce the
value or utility of the Building. No alteration shall affect the outside
appearance of the building. Tenant shall submit to Landlord detailed plans and
specifications (including layout, architectural, mechanical and structural
drawings) for each proposed Alteration and shall not commence any such
Alteration without first obtaining Landlord's written approval of such plans
and specifications. Prior to the commencement of each proposed Alteration,
Tenant shall furnish to Landlord duplicate original policies of workers'
compensation insurance covering all persons to be employed in connection with
such Alterations, including those to be employed by all contractors and
subcontractors, and of comprehensive public liability insurance (including
property damage coverage) in which Landlord, its agents, and any lessor under
any ground or underlying lease, and any mortgagee of the building shall be
named as parties insured, which policies shall be issued by companies, and
shall be in form and amounts satisfactory to Landlord and shall be maintained
by Tenant until the completion of such Alteration. If Landlord shall require
to assure payment of all cost of such alterations, prior to the commencement of
any approved Alteration, Tenant shall cause to be issued and delivered to
Landlord an irrevocable documentary letter of credit or payment bond in the
full amount of the cost of the said approved Alterations issued by a
substantial banking institution reasonably acceptable to Landlord payable in
whole or in part, from time to time to the order of Landlord upon written
demand accompanied by Landlord's certification that Tenant has defaulted with
respect to the obligation secured thereby. The term of the letter of credit
shall be from date of issuance through ninety (90) days after completion of
construction of the approved Alterations. All permits,
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approvals, and certificates required by all governmental authorities shall be
timely obtained by Tenant and submitted to Landlord. Notwithstanding
Landlord's approval of plans and specifications for any Alterations, all
Alterations shall be made and performed in full compliance with all applicable
laws, orders and regulations of Federal, state, County, and Municipal
authorities and with all directions, pursuant to law, of all public officers,
and with al applicable rules, orders, regulations and requirements of the
Dallas Board of Fire Underwriters or any similar body. All alterations shall
be made and performed in accordance with the Building rules. All materials and
equipment shall be subject to any lien, encumbrance, chattel mortgage or title
retention or security agreement. If such Alterations are being performed by
Tenant in connection with Tenant's initial occupancy of the Leased Premises,
Tenant agrees to make proper application for and obtain, a certificate of
occupancy from the city in which the Lease Premises are leased. Tenant shall
furnish such certificate to Landlord promptly after issuance of same.
(b) Tenant shall not at any time prior to or during the term of this
Lease, directly or indirectly employ or permit the employment of, any
contractor, mechanic, or laborer in the Leased Premises, whether in connection
with any Alteration or otherwise, if such employment will interfere or cause
any conflict with other contractors, mechanics, or laborers engaged in the
construction, maintenance operation of the Building by Landlord, Tenant, or
other. In the event of any such interference or conflict, Tenant, upon demand
of Landlord, shall cause all contractors, mechanics or laborers causing such
interference or conflict to leave the Building immediately.
(c) All appurtenances, fixtures, improvements, and other property attached
to or installed in the Leased Premises, whether by Landlord or Tenant or
others, and whether at Landlord's expense or Tenant's expense, or the joint
expense of Landlord and Tenant, shall be and remain the property of Landlord,
except that any such fixtures, improvements, additions, and other property
which have been installed at the sole expenses of Tenant and which are
removable without material damage to the Leased Premises shall be and remain
the property of Tenant. At Landlord's option, Tenant shall remove any property
belonging to Tenant at the end of the term hereof, and Tenant shall repair, or
at Landlord's option shall pay to Landlord the cost of repairing any damage
arising from such removal. Any replacement of any property of Landlord,
whether made at Tenants expense or otherwise, shall be and remain the property
of Landlord.
17. Condemnation:
(a) If, during the term (or any extension or renewal) of this Lease, all
or a substantial part of the Leased Premises are 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, and the taking
would prevent or materially interfere with the then current use of the Lease
Premises, this lease shall terminate and the Rent shall be abated during the
unexpired portion of this Lease effective on the date physical possession is
taken by the condemning authority.
(b) If a portion of the Leased Premises is taken as described above and
this Lease is not terminated as provided in subparagraph (a) above, the Rent
payable under this Lease during the unexpired portion of the term shall be
adjusted to such an extent as may be fair and reasonable under the
circumstances.
(c) In the event of such taking or private purchase in lieu thereof,
Landlord and Tenant shall each be entitled to receive any sum separately
awarded to each party by the condemning authority. In the event separate
awards to Landlord and Tenant are not made, Landlord shall be entitled to
receive any and all sums by the condemning authority.
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18. Fire and Casualty:
(a) If the Building should be totally destroyed by fire, tornado, or other
casualty, Tenant shall give immediate written notice thereof to Landlord.
(b) If the Building should be totally destroyed by fire, tornado, or other
casualty, or if it should be so damaged thereby that rebuilding or repairs can
not in Landlord's estimation be completed within one hundred eighty (180) days
after the date on which Landlord is notified by Tenant of such damage, this
Lease shall terminate and the Rent shall be abated during the unexpired portion
of this Lease, effective upon the date of occurrence of such damage.
(c) If the building should be damaged by any peril covered by the
insurance maintained by Landlord, but only to such extent that rebuilding or
repairs can in Landlord's estimation be completed within one hundred eighty
(180) days after the date on which Landlord is notified by Tenant of such
damage, this Lease shall not terminate and Landlord shall, to the extent of
insurance proceeds received, then proceed with reasonable diligence to rebuild
and repair the Building to substantially the same condition in which it existed
prior to such damage. Landlord shall not be required, however, to rebuilt,
repair, or replace any part of the partitions, fixtures, additions, and other
improvements which may have been placed in, on, or about the Leased Premises by
Tenant. If the Leased Premises are untenantable in whole or in part following
such damage, the Rent payable hereunder during the period in which they are
unrentable shall be reduced to such extent as may be fair and reasonable under
all of the circumstances. If Landlord should fail to complete such repairs and
rebuilding within one hundred eighty (180) days after the date on which
Landlord is notified by Tenant of such damage, Tenant may terminate this Lease
by delivering written notice of termination to Landlord. Such termination
shall be Tenant's exclusive remedy and all rights and obligations of the
parties under this Lease shall then cease. Notwithstanding the foregoing
provisions of this subparagraph (c), Tenant agrees that if the Leased Premises,
the Building and/or Project are damaged by fire or other casualty caused by the
fault or negligence of Tenant or Tenant's agents, employees or invitees Tenant
shall have no option to terminate this Lease, even if the damage cannot be
repaired within one-hundred eighty (180) days, and the Rent shall not be
abated or reduced before or during the repair period.
(d) Notwithstanding anything herein to the contrary, if the holder of any
indebtedness secured by a mortgage or deed of trust covering the Building
and/or Project requires that the insurance proceeds be applied to such
indebtedness, the Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made. All rights and obligations under this Lease
shall then cease.
19. Casualty Insurance:
Landlord shall at all times during the term of this Lease maintain a policy or
policies of insurance with the premiums paid in advance issued by and binding
upon some solvent insurance company, insuring the building against loss or
damage by fire, explosion, or other hazards and contingencies. Landlord shall
not be obligated, however, to insure any personal property (including, but not
limited to, any furniture, machinery, goods, or supplies) of Tenant or which
Tenant may have in the Leased Premises or any fixtures installed by or paid for
by tenant upon or within the Leased Premises or any improvements which Tenant
may construct or install on the Leased Premises or any signs identifying
Tenant's business located on the exterior of the Building.
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20. Waiver of Subrogation:
To the extent that the Landlord or Tenant receives casualty insurance proceeds,
such recipient hereby waives and releases any and all rights, claims, demands
and causes of action such recipient may have against the other on account of
any loss of damage occasioned to such recipient or its businesses, real and
personal properties, the Leased Premises, the building, the Project, or its
contents, arising from any risk or peril covered by any insurance policy
carried by either party. In as much as the above mutual waivers will preclude
the assignment of any such claim by way of subrogation (or otherwise) to an
insurance company (or any other person) each party hereto hereby agrees
immediately to give to its respective insurance companies written notices of
the terms of such mutual waivers and to have their respective insurance
policies properly endorsed, if necessary, to prevent the invalidation of such
insurance coverages by reason of such waivers. This provision shall be
cumulative of Paragraph 21 below.
21. Hold Harmless:
Landlord shall not be liable to Tenant, Tenant's employees, agents, invitees,
licensees or visitors, or to any other person, for any injury to person or
damage to property on or about the Leased Premises or the Project caused by the
negligence or misconduct of Tenant, its agents, employees, invitees, or of any
other persons entering upon the Leased Premises or the Project under express or
implied invitation by Tenant. Tenant agrees to indemnify and hold Landlord
harmless from any and all loss, attorney's fees, expenses, or claims arising
out of any such damage or injury.
22. Quiet Enjoyment:
Landlord warrants that it has full right to execute and to perform this lease
and to grant the estate demised and that Tenant, upon payment of the required
Rent and performing the covenants and agreements contained in this Lease, shall
peaceably and quietly have, hold, and enjoy the Leased Premises during the full
term of this Lease, including any extensions or renewals thereof.
23. Landlord's Right of Entry:
Landlord shall have the right, at all reasonable hours, to enter the Leased
Premises for the following reasons: inspection, cleaning or making repairs,
making such alterations or additions as Landlord may deem necessary or
desirable; installation of utility lines servicing the Leased Premises or any
other space in the Building determining Tenant's use of the Leased Premises, or
for deter-mining if any act of default under this Lease has occurred. Landlord
shall give twenty-four (24) hours written notice to Tenant prior to such entry,
except in cases of emergency when Landlord may enter the Leased Premises at any
time and without prior notice. During the period that is six (6) months prior
to the end of the Lease term, Landlord and Landlord's agents and
representatives shall have the right to enter the Leased Premises at any
reasonable time during business hours without notice, for the purpose of
showing the Leased Premises and shall have the right to erect on the Lease
Premises a suitable sign indicating the Leased Premises are available for
lease. Tenant shall give written notice to Landlord at least Thirty (30) days
prior to vacating the Leased Premise and shall arrange to meet with Landlord
for a joint inspection of the Lease Premises prior to vacating. In the event
of Tenant's failure to give such notice or arrange such joint inspection,
Landlord's inspection at or after Tenant's vacating the Leased Premises shall
be conclusively deemed correct for purpose of determining Tenant's
responsibility for repairs and restoration.
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24. Assignment of Landlord's Interest in Lease:
Landlord shall have the right to transfer and assign, in whole or in part, its
rights and obligations with respect to the Project and premises that are the
subject of this Lease, including tenant's security deposit. In such event,
Landlord shall be released from any further obligation under this Lease and
Tenant agrees to look solely to Landlord's successor for the performance of
such obligations provided that such purchaser or assignee agrees to be bound by
the terms of this Lease and Landlord's obligation hereunder.
25. Landlord's Lien:
In addition to any statutory lien for Rent in Landlord's favor, Landlord shall
have and Tenant hereby grants to Landlord a continuing security interest for
all Rentals and other sums of money becoming due under this Lease from Tenant,
upon all goods, wares, equipment, fixtures, furniture, inventory, accounts,
contract Tights, and other personal property of Tenant situated on or arising
from the Leased Premises. Such property shall not be removed without the
consent of Landlord until all arrearage in Rent as well as any other sums of
money then due to Landlord under this Lease shall first have been paid. In the
event of a default under this Lease, Landlord shall have, in addition to any
other remedies provided in this lease or by law, all rights and remedies under
the Texas Uniform Commercial Code, including without limitation the right to
sell the property described in this Paragraph or public or private sale upon
five (5) days notice to Tenant. Tenant hereby agrees to execute such financing
statements and other instruments necessary or desirable in Landlord's
discretion to perfect the security interest hereby created.
The express contractual lien herein granted, is in addition and supplementary
to any statutory lien for rent.
26. Default by Tenant:
The following shall be events of default by Tenant under this Lease:
(a) Tenant shall fail to pay when due any installment of Rent or other
payment required pursuant to this Lease;
(b) Tenant shall abandon or vacate any substantial portion of the Leased
Premises;
(c) Tenant shall fail to comply with any term, provisions or covenant of
this Lease, other than the defaults listed n this paragraph 26, and the failure
is not cured within ten (10) days after written notice thereof to Tenant;
(d) Tenant shall file a petition or be adjusted a debtor or bankrupt or
insolvent under the United States Bankruptcy Code, as amended, or any similar
law or statute of the United States or any state; or a receiver or trustee
shall be appointed for all or substantially all of the assets of Tenant; or
Tenant shall make at transfer in fraud of creditors;
(e) Tenant shall do or permit to be done any act which results in a lien
being filed against the Leased Premises.
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27. Remedies for Tenant's Default:
Upon the occurrence of any event of default set forth in this Lease, Landlord
shall have the option to pursue any one or more of the following remedies
without any prior notice or demand:
(a) Landlord may 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 it may have,
enter upon and take possession of the leased Premises, and expel or remove
Tenant and any other person who may be occupying all or any part of the Leased
Premises. Landlord shall not be liable for prosecution or any claim for
damages as a result of such actions. Tenant agrees to pay on demand the amount
of all losses, costs, expenses, deficiencies, and damages, including, without
limitation, reconfiguration expenses, rental concessions and other inducements
to new tenants, advertising expenses and broker's commissions, which Landlord
may incur or suffer by reason of Tenant's default or the termination of the
lease under this subparagraph, whether through inability to relet the Leased
Premises on satisfactory terms or otherwise. Tenant acknowledges that its
obligation to pay base Rent and all additional Rent hereunder is not only
compensation for use of the Leased Premises but also compensation for sums
already expended and/or being expended by Landlord with respect to its
obligations hereunder and with respect to the Leased Premises, and Tenant
acknowledges that Tenant's default in timely payment of all sums due hereunder
shall constitute significant financial loss to Landlord. Tenant further
acknowledges that any failure to pay any sum due hereunder shall evidence
Tenant's inability to meet its debts as they become due. In such event, in
addition to Landlord's other remedies hereunder, Landlord shall be entitled to
accelerate all Base Rental remaining unpaid hereunder, the entirety of which
shall, at the option of Landlord, be immediately due and payable.
(b) Landlord may enter upon and take possession of the Leased Premises and
expel or remove Tenant and any other person who may be occupying all or any
part of the Leased Premises (without being liable for prosecution or any claim
for damages therefor) without terminating this lease and relet the Leased
Premises on behalf of Tenant and receive directly the rent of the reletting.
Tenant agrees to pay Landlord on demand any deficiency that may arise by reason
of any reletting of the Leased Premises and to reimburse Landlord on demand for
any losses, costs, and expenses, including without limitation, reconfiguration
expenses, rental concessions and other inducements to new tenants, advertising
costs or broker's commissions, which Landlord may incur or suffer as a result
of Tenant's default or in reletting the Leased Premises, Tenant further agrees
to reimburse Landlord for any expenditures made by it for remodeling or repairs
necessary in order to relet the Leased Premises. In the event Landlord is
successful in reletting the Leased Premises at a rental in excess of that
agreed to be paid by Tenant pursuant to this Lease, Landlord and Tenant agree
that Tenant shall not be entitled, under any circumstances, to such excess
rental, and Tenant does hereby specifically waive any claim or such excess
rental.
(c) Landlord may enter upon the Leased Premises (without being liable for
prosecution or any claim for damages therefor) and do whatever Tenant is
obligated to do under the terms of this Lease. Tenant agrees to reimburse
Landlord on demand for any losses, costs and expenses which Landlord may incur
in effecting compliance with Tenant's obligations under this Lease. Tenant
further agrees that Landlord shall not be liable for any damages resulting to
Tenant from effecting a compliance with Tenant's obligations under this
subparagraph whether caused by the negligence of Landlord or otherwise.
(d) Landlord may pursue any remedy provided at law or in equity.
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(e) Landlord shall have no duty to relet the Premises, and the failure of
Landlord to do so shall not release or affect Tenant's liability for Rental and
other charges due hereunder or for damages.
(f) No re-entry or relenting of the Premises or any filing or service of
an unlawful detainer action or similar action shall be construed as an election
by Landlord to terminate Tenant's right to possession under this Lease unless a
written notice of such intention is given by Landlord to Tenant.
Notwithstanding any such reletting without termination, Landlord may at any
time thereafter elect to terminate this Lease and Tenant's right to possession
hereunder.
28. Termination of Options:
If there exist any options or special rights which Landlord may have granted
Tenant under this lease including, but not limited to, options or rights
regarding extensions of the lease term, expansion of the Leased Premises, or
acquisition of any other interest in the Leased Premises or the Building, then
all such options and rights are independent of the leasehold estate hereby
granted to Tenant by this Lease and that no portion of any sums due and payable
by Tenant to Landlord hereunder is attributable thereof. In addition to, and
not in lieu of, the above remedies of Landlord for Tenant's default, any and
all such options or special rights shall be automatically terminated upon the
occurrence of the following events:
(a) Tenant shall have failed to pay when due any installment of Rent or
other sums payable under this Lease for any three (3) consecutive months during
the Lease term or any renewal or extension thereof, or for any five (5) months
during the Lease term or any renewal or extension thereof, whether or not said
defaults are cured by Tenant; or
(b) Tenant shall have received two (2) or more notices of default under
Paragraph 26 (c) above whether or not such default is cured by Tenant.
29. Waiver of Default or Remedy:
Failure of Landlord to declare a default immediately upon its occurrence, or
delay in taking any action in connection with an event of default, shall not be
waiver of the default. Landlord shall have the right to declare the default at
any time and take such action as is lawful or authorized under this Lease.
Pursuit of any one or more of the remedies set forth in Paragraphs 27 or 28
above shall not preclude pursuit of any one or more of the other remedies
provided therein or elsewhere in this Lease provided by law, nor shall pursuit
of any remedy be a forfeiture or waiver of any Rent or damages accruing to
Landlord by reason of the violation of any of the terms of this lease. Failure
by Landlord to enforce one or more of its remedies upon an event of default
shall not be construed as a waiver of the default or of any other violation or
breach of any of the terms contained in this Lease.
30. Attorney's Fees:
In the event any litigation arises hereunder, it is specifically stipulated
that this Lease shall be interpreted and construed according to the laws of the
state in which the Leased Premises are located. Further, the prevailing party
in any such litigation between the parties shall be entitled to recover as a
part of its judgment, reasonable attorney's fees.
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<PAGE> 17
31. Holding Over:
Tenant will, at the termination of this Lease by lapse of time or otherwise
surrender immediate possession to Landlord. If Landlord agrees in writing that
Tenant may hold over after the expiration or termination of this Lease and if
the Parties do not otherwise agree, the hold over tenancy shall be subject to
termination by Landlord at any time upon not less five (5) days advance written
notice, or by Tenant at any time upon not less than thirty (30) days advance
written notice. Further, all of the terms and provisions of this Lease shall
be applicable during the holder over period, except that Tenant shall pay
Landlord from time to time upon demand, as Base rent for the period of any hold
over, an amount equal to two times the Base Rent in effect on the termination
date, computed on a daily basis for each day of the hold over period, plus all
additional rental and other sums due hereunder. If Tenant shall fail
immediately to surrender possession of the Leased Premises to Landlord upon
termination of this Lease, by lapse of time or otherwise, and Landlord has not
agreed to such continued possession as above provided, then until Landlord can
dispossess Tenant under the terms hereof or otherwise, Tenant shall pay
Landlord from time to time upon demand, as Base Rent for the period of any such
holdover, an amount equal to twice the Base Rent in effect on the termination
date, computed on a daily basis for each day of the hold over period, plus all
additional rental and other sums due hereunder. No holding over by Tenant,
whether with or without consent of Landlord, shall operate to extend this Lease
except as otherwise expressly agreed by the parties. The preceding provision
of this paragraph shall not be construed as Landlord's consent for Tenant to
hold over.
32. Rights of Mortgagee:
Tenant accepts this Lease subject and subordinate to any recorded mortgage,
deed of trust or other lien presently existing or hereafter to exist with
respect to the Leased Premises. Landlord and its mortgagee is hereby
irrevocably vested with full power and authority to subordinate Tenant's
interest under this Lease to any mortgage, deed of trust or other lien
hereafter placed on the Leased Premises, and Tenant agrees upon demand to
execute such additional instruments subordinating this Lease as Landlord or the
holder of any such mortgage, deed of trust, or lien may require. If the
interests of Landlord under this Lease shall be transferred by reason of
foreclosure or other proceedings for enforcement of any mortgage on the Leased
Premises, Tenant shall be bound to the transferee (sometimes called the
"Purchaser") under the terms and conditions of this Lease for the balance of
the remaining lease term, including any extensions or renewals, with the same
force and effect as if the Purchaser were Landlord under this Lease. Tenant
further agrees to attorn to the Purchaser, including the mortgagee under any
such mortgage if it be the Purchaser, as its Landlord. Such attornment shall
be effective without the execution of any further instruments upon the
Purchaser succeeding to the interest of Landlord under this Lease. The
respective rights and obligations of Tenant and the Purchaser upon the
attornment, to the extent of the then remaining balance of the term of this
Lease, and any extensions and renewals, shall be the same as those set forth in
this Lease. Each such holder of any mortgage, deed of trust, or lien, and each
such Purchaser, shall be a third-party beneficiary of the provisions of this
Paragraph.
33. Estoppel Certificates:
Tenant agrees to furnish within ten (10) days from time to time, upon request
of Landlord or Landlord's mortgagee, a statement certifying that Tenant is in
possession of the Leased Premises; the Leased Premises are acceptable; the
Lease is in full force and effect; the Lease is unmodified; Tenant claims no
present charge, lien, or claim of offset against Rent; the Rent is paid for the
current month, but is not paid and will not be paid for more than one month in
advance; there is no existing default by reason of some act
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<PAGE> 18
or omission by Landlord, and such other matters as may be reasonably required
by Landlord or Landlord's mortgagee. Should Tenant fail to remit such Estoppel
Certificate hereinabove referenced in the prescribed time period, then Tenant
herein grants Landlord a special power of attorney hereby to complete such
Estoppel Certificate on Tenant's behalf. Landlord will be willing to provide
Tenant with an Estoppel indicating its good standing in the premises if
requested by Tenant within 10 days after such request.
34. Successors:
This lease shall be binding upon and inure to the benefit of Landlord and
Tenant and their respective heirs, personal representatives, successors and
assigns. It is hereby covenanted and agreed that should Landlord's interest in
the Leased Premises cease to exit for any reason during the term of the Lease,
then notwithstanding the happening of such event this Lease shall nevertheless
remain unimpaired and in full force and effect and Tenant hereunder agrees to
attorn to the then owner of the Leased Premises.
The liability of Landlord to Tenant for any default by Landlord under the terms
of this Lease shall be limited to Tenant's actual direct, but not
consequential, damages therefor and shall be solely recoverable from the
interest of Landlord in the Building and the land on which the Building is
situated, and Landlord shall not be personally liable for any deficiency. This
Section shall not be deemed to limit or deny any remedies which Tenant may have
in the event of default by Landlord by Landlord hereunder which do not involve
the personal liability of Landlord.
35. Real Estate Commission:
Tenant represents and warrants that it has dealt with no broker, agent, or
other person in connection with this transaction and that no other broker,
agent, or other person brought about this transaction other than Georgia and/or
Bruce Marshall of DataVest Management L.L. and/or DataVest, Inc. [proposed
broker] being designated by Tenant as a Tenant Representative under an
exclusive right-to-agency agreement with Tenant. Tenant agrees to indemnify
and hold Landlord harmless from and against any claims by any other broker,
agent, or other person claiming a commission or other form of compensation by
virtue of having dealt with Tenant with regard to this leasing transaction.
The provisions of this Paragraph shall survive the termination of this Lease.
36. Expansion:
If during the term of this Lease, Tenant occupies, under a new written lease
with Landlord, space of a size substantially larger than the present Leased
Premises within any development in the current project owned by Landlord, this
Lease shall be terminated upon execution of the Lease for such substitute
space. Notwithstanding the foregoing, Tenant shall remain obligated to pay for
any past due or prorated past due rents or other sums due Landlord as a result
of Tenant's tenancy hereunder, and such obligation shall survive the
termination is Lease pursuant to this Paragraph 36.
37. Mechanic's Liens:
Tenant shall have no authority, express or implied, to create or place any lien
or encumbrance of any kind or nature whatsoever upon, or in any manner to bind,
the interest of Landlord in the Leased Premises or to charge the Rentals
payable hereunder for any claim in favor of any person dealing with Tenant,
including those who may furnish materials or perform labor for any construction
or repairs. Each such claim shall affect and each such lien shall attach to,
if at all, only the leasehold interest granted to Tenant
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<PAGE> 19
by this Lease. Tenant covenants and agrees that it will pay or cause to be
paid all sums legally due and payable by it on account of any labor performed
or materials furnished in connection with any work performed on the Leased
Premises on which any lien is or can be validly and legally asserted against
its leasehold interest in the Leased Premises or the improvements hereon.
Tenant further agrees to save and hold Landlord harmless from any and all loss,
cost or expense based on or arising out of asserted claims or liens against the
leasehold estate or against the right, title and interest of the Landlord in
the Leased Premises or under the terms of this Lease. Under no circumstances
shall Tenant be or hold itself out to be agent or representative of Landlord
with respect to any alteration of the Leased Premises whether or not consent to
or approved by Landlord hereunder. Landlord will agree to allow Tenant to post
a bond in an amount and issued by a surety acceptable while satisfying any
disputed mechanics lien.
38. Entire Agreement and Limitation of Warranties:
It is expressly agreed by Tenant, as a material consideration for execution of
this Lease, that this Lease is the entire agreement of the parties and that
there are and were no verbal representations, warranties, understandings,
stipulations, agreements, or promises pertaining to this Lease not incorporated
in this Lease. Landlord and Tenant expressly agree that there are and shall be
no implied warranties of merchantability of fitness or of any other kind
arising out of this Lease and that Tenant's acceptance of the Leased Premises
shall be "as is". It is likewise agreed that this Lease may not be altered,
waived, amended, or extended except by an instrument in writing signed by both
Landlord and Tenant. Not in limitation upon the foregoing, Landlord agrees
that to the extent assignable, all warranties if any shall exist, from
contractors or suppliers with respect to the improvements to the Lease Premises
hereunder are hereby assigned to Tenant.
39. Miscellaneous:
(a) Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
(b) Each party agrees to furnish to the other, promptly upon demand, a
corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization and power of such
party to enter into this Lease.
(c) The captions inserted in this Lease are for convenience only and in no
way define limit, or otherwise describe the scope or intent of this Lease or
any provision hereof, or in any way affect the interpretation of this Lease.
(d) If any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws effective during the term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby; and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this lease that is illegal, invalid, or unenforceable that there be added as
a part of this Lease a clause as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid, and
enforceable.
(e) Because the Leased Premises are on the open market and are presently
being shown, this Lease shall be treated as an offer to lease only. Unless and
until this Lease is accepted by Landlord and Tenant in writing and a fully
executed copy delivered to both parties, this offer is subject to withdrawal or
non-
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<PAGE> 20
acceptance by Landlord and the Leased Premises may be leased to another party
or used for another purpose by Landlord by without notice.
(g) All references in this Lease to "the date hereof' or similar
references shall be deemed to refer to the last date, in point of time, on
which all parties hereto have executed this Lease.
(g) If the Commencement Date shall be determined under Paragraphs 4( b) or
(c) of this Lease, Landlord and Tenant shall enter into an agreement in
recordable form setting forth the Commencement Date and Termination Date of the
Lease term.
(h) In the event that Tenant shall fail to perform any duty or obligation
hereunder, whether maintenance, repair or replacement of the Leased Premises,
maintenance of insurance, or otherwise, then Landlord may, but shall in no
event be obligated to, without notice of any kind, take such actions as
Landlord deems necessary or appropriate to remedy such Tenant failure, and any
sums expended by Landlord and fair and just compensation for the time and
effort of Landlord shall be deemed additional Rental hereunder due and payable
by Tenant on demand.
(i) If Tenant shall fail to pay when the same is due and payable, any
Rent, any additional Rent, or any other sum due hereunder, such unpaid amount
shall bear interest from the due date thereof to the date of payment at the
highest nonusuruious rate permitted by applicable law.
(j) The rental rate was computed on a monthly rental rate and not price
per square foot. Accordingly, any divergence or discrepancy in square footage
shall not alter the monthly rental rate as set forth in this lease agreement.
(k) Landlord does not in any way or for any purpose become a partner of
Tenant in the conduct of its business or otherwise nor a member of a joint
venture with Tenant.
(l) Tenant shall not record this Lease without the prior written consent
of Landlord. However upon the request of either party hereof, the other party
shall join in the execution of a memorandum or so-called "short-form" of this
Lease for the purposes of recordation.
(m) Time is of the essence in the performances of all the covenants,
conditions, and agreements contained in this Lease.
(n) Any duty, obligation, or debt and any right or remedy arising
hereunder and not otherwise consummated and/or extinguished by the express
terms hereof as or as of the time of termination of this Lease, whether at the
end of the term hereof or other-wise, shall survive such termination as
continuing duties, obligations, and debts of the obligated party to the then or
continuing rights and remedies of the benefited party against the other.
(o) This Agreement may be executed in one or more counterparts, each of
which counterparts shall for all purposes be deemed to have been an original;
but all such counterparts together shall constitute but one instrument.
(p) Attached hereto, marked Exhibit "A" through Exhibit "C", are certain
exhibits to this Lease all of which are hereby incorporated herein by
reference.
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<PAGE> 21
40. Notice:
(a) All Rent and other payments required to be made by Tenant shall be
payable to Landlord at the address set forth below or any other address
Landlord may specify from time to time by written notice.
(b) All payments, if any, required to be made by Landlord to Tenant shall
be payable to tenant at the address set forth below or at any other address
within the United States as Tenant may specify from time to time by written
notice.
(c) Any notice or document required or permitted to be delivered by this
Lease shall be deemed to be delivered (whether or not actually received) when
deposited in the United States Mail, postage prepaid, certified mail, or return
receipt requested, addressed to the parties at the respective addresses set out
below or such other address as hereinafter specified by notice given in
accordance with this paragraph.
41. Remodeling:
Tenant has requested remodeling in the subject premises as set forth below and
Tenant is accepting premises in an "as-is condition excepting those changes set
forth on the architectural drawing labeled Exhibit B hereafter set forth on
Page Twenty-Two of this lease agreement.
Additions or modifications over and above the specific line items being
accomplished (if any) on Exhibit B) by Landlord directed by Tenant without
written authorization from Landlord shall be at Tenant's expense.
Landlord: Tenant:
DataVest Management, L.L.C. Emergency Occupational Physicians
Agent for Westwood Crown Partners, Ltd Services, Inc. dba The Company Doctor
3340 Amherst Avenue 5215 North O'Connor, Suite 1800
Dallas, Texas 75225 Irving, Texas 75039
Fax Number 214-369-9982 Fax Number 972-401-0839
Telephone 214-750-7272 Telephone 972-401-8300
Attention: [Fred Parrish]
Landlord: Tenant:
DataVest Management, L.L.C. As Agent Emergency Occupational Physicians
Westwood Crown Partners, Ltd Services, Inc. d.b.a. The Company
Doctor dba The Company Doctor
By: Texporters I-T, Inc. (Corporate General Partner)
By: /s/ BRUCE MARSHALL By: /s/ Fred Parrish
D. Bruce Marshall, Vice President Fred Parrish, COO
Date of Execution: Date of Execution: 10/25/97
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<PAGE> 1
EXHIBIT 10.3.13
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT, by and between TWIN TOWERS
INVESTMENT PARTNERSHIP, a Texas General Partnership ("Landlord") and Emergency
Occupational Physicians Services, Inc., d/b/a THE COMPANY DOCTOR, ("Tenant"' as
executed this 18 day of December 1996.
WITNESSETH:
WHEREAS, Twin Towers Investment Partnership, as Landlord, and The
Company Doctor, as Tenant, have heretofore entered into that certain Office
Building Lease Agreement, dated April 26, 1991, and First Amendment to Lease
Agreement, dated August 1, 1996 (the "Lease"), under and pursuant to the terms
of which Tenant has leased certain office space ("Premises") in that certain
office Building commonly known as "Twin Towers" ("Building"), which is located
at 8585 N. Stemmons Freeway, in Dallas, Dallas County, Texas, as more
particularly described in the Lease; and
WHEREAS, Landlord and Tenant desire to amend the Lease and other terms
agreed upon herein;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and in the Lease, the parties hereby covenant and agree that
the Lease is amended as follows:
1. DEFINED TERMS. Terms defined in the Lease and delineated
herein by initial capital letters shall have the same meaning ascribed thereto
in the Lease, except to the extent that the meaning of such term is
specifically modified by the provisions hereof In addition, other terms not
defined in the Lease but defined herein will, when delineated with initial
capital letters have the meanings ascribed hereto in this Amendment. Terms and
phrases which are not delineated by initial capital letters shall have the
meanings commonly ascribed thereto.
2. EXPANSION OF PREMISES. The "Premises" shall be amended to
include approximately 2,056 rentable square feet and 1,788 useable square feet,
as described on Exhibit "A" (hereinafter the "Expansion Area") and now being,
part of Suite 107N, whereby the "Premises" is deemed for all purposes to now
contain approximately 8,163 square feet of "Rentable Area", being approximately
6,939 square feet of "Usable Area" effective as of February 1, 1997.
3. COMMENCEMENT DATE. As used herein "Commencement Date" shall
mean February 1, 1997.
4. LEASE TERM. As used herein "Lease Term" shall mean a term
commencing on the Commencement Date, and continuing for sixty (60) full
calendar months.
5. BASE RENTAL. From and after the Commencement Date of February
1, 1997, Paragraph I (c) of the Lease shall be deleted in its entirety and the
following inserted in lieu thereof as Paragraph I (c) :
1
<PAGE> 2
l(c) "Base Rent" shall mean commencing on the Commencement Date of February
1, 1997 and continuing through and including January 31, 2002 the annual sum of
$118,363.50, being $9,863.62 per month ($14.50 per rentable square foot);
6. SECURITY DEPOSIT. Paragraph l(o shall be deleted in its
entirety and the following inserted in lieu thereof as Paragraph 1(0:
l(f Security Deposit. "Security Deposit" shall mean the sum of
Nine Thousand Eight Hundred Sixty Three Dollars and Sixty Two cents
($9,863.62).
7. TENANT IMPROVEMENT ALLOWANCE. With respect to the "Expansion
Area", Landlord shall provide to Tenant a "not to exceed" tenant improvement
allowance for above and below ceiling of $15.00 per rsf of expansion area
(2,056 rsf) or $30,840.00 subject to Owner approval of plans and
specifications.
8. BROKERAGE FEES AND COMMISSION. Tenant represents that it has
dealt with no broker, agent or other person in connection with this Amendment
and that no broker, agent, or other person brought about this Amendment, other
than an agent of the Landlord. Tenant hereby indemnifies and holds Landlord
harmless against any loss, claim, expense or liability with respect to any
commissions or brokerage fees claimed on account of the execution and/or
renewal of this Lease or expansion of the Premises hereunder, except for agent
of Landlord, if applicable, due to any action of the indemnifying party.
9. WHOLE AGREEMENT; EFFECT OF AMENDMENT. Except as specifically
amended by the provisions hereof, the terms and provisions hereof, the terms
and provisions in the Lease shall continue to govern the rights and obligations
of the parties thereunder; and all provisions and covenants of the Lease shall
remain in full force and effect as stated therein. All Amendments and the
Lease are the entire agreements among the parties and shah be construed as one
instrument. There are no covenants, agreements, representations, warranties or
restrictions between the parties hereto, whether written or oral other than
those specifically set forth in the Lease and this Amendment. The terms ,
provisions and covenants of this Amendment shall inure to the benefit of and be
binding upon the parties hereto and the respective heirs, successors in
interest and legal representatives.
2
<PAGE> 3
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment
in multiple counterparts as of the day and year first above written.
LANDLORD
Twin Towers Investment Partnership
a Texas General Partnership
By: Pacific Partners USA, Inc.
a Texas corporation
By:
-------------------------------------
Its:
------------------------------------
TENANT
Emergency Occupational Physicians
Services, Inc., d/b/a The Company Doctor
By:
-------------------------------------
Its:
------------------------------------
3
<PAGE> 4
EXHIBIT 10.6.2
AMENDMENT TO PRACTICE MANAGEMENT CONSULTING
AND CLINIC SERVICES AGREEMENT
THIS AGREEMENT, is made and entered into, with an effective date of
April 15, 1997, by and between The Company Doctor, a Delaware corporation
("TCD") and The Physician Group, P.A., f/k/a Donald F. Angle, M.D., P.A., a
professional association organized under the laws of the State of Texas ("PA").
RECITALS
WHEREAS, PA is engaged in the business of providing occupational
medical services and related services to the general public;
WHEREAS, TCD is engaged in the business of providing management,
marketing, administrative, financial, information, personnel and other related
services to PA;
WHEREAS, PA and TCD have entered into that certain Practice
Management, Consulting and Clinic Services Agreement dated as of November 1,
1995 ("Practice Management Agreement"), pursuant to which TCD provides certain
services to PA;
WHEREAS, TCD intends to enter into a Loan and Security Agreement with
HCFP Funding, Inc. ("HCFP") pursuant to which HCFP has agreed to provide
revolving credit financing to TCD that is secured by, among other things,
accounts receivable from the provision of occupational medical services and
related services (the "Accounts");
WHEREAS, the Practice Management Agreement does not clearly establish
rights to TCD to the Accounts;
WHEREAS, the fees to be paid to TCD by PA for its services should be
amended based upon TCD's accountant's input, among other things; and
WHEREAS, in order to reflect the nature of the Accounts and other
matters of concern in the Practice Management Agreement this amendment is of
necessity;
NOW THEREFORE, in consideration of the premises set forth above and
the terms and conditions contained herein, and other good and valuable
consideration, the sufficiency of which is acknowledged, TCD and PA have agreed
to the following amendments. Capitalized terms defined in the Practice
Management Agreement which are used herein shall have the same meanings as set
forth in the Practice Management Agreement unless otherwise specified herein.
A. The Practice Management, Consulting, and Clinic Services
Agreement is amended as follows:
<PAGE> 5
1) delete the last sentence of paragraph 1.(d)
2) delete the last sentence of paragraph 1.(e)
3) add paragraph 1.(f)(10) as follows: "any salaries, bonuses or
benefits payable with respects to P.A. Physicians;"
4) delete paragraph 1.(f), the second (2) and replace with the following:
"any salaries, bonuses, or benefits payable with respect to PA
employees or contractors except for Physician salaries, bonuses or
benefits;"
5) delete paragraph 1.(g) and replace with the following: "PA Practice
Expenses shall mean that portion of the Clinic Expenses directly
attributable to the PA's Practice."
6) delete paragraph 1.(h) and replace with the following: "Ancillary
Expenses shall mean that portion of the Clinic Expenses directly
attributable to TCD's provision of ancillary services."
7) delete paragraph 2.1 and replace with the following: "Locations. The
terms and conditions of this Agreement will apply to all Clinics
hereinafter acquired and operated by TCD or its subsidiaries and
whereby the PA, or any subsidiary or affiliate of PA, provides medical
services at any location."
8) delete the last sentence of paragraph 3.2.
9) delete the last sentence of paragraph 3.5 and replace with the
following: "All revenues beyond those needed to service immediate
expense and base PA income will be used to repay TCD for start-up
costs in full before being applied to any distributable net income."
10) add the following language to the end of paragraph 3.6b.: "except as
authorized under Paragraph 12;"
11) add the following language to the end of paragraph 7.1: ";however,
TCD shall make such payments on behalf of PA from Base Clinic
Revenues. If Base Clinic Revenues do not equal or exceed PA Clinic
Expenses TCD shall pay the difference and charge such shortfall to the
PA to be repaid out of future Net PA Practice Revenue."
12) add the following language to the end of paragraph 8.2(a): ", limited
to the profits of the Practice."
<PAGE> 6
13) delete the last sentence of paragraph 8.2(b) and replace with the
following: "Accordingly, during each month in which annualized Base
Clinic Revenue exceed $400,000, PA will pay TCD management fees equal
to the greater of $10,000 or the sum of twenty-five percent (25%) of
PA Practice Revenues and thirty percent (30%) of the Net PA Practice
Revenues accrued during that month limited to the profits of the
Practice."
14) delete paragraph 8.3 and replace with the following: "Marketing and
Marketing Management. As compensation for value received from
centralized marketing and marketing management, TCD will receive each
month an amount equal to ten percent (10%) of PA Practice Revenues."
15) delete paragraph 8.4 and replace with the following: "Unpaid
Balances. All unpaid balances due under 8.2(d) and 8.3 herein will be
carried forward from month to month, and will be paid in full before
distribution of any net revenues to the PA."
16) delete paragraph 9.2 and replace with the following: "PA will retain
all net PA Practice Revenues less applicable management, marketing and
other fees and any expenses incurred by TCD on PA's behalf not
included in PA Practice Expenses, in accordance with the terms of this
Agreement."
17) delete paragraph 12 and replace with the following: "SECURITY FOR TCD
COMPENSATION. To provide for the prompt and orderly payment of
amounts owing from time to time by PA to TCD pursuant to this
Agreement, and to facilitate TCD in obtaining working capital and
other corporate loans. PA hereby assigns to TCD in and consents to
the pledge by TCD to a third party designated by TCD of, all its
existing and hereafter created accounts receivable, exclusive of
Medicare/Medicaid accounts receivable, all cash or non-cash proceeds
therefrom, all insurance policies and proceeds relating thereto, and
all of the PA's rights as an unpaid provider of services, whether new
existing or hereafter created or acquired. PA agrees to execute, and
hereby appoints TCD as its attorney-in-fact to execute for PA, any and
all documents necessary to confirm such assignment or perfect such
pledge, including but not limited to, UCC financing statements."
B. Except as specified herein, the Practice Management, Consulting and
Clinic Services Agreement shall remain in full force and effect and is hereby
ratified and confirmed.
C. This amendment may be executed in counterparts and all counterparts
taken together shall be deemed to constitute one and the same instrument.
<PAGE> 7
IN WITNESS WHEREOF, the parties have hereunto set their hand effective
as of the date first above written.
THE COMPANY DOCTOR
By: /s/ Donald F. Angle, M.D.
------------------------------
Its: President
-------------------------
THE PHYSICIAN GROUP, P.A.
f/k/a Donald F. Angle, M.D., P.A.
By: /s/ Donald F. Angle, M.D.
------------------------------
Its: President
-------------------------
AGREED AS TO TERMS AND CONDITIONS:
NORTHSIDE FAMILY MEDICAL CLINIC ROBERT G. DUCHOUQUETTE, M.D., P.A.
PROFESSIONAL ASSOCIATION
By: /s/ Donald F. Angle, M.D. By: /s/ Donald F. Angle, M.D.
------------------------------ --------------------------------
Its: President Its: President
------------------------- ---------------------------
Date: April 15, 1997 Date: April 15, 1997
----------------------------- -------------------------------
<PAGE> 1
EXHIBIT 10.6.2
AMENDMENT TO PRACTICE MANAGEMENT, CONSULTING
AND CLINIC SERVICES AGREEMENT
THIS AGREEMENT, is made and entered into, with an effective date of
April 15, 1997, by and between The Company Doctor, a Delaware corporation
("TCD") and The Physician Group, P.A., f/k/a Donald F. Angle, M.D., P.A., a
professional association organized under the laws of the State of Texas ("PA").
RECITALS
WHEREAS, PA is engaged in the business of providing occupational
medical services and related services to the general public;
WHEREAS, TCD is engaged in the business of providing management,
marketing, administrative, financial, information, personnel and other related
services to PA;
WHEREAS, PA and TCD have entered into that certain Practice
Management, Consulting and Clinic Services Agreement dated as of November 1,
1995 ("Practice Management Agreement"), pursuant to which TCD provides certain
services to PA;
WHEREAS, TCD intends to enter into a Loan and Security Agreement with
HCFP Funding, Inc. ("HCFP") pursuant to which HCFP has agreed to provide
revolving credit financing to TCD that is secured by, among other things,
accounts receivable from the provision of occupational medical services and
related services (the "Accounts");
WHEREAS, the Practice Management Agreement does not clearly establish
rights to TCD to the Accounts;
WHEREAS, the fees to be paid to TCD by PA for its services should be
amended based upon TCD's accountant's input, among other things; and
WHEREAS, in order to reflect the nature of the Accounts and other
matters of concern in the Practice Management Agreement this amendment is of
necessity;
NOW THEREFORE, in consideration of the premises set forth above and
the terms and conditions contained herein, and other good and valuable
consideration, the sufficiency of which is acknowledged, TCD and PA have agreed
to the following amendments. Capitalized terms defined in the Practice
Management Agreement which are used herein shall have the same meanings as set
forth in the Practice Management Agreement unless otherwise specified herein.
A. The Practice Management, Consulting, and Clinic Services
Agreement is amended as follows:
<PAGE> 2
1) delete the last sentence of paragraph 1.(d)
2) delete the last sentence of paragraph 1.(e)
3) add paragraph 1.(f)(10) as follows: "any salaries, bonuses or
benefits payable with respects to P.A. Physicians;"
4) delete paragraph 1.(f), the second (2) and replace with the following:
"any salaries, bonuses, or benefits payable with respect to PA
employees or contractors except for Physician salaries, bonuses or
benefits;"
5) delete paragraph 1.(g) and replace with the following: "PA Practice
Expenses shall mean that portion of the Clinic Expenses directly
attributable to the PA's Practice."
6) delete paragraph 1.(h) and replace with the following: "Ancillary
Expenses shall mean that portion of the Clinic Expenses directly
attributable to TCD's provision of ancillary services."
7) delete paragraph 2.1 and replace with the following: "Locations. The
terms and conditions of this Agreement will apply to all Clinics
hereinafter acquired and operated by TCD or its subsidiaries and
whereby the PA, or any subsidiary or affiliate of PA, provides medical
services at any location."
8) delete the last sentence of paragraph 3.2.
9) delete the last sentence of paragraph 3.5 and replace with the
following: "All revenues beyond those needed to service immediate
expense and base PA income will be used to repay TCD for start-up
costs in full before being applied to any distributable net income."
10) add the following language to the end of paragraph 3.6b.: "except as
authorized under Paragraph 12;"
11) add the following language to the end of paragraph 7.1: ";however,
TCD shall make such payments on behalf of PA from Base Clinic
Revenues. If Base Clinic Revenues do not equal or exceed PA Clinic
Expenses TCD shall pay the difference and charge such shortfall to the
PA to be repaid out of future Net PA Practice Revenue."
12) add the following language to the end of paragraph 8.2(a): ", limited
to the profits of the Practice."
<PAGE> 3
13) delete the last sentence of paragraph 8.2(b) and replace with the
following: "Accordingly, during each month in which annualized Base
Clinic Revenue exceed $400,000, PA will pay TCD management fees equal
to the greater of $10,000 or the sum of twenty-five percent (25%) of
PA Practice Revenues and thirty percent (30%) of the Net PA Practice
Revenues accrued during that month limited to the profits of the
Practice."
14) delete paragraph 8.3 and replace with the following: "Marketing and
Marketing Management. As compensation for value received from
centralized marketing and marketing management, TCD will receive each
month an amount equal to ten percent (10%) of PA Practice Revenues."
15) delete paragraph 8.4 and replace with the following: "Unpaid
Balances. All unpaid balances due under 8.2(d) and 8.3 herein will be
carried forward from month to month, and will be paid in full before
distribution of any net revenues to the PA."
16) delete paragraph 9.2 and replace with the following: "PA will retain
all net PA Practice Revenues less applicable management, marketing and
other fees and any expenses incurred by TCD on PA's behalf not
included in PA Practice Expenses, in accordance with the terms of this
Agreement."
17) delete paragraph 12 and replace with the following: "SECURITY FOR TCD
COMPENSATION. To provide for the prompt and orderly payment of
amounts owing from time to time by PA to TCD pursuant to this
Agreement, and to facilitate TCD in obtaining working capital and
other corporate loans. PA hereby assigns to TCD in and consents to
the pledge by TCD to a third party designated by TCD of, all its
existing and hereafter created accounts receivable, exclusive of
Medicare/Medicaid accounts receivable, all cash or non-cash proceeds
therefrom, all insurance policies and proceeds relating thereto, and
all of the PA's rights as an unpaid provider of services, whether new
existing or hereafter created or acquired. PA agrees to execute, and
hereby appoints TCD as its attorney-in-fact to execute for PA, any and
all documents necessary to confirm such assignment or perfect such
pledge, including but not limited to, UCC financing statements."
B. Except as specified herein, the Practice Management, Consulting and
Clinic Services Agreement shall remain in full force and effect and is hereby
ratified and confirmed.
C. This amendment may be executed in counterparts and all counterparts
taken together shall be deemed to constitute one and the same instrument.
<PAGE> 4
IN WITNESS WHEREOF, the parties have hereunto set their hand effective
as of the date first above written.
THE COMPANY DOCTOR
By: /s/ Donald F. Angle, M.D.
-------------------------------------
Its: President
-----------------------------
THE PHYSICIAN GROUP, P.A.
f/k/a Donald F. Angle, M.D., P.A.
By: /s/ Donald F. Angle, M.D.
-------------------------------------
Its: President
---------------------------------
AGREED AS TO TERMS AND CONDITIONS:
NORTHSIDE FAMILY MEDICAL CLINIC ROBERT G. DUCHOUQUETTE, M.D., P.A.
PROFESSIONAL ASSOCIATION
By: /s/ Donald F. Angle, M.D. By: /s/ Donald F. Angle, M.D.
------------------------------ ---------------------------------
Its: President Its: President
------------------------ -------------------------
Date: April 15, 1997 Date: April 15, 1997
---------------------------- -------------------------------
<PAGE> 1
EXHIBIT 10.14.1
$5,000,000.00
LOAN AND SECURITY AGREEMENT
by and among
THE COMPANY DOCTOR
ANDICARE, INC.
EMERGENCY OCCUPATIONAL PHYSICIAN'S SERVICES, INC.
(the "Borrower")
and
HCFP FUNDING, INC.
(the "Lender")
April 15, 1997
<PAGE> 2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of this
15th day of April, 1997, by and between THE COMPANY DOCTOR, a Delaware
corporation, ANDICARE, INC., a Louisiana corporation, and EMERGENCY
OCCUPATIONAL PHYSICIAN'S SERVICES, INC., a Texas corporation, (collectively,
the "Borrower"), and HCFP FUNDING, INC., a Delaware corporation ("Lender").
RECITALS
A. Borrower desires to establish certain financing arrangements with
and borrow funds from Lender, and Lender is willing to establish such
arrangements for and make loans and extensions of credit to Borrower, on the
terms and conditions set forth below.
B. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORE, in consideration of the promises and covenants
contained in this Agreement, and for other consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
SECTION 1.1. ACCOUNT. "Account" means any right to payment for
goods sold or leased or services rendered, whether or not evidenced by an
instrument or chattel paper, and whether or not earned by performance.
SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person
obligated on any Account of Borrower, including without limitation, any
self-insured employer, any Insurer and any Medicaid/Medicare Account Debtor.
SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a
specified Person, any Person directly or indirectly controlling, controlled by,
or under common control with the specified Person, including without limitation
their stockholders and any Affiliates thereof. A Person shall be deemed to
control a corporation or other entity if the Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
business of the corporation or other entity, whether through the ownership of
voting securities, by contract, or otherwise.
SECTION 1.4. AGREEMENT. "Agreement" means this Loan and Security
Agreement, as it may be amended or supplemented from time to time.
<PAGE> 3
SECTION 1.5. BASE RATE. "Base Rate" means a rate of interest
equal to two percent (2.0%) above the "Prime Rate of Interest".
SECTION 1.6. BORROWED MONEY. "Borrowed Money" means any
obligation to repay borrowed money, any indebtedness evidenced by notes, bonds,
debentures or similar obligations, any obligation under a conditional sale or
other title retention agreement and the net aggregate rentals under any lease
which under GAAP would be capitalized on the books of the Borrower.
SECTION 1.7. BORROWER. "Borrower" has the meaning set forth in the
Preamble.
SECTION 1.8. BORROWING BASE. "Borrowing Base" has the meaning set
forth in Section 2.1(d).
SECTION 1.9. BUSINESS DAY. "Business Day" means any day on which
financial institutions are open for business in the State of Maryland,
excluding Saturdays and Sundays.
SECTION 1.10. CLOSING; CLOSING DATE. "Closing" and "Closing Date"
have the meanings set forth in Section 5.3.
SECTION 1.112 COLLATERAL. "Collateral" has the meaning set forth in
Section 3.1.
SECTION 1.12. COMMITMENT FEE. "Commitment Fee" has the meaning set
forth in Section 2.4(a).
SECTION 1.13. CONCENTRATION ACCOUNT. "Concentration Account" has
the meaning set forth in Section 2.3(a).
SECTION 1.14. CONTROLLED GROUP. "Controlled Group" means a
"controlled group" within the meaning of Section 4001(b) of ERISA.
SECTION 1.15. COST REPORT SETTLEMENT ACCOUNT. "Cost Report
Settlement Account" means an "Account" owed to Borrower by a Medicaid/Medicare
Account Debtor pursuant to any cost report, either interim, filed or audited,
as the context may require.
SECTION 1.16. DEFAULT RATE. "Default Rate" means a rate per
annum equal to three percent (3%) above the then applicable Base Rate.
SECTION 1.17. ERISA. "ERISA" has the meaning set forth in Section
4.12.
SECTION 1.18. EVENT OF DEFAULT. "Event of Default" and "Events of
Default" have the meanings set forth in Section 8.1.
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<PAGE> 4
SECTION 1.19. GAAP. "GAAP" means generally accepted accounting
principles applied in a matter consistent with the financial statements
referred to in Section 4.7.
SECTION 1.20. GOVERNMENTAL AUTHORITY. "Governmental Authority"
means and includes any federal, state, District of Columbia, county, municipal,
or other government and any department, commission, board, bureau, agency or
instrumentality thereof, whether domestic or foreign.
SECTION 1.21. HAZARDOUS MATERIAL. "Hazardous Material" means any
substances defined or designated as hazardous or toxic waste, hazardous or
toxic material, hazardous or toxic substance, or similar term, by any
environmental statute, rule or regulation or any Governmental Authority.
SECTION 1.22. HIGHEST LAWFUL RATE. "Highest Lawful Rate" means the
maximum lawful rate of interest referred to in Section 2.7 that may accrue
pursuant to this Agreement.
SECTION 1.23. INSURER. A Person that insures a Patient against
certain of the costs incurred in the receipt by such Patient of Medical
Services, or that has an agreement with Borrower to compensate Borrower for
providing services to a Patient.
SECTION 1.24. LENDER. "Lender" has the meaning set forth in the
Preamble.
SECTION 1.25. LOAN. "Loan" has the meaning set forth in Section
2.1(a).
SECTION 1.26. LOAN DOCUMENTS. "Loan Documents" means and includes
this Agreement, the Note, and each and every other document now or hereafter
delivered in connection therewith, as any of them may be amended, modified, or
supplemented from time to time.
SECTION 1.27. LOAN MANAGEMENT FEE. "Loan Management Fee" has the
meaning set forth in Section 2.4(c).
SECTION 1.28. LOCKBOX. "Lockbox" has the meaning set forth in
Section 2.3(a).
SECTION 1.29. LOCKBOX BANK. "Lockbox Bank" has the meaning set
forth in Section 2.3(a).
SECTION 1.30. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the
meaning set forth in Section 2.1(a).
3
<PAGE> 5
SECTION 1.31. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/
Medicare Account Debtor" means any Account Debtor which is (i) the United
States of America acting under the Medicaid/Medicare program established
pursuant to the Social Security Act, (ii) any state or the District of Columbia
acting pursuant to a health plan adopted pursuant to Title XIX of the Social
Security Act or (iii) any agent, carrier, administrator or intermediary for any
of the foregoing. SECTION 1.32. MEDICAL SERVICES. Medical and health care
services provided to a Patient, including, but not limited to, medical and
health care services provided to a Patient and performed by Borrower which are
covered by a policy of insurance issued by an Insurer, and includes physician
services, nurse and therapist services, dental services, hospital services,
skilled nursing facility services, comprehensive outpatient rehabilitation
services, home health care services, residential and out-patient behavioral
healthcare services, and medicine or health care equipment provided by Borrower
to a Patient for a necessary or specifically requested valid and proper medical
or health purpose.
SECTION 1.33. NOTE. "Note" has the meaning set forth in Section
2.1(c).
SECTION 1.34. OBLIGATIONS. "Obligations" has the meaning set forth
in Section 3.1.
SECTION 1.35 PATIENT. Any Person receiving Medical Services from
PA and all Persons legally liable to pay PA for such Medical Services other
than Insurers.
SECTION 1.36. PERMITTED LIENS. "Permitted Liens" means: (a) liens
for taxes not delinquent, or which are being contested in good faith and by
appropriate proceedings which suspend the collection thereof and in respect of
which adequate reserves, if required by GAAP, have been made (provided that
such proceedings do not, in Lender's sole discretion, involve any substantial
danger of the sale, loss or forfeiture of such property or assets or any
interest therein); (b) deposits or pledges to secure obligations under
workmen's compensation, social security or similar laws, or under unemployment
insurance; (c) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the ordinary
course of business; (d) mechanic's, workmen's, materialmen's or other like
liens arising in the ordinary course of business with respect to obligations
which are not due, or which are being contested in good faith by appropriate
proceedings which suspend the collection thereof and in respect of which
adequate reserves if required by GAAP, have been made (provided that such
proceedings do not, in Lender's sole discretion, involve any substantial danger
of the sale, loss or forfeiture of such property or assets or any interest
therein); (e) liens and encumbrances in favor of Lender; (f) liens granted in
connection with the lease or purchase of clinics, operations, facilities or
other property or assets financed by borrowings permitted by Section 7.1
(provided, however, that no such borrowings permitted by Section 7.1 may be
secured by liens on any of the Collateral); and (g) liens set forth on Schedule
1.36. and liens to secure any extension, renewal or replacement thereof and (h)
customary restrictions and other encumbrances on or as to the use of property
or liens incidental to the conduct of business or the ownership of property
which are not incurred in connection with Borrowed Money or other extensions of
credit, provided that no such liens pertain to the Collateral.
4
<PAGE> 6
SECTION 1.37. PERSON. "Person" means an individual, partnership,
corporation, trust, joint venture, joint stock company, limited liability
company, association, unincorporated organization, Governmental Authority, or
any other entity.
SECTION 1.38. PLAN. "Plan" has the meaning set forth in Section
4.12.
SECTION 1.39. PREMISES. "Premises" has the meaning set forth in
Section 4.14.
SECTION 1.40. PRIME RATE OF INTEREST. "Prime Rate of Interest"
means that rate of interest designated by Fleet National Bank of Connecticut,
N.A., or any successor thereto, as the same may from time to time fluctuate.
SECTION 1.41. PROHIBITED TRANSACTION. "Prohibited Transaction"
means a "prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975(c)(1) of the Internal Revenue Code.
SECTION 1.42. QUALIFIED ACCOUNT. "Qualified Account" means an
Account of Borrower or any of its subsidiaries (and including accounts assigned
by the PA to the Borrower) generated in the ordinary course of business from
the sale of goods or rendition of Medical Services or related services which
Lender, in its reasonable credit judgment, determines to be a Qualified
Account. Without limiting the generality of the foregoing, no Account shall be
a Qualified Account if: (a) the Account or any portion thereof is payable by
an individual beneficiary, recipient or subscriber individually and not
directly to Borrower or any of its subsidiaries by a Medicaid/Medicare Account
Debtor , a self insured employer or a commercial medical insurance carrier
acceptable to Lender; (b) the Account remains unpaid more than one hundred
twenty (120) days past the claim or invoice date; (c) the Account is subject to
any defense, set-off, counterclaim, deduction, discount, credit, chargeback,
freight claim, allowance, or adjustment of any kind; (d) any part of any goods
the sale of which has given rise to the Account has been returned, rejected,
lost, or damaged; (e) if the Account arises from the sale of goods by Borrower,
such sale was not an absolute sale or on consignment or on approval or on a
sale-or-return basis or subject to any other repurchase or return agreement, or
such goods have not been shipped to the Account Debtor or its designee; (f) if
the Account arises from the performance of services, such services have not
been actually been performed or were undertaken in violation of any law; (g)
the Account is subject to a lien other than a Permitted Lien; (h) the Borrower
knows or should have known of the bankruptcy, receivership, reorganization, or
insolvency of the Account Debtor; (i) the Account is evidenced by chattel paper
or an instrument of any kind, or has been reduced to judgment; (j) the Account
is an Account of an Account Debtor having its principal place of business or
executive office outside the United States; (k) the Account Debtor is an
Affiliate or subsidiary of Borrower; (l) more than ten percent (10%) of the
aggregate balance of all
5
<PAGE> 7
Accounts owing from the Account Debtor obligated on the Account are outstanding
more than one hundred and fifty (150) days past their invoice date; (m) fifty
percent (50%) or more of the aggregate unpaid Accounts from any individual
Account Debtor are not deemed Qualified Accounts hereunder; (n) the total
unpaid Accounts of the Account Debtor, except for a Medicaid/Medicare Account
Debtor, exceed twenty percent (20%) of the net amount of all Qualified Accounts
(including Medicaid/Medicare Account Debtors); (o) any covenant, representation
or warranty contained in the Loan Documents with respect to such Account has
been breached; or (p) the Account fails to meet such other specifications and
requirements which may from time to time be reasonably established by Lender.
SECTION 1.43. REPORTABLE EVENT. "Reportable Event" means a
"reportable event" as defined in Section 4043(b) of ERISA.
SECTION 1.44. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has
the meaning set forth in Section 2.1(b).
SECTION 1.45. TERM. "Term" has the meaning set forth in Section
2.8.
SECTION 1.46. PA. The Physician Group, P.A., a Texas professional
association (formerly called Donald F. Angle, M.D., P.A.), or any successor
thereto, that provides Medical Services to Patients at the facilities owned and
operated by Borrower or any of its Subsidiaries, under one or more service
agreements, including without limitation, the Practice Management, Consulting
and Clinic Services Agreement, dated November 1, 1995, between the PA and
Borrower.
ARTICLE II
LOAN
SECTION 2.1. TERMS.
(a) The maximum aggregate principal amount of credit extended
by Lender to Borrower hereunder (the "Loan") that will be outstanding at any
time is Five Million and No/100 Dollars ($5,000,000.00) (the "Maximum Loan
Amount").
(b) The Loan shall be in the nature of a revolving line of
credit, and shall include sums advanced and other credit extended by Lender to
or for the benefit of the Borrower from time to time under this Article II
(each a "Revolving Credit Loan") up to the Maximum Loan Amount depending upon
the availability in the Borrowing Base and the requests of Borrower pursuant to
the terms and conditions of Section 2.2 below. The outstanding principal
balance of the Loan may fluctuate from time to time, to be reduced by
repayments made by Borrower (which may be made without penalty or premium), and
to be increased by future Revolving Credit Loans and shall be due and payable
in full upon the expiration of the Term. For purposes of this Agreement, any
determination as to whether there is ability within the Borrowing Base for
advances or extensions of credit shall be made by Lender in its reasonable
judgment and is final and binding upon Borrower absent manifest error.
6
<PAGE> 8
(c) At Closing, Borrower shall execute and deliver to Lender a
promissory note evidencing the Borrower's unconditional obligation to repay
Lender for Revolving Credit Loans, in the form of Exhibit A to this Agreement
(the "Note"), dated the date hereof, payable to the order of Lender in
accordance with the terms thereof. The Note shall bear interest from the date
thereof until repaid, with interest payable monthly in arrears on the first
Business Day of each month, at a rate per annum (on the basis of the actual
number of days elapsed over a year of 360 days) equal to the Base Rate,
provided that after and during the continuance of an Event of Default such rate
shall be equal to the Default Rate. Each Revolving Credit Loan shall be deemed
evidenced by the Note, which is deemed incorporated by reference herein and
made a part hereof.
(d) Subject to the terms and conditions of this Agreement,
advances under the Loan shall be made against a borrowing base equal to eighty
percent (80%) of Qualified Accounts due and owing from any Medicaid/Medicare
Account Debtor, self-insured employer, Insurer or other Account Debtor (the
"Borrowing Base").
SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be
as follows:
(a) A request for a Revolving Credit Loan shall be made, or
shall be deemed to be made, in the following manner: (i) Borrower, may give
Lender notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date,
not later than 4:00 p.m. Eastern time one (1) Business Day prior to the
proposed borrowing date; provided, however, that no such request may be made at
a time when there exists an Event of Default; and (ii) the becoming due of any
amount required to be paid under this Agreement, whether as interest or for any
other Obligation, shall be deemed irrevocably to be a request for a Revolving
Credit Loan on the due date in the amount required to pay such interest or
other Obligation.
(b) Borrower hereby irrevocably authorizes Lender to disburse
the proceeds of each Revolving Credit Loan requested, or deemed to be
requested, as follows: (i) the proceeds of each Revolving Credit Loan
requested under subsection 2.2(a)(i) shall be disbursed by Lender by wire
transfer to such bank account as may be requested by Borrower pursuant to
written direction from Borrower; and (ii) the proceeds of each Revolving Credit
Loan requested under subsection 2.2(a)(ii) shall be disbursed by Lender by way
of direct payment of the relevant interest or other Obligation.
(c) All Revolving Credit Loans shall constitute one general
Obligation of Borrower, and shall be secured by Lender's lien upon all of the
Collateral.
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<PAGE> 9
(d) Lender shall enter all Revolving Credit Loans as debits to
a loan account in the name of Borrower and shall also record in said loan
account all payments made by Borrower on any Obligations and all proceeds of
Collateral which are indefeasibly paid to Lender, and may record therein, in
accordance with customary accounting practice, other debits and credits,
including interest and all charges and expenses properly chargeable to
Borrower.
(e) Lender will account to Borrower monthly with a statement
of Revolving Credit Loans, charges and payments made pursuant to this
Agreement, and such account rendered by Lender shall be deemed final, binding
and conclusive upon Borrower, absent manifest error, unless Lender is notified
by Borrower in writing to the contrary within thirty (30) days of the date each
accounting is mailed to Borrower. Such notice shall be deemed an objection to
those items specifically objected to therein.
SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND
LOCKBOX ACCOUNT. Borrower shall maintain a lockbox account (the "Lockbox")
with NationsBank, N.A.(the "Lockbox Bank"), subject to the provisions of this
Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement in the
form attached as Exhibit B, and such other agreements related thereto as Lender
may reasonably require. Borrower shall ensure that all collections of Accounts
are paid directly from Account Debtors into the Lockbox, and that all funds
paid into the Lockbox are immediately transferred into a depository account
maintained by Lender at Bank One Arizona, N.A. or First Bank, N.A., as
determined by Lender in its sole discretion and communicated to Borrower (the
"Concentration Account"). Lender shall apply, on a daily basis, all funds
transferred into the Concentration Account pursuant to this Section 2.3 to
reduce the outstanding indebtedness under the Loan with future Revolving Credit
Loans, to be made by Lender under the conditions set forth in this Article II.
To the extent that any collections of Accounts or proceeds of other Collateral
are not sent directly to the Lockbox but are received by Borrower, such
collections shall be held in trust for the benefit of Lender and immediately
remitted, in the form received, to the Lockbox Bank for transfer to the
Concentration Account immediately upon receipt by Borrower. Borrower
acknowledges and agrees that its compliance with the terms of this Section 2.3
is essential, and that upon its failure to comply with any such terms Lender
shall be entitled to assess a non-compliance fee which shall operate to
increase the Base Rate by two percent (2%) per annum during any period of
non-compliance. Lender shall be entitled to assess such fee whether or not an
Event of Default is declared or otherwise occurs. All funds transferred from
the Concentration Account for application to Borrower's indebtedness to Lender
shall be applied to reduce the Loan balance, but for purposes of calculating
interest shall be subject to a five (5) Business Day clearance period. If as
the result of collections of Accounts pursuant to the terms and conditions of
this Section 2.3 a credit balance exists with respect to the Concentration
Account, such credit balance shall not accrue interest in favor of Borrower,
but shall be available to Borrower at any time or times for so long as no Event
of Default exists.
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<PAGE> 10
SECTION 2.4. FEES.
(a) At Closing, Borrower shall unconditionally pay to Lender a
commitment fee of Twenty Five Thousand and No/100 Dollars ($25,000.00) (the
"Commitment Fee").
(b) For so long as the Loan is available to Borrower, Borrower
unconditionally shall pay to Lender a monthly loan management fee (the "Loan
Management Fee") equal to eight and three tenths one hundredths of one percent
(0.083%) of the average amount of the outstanding principal balance of the
Revolving Credit Loans during the preceding month. The Loan Management Fee
shall be payable monthly in arrears on the first day of each successive
calendar month.
(c) Borrower shall pay to Lender all reasonable out-of-pocket
audit and appraisal fees in connection with audits and appraisals of Borrower's
books and records and such other matters as Lender shall deem appropriate,
which shall be due and payable on the first Business Day of the month following
the date of issuance by Lender of a request for payment thereof to Borrower;
provided that before an Event of Default, Borrower shall not pay for more than
one audit and one appraisal in any twelve (12) month period.
(d) Borrower shall pay to Lender, on demand, any and all fees,
costs or expenses which Lender or any participant pays to a bank or other
similar institution (including, without limitation, any fees paid by Lender to
any participant) arising out of or in connection with (i) the forwarding to
Borrower or any other Person on behalf of Borrower, by Lender, of proceeds of
Revolving Credit Loans made by Lender to Borrower pursuant to this Agreement,
and (ii) the depositing for collection, by Lender or any participant, of any
check or item of payment received or delivered to Lender or any participant on
account of Obligations.
SECTION 2.5. PAYMENTS. Principal payable on account of Revolving
Credit Loans shall be payable by Borrower to Lender immediately upon the
earliest of (i) the receipt by Borrower of any proceeds of any of the
Collateral, to the extent of such proceeds, (ii) the occurrence of an Event of
Default in consequence of which the Loan and the maturity of the payment of the
Obligations are accelerated, or (iii) the termination of this Agreement
pursuant to Section 2.8 hereof; provided, however, that if any advance made by
Lender in excess of the Borrowing Base shall exist at any time, Borrower shall,
immediately upon demand, repay such overadvance. Interest accrued on the
Revolving Credit Loans shall be due on the earliest of (i) the first Business
Day of each month (for the immediately preceding month), computed on the last
calendar day of the preceding month, (ii) the occurrence of an Event of Default
in consequence of which the Loan and the maturity of the payment of the
Obligations are accelerated, or (iii) the termination of this Agreement
pursuant to Section 2.8 hereof. Except to the extent otherwise set forth in
this Agreement, all payments of principal and of interest on the Loan, all
other charges and any other obligations of Borrower hereunder, shall be made to
Lender to the Concentration Account, in immediately available funds.
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SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances
under the Loan shall be used solely for working capital and general corporate
purposes and for other costs of Borrower arising in the ordinary course of
Borrower's business.
SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform
strictly to the applicable usury laws in effect from time to time during the
term of the Loan. Accordingly, if any transaction contemplated hereby would be
usurious under such laws, then notwithstanding any other provision hereof: (a)
the aggregate of all interest that is contracted for, charged, or received
under this Agreement or under any other Loan Document shall not exceed the
maximum amount of interest allowed by applicable law (the "Highest Lawful
Rate"), and any excess shall be promptly credited to Borrower by Lender (or, to
the extent that such consideration shall have been paid, such excess shall be
promptly refunded to Borrower by Lender); (b) neither Borrower nor any other
Person now or hereafter liable hereunder shall be obligated to pay the amount
of such interest to the extent that it is in excess of the Highest Lawful Rate;
and (c) the effective rate of interest shall be reduced to the Highest Lawful
Rate. All sums paid, or agreed to be paid, to Lender for the use, forbearance,
and detention of the debt of Borrower to Lender shall, to the extent permitted
by applicable law, be allocated throughout the full term of the Note until
payment is made in full so that the actual rate of interest does not exceed the
Highest Lawful Rate in effect at any particular time during the full term
thereof. If at any time the rate of interest under the Note exceeds the
Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement
shall be limited, notwithstanding anything to the contrary herein, to the
Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not
reduce the interest to accrue pursuant to this Agreement below the Highest
Lawful Rate until the total amount of interest accrued equals the amount of
interest that would have accrued if a varying rate per annum equal to the
interest rate under the Note had at all times been in effect.
SECTION 2.8. TERM.
(a) Subject to Lender's right to cease making Revolving Credit
Loans to Borrower upon or after any Event of Default, this Agreement shall be
in effect for a period of two (2) years from the Closing Date, unless
terminated as provided in this Section 2.8 (the "Term"), and this Agreement
shall be renewed for one-year periods thereafter upon the mutual written
agreement of the parties.
(b) Notwithstanding anything herein to the contrary, Lender
may terminate this Agreement without notice upon or during the continuance of
an Event of Default.
(c) Upon at least fifteen (15) days prior written notice to
Lender, Borrower may terminate this Agreement prior to the second annual
anniversary of the Closing Date, provided that, at the effective date of such
termination, Borrower shall pay to Lender (in addition to the then outstanding
principal, accrued interest and other Obligations owing under the terms of this
Agreement and any other Loan Documents) as liquidated damages for the loss of
bargain and not as a penalty, an amount equal to Twenty Thousand and No/100
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Dollars ($20,000.00) if the effective date of such termination by Borrower is
on or prior to the first annual anniversary of the Closing Date.
(d) The Obligations may be prepaid by Borrower at any time
without the payment of any fee, damages, premium or penalty, so long as the fee
described in Section 2.8b is paid upon any termination during the first year.
(e) All of the Obligations shall be immediately due and
payable upon the termination date stated in any notice of termination of this
Agreement. All undertakings, agreements, covenants, warranties, and
representations, of Borrower contained in the Loan Documents shall survive any
such termination and Lender shall retain its liens in the Collateral and all of
its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds.
SECTION 2.9 JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS.
Each entity comprising the Borrower and executing this Agreement on behalf of
the Borrower shall be jointly and severally liable for all of the Obligations.
In addition, each entity comprising the Borrower hereby acknowledges and agrees
that (i) all of the representations, warranties, covenants, obligations,
conditions, agreements and other terms contained in this Agreement shall be
applicable to and shall be binding upon each individual entity comprising the
Borrower, and shall be binding upon all such entities when taken together.
ARTICLE III
COLLATERAL
SECTION 3.1. GENERALLY. As security for the payment of all
liabilities of Borrower to Lender, under the Loan Documents, including without
limitation: (i) indebtedness evidenced under the Note, repayment of Revolving
Credit Loans, all fees and charges owing by Borrower, and all other liabilities
and obligations of every kind or nature whatsoever of Borrower to Lender, under
the Loan Documents, whether now existing or hereafter incurred, joint or
several, matured or unmatured, direct or indirect, primary or secondary, due or
to become due, including but not limited to any extensions, modifications,
substitutions, increases and renewals thereof, (ii) the payment of all amounts
advanced by Lender to preserve, protect, defend, and enforce its rights
hereunder and in the following property in accordance with the terms of this
Agreement, and (iii) the payment of all expenses incurred by Lender in
connection therewith (collectively, the "Obligations"). Borrower hereby
assigns and grants to Lender a continuing first priority lien on and security
interest in, upon, and to the following property (the "Collateral"):
(a) All of Borrower's now-owned and hereafter acquired or
arising Accounts, accounts receivable and rights to payment of every kind and
description, and any contract rights, chattel paper, documents and instruments
with respect thereto;
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(b) All of Borrower's now owned and hereafter acquired or
arising general intangibles of every kind and description pertaining to its
Accounts, accounts receivable and other rights to payment, including, but not
limited to, all existing and future customer lists, choses in action, claims,
books, records, contracts, licenses, formulae, tax and other types of refunds,
returned and unearned insurance premiums, rights and claims under insurance
policies, and computer information, software, records, and data;
(c) All of Borrower's now or hereafter acquired deposit
accounts into which Accounts are deposited, including the Concentration
Account;
(d) All of Borrower's monies and other property of every kind
and nature now or at any time or times hereafter in the possession of or under
the control of Lender or a bailee or Affiliate of Lender; and
(e) The proceeds (including, without limitation, insurance
proceeds) of all of the foregoing.
SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender
deems necessary or reasonably requests Borrower shall execute and deliver to
Lender, or have executed and delivered (all in form and substance satisfactory
to Lender in its sole discretion):
(a) UCC-1 Financing statements pursuant to the Uniform
Commercial Code in effect in the jurisdiction(s) in which Borrower operates,
which Lender may file in any jurisdiction where any Collateral is or may be
located and in any other jurisdiction that Lender deems appropriate; provided
that a carbon, photographic, or other reproduction or other copy of this
Agreement or of a financing statement is sufficient as and may be filed in lieu
of a financing statement; and
(b) Any other agreements, documents, instruments, and writings
deemed necessary by Lender or as Lender may otherwise reasonably request from
time to time in its discretion to evidence, perfect, or protect Lender's lien
and security interest in the Collateral required hereunder.
SECTION 3.3. COLLATERAL ADMINISTRATION.
(a) All Collateral (except deposit accounts) will at all times
be kept by Borrower at its principal office(s) as set forth on Exhibit C hereto
and shall not, without the prior written approval of Lender, be moved
therefrom.
(b) Borrower shall keep accurate and complete records of its
Accounts and all payments and collections thereon and shall submit to Lender on
such periodic basis as Lender shall reasonably request a sales and collections
report for the preceding period, in form satisfactory to Lender. In addition,
if Accounts in an aggregate face amount in excess of $50,000.00 become
ineligible because they fall within one of the specified categories of
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ineligibility set forth in the definition of Qualified Accounts or otherwise,
Borrower shall notify Lender of such occurrence on the first Business Day
following its having knowledge of such occurrence and the Borrowing Base shall
thereupon be adjusted to reflect such occurrence. If reasonably requested by
Lender, Borrower shall deliver to Lender copies of claims, invoices or other
information related to Accounts.
(c) Whether or not an Event of Default has occurred, any of
Lender's officers, employees or agents shall have the right, at any time or
times hereafter, in the name of Lender, any designee of Lender or Borrower, to
verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
Lender in an effort to facilitate and promptly conclude such verification
process.
(d) To expedite collection, Borrower shall endeavor in the
first instance to make collection of its Accounts for Lender. Lender retains
the right at all times after and during the occurrence of an Event of Default,
subject to applicable law regarding Medicaid/Medicare Account Debtors, to
notify Account Debtors that Accounts have been assigned to Lender and to
collect Accounts directly in its own name and to charge the collection costs
and expenses, including attorneys' fees, to Borrower.
(e) Lender will promptly release the Collateral upon payment
in full of the Obligations and, in such connection, execute and deliver, at
Borrower's expense, such instruments as Borrower may reasonably request to
evidence the release of the Collateral.
SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, if
requested by Lender, Borrower (i) shall provide prompt written notice to each
private indemnity, managed care or other Insurer and each self-insured employer
who either is currently an Account Debtor or becomes an Account Debtor at any
time following the date hereof that the Lender has been granted a first
priority lien and security interest in, upon and to all Accounts applicable to
such Insurer, and hereby authorizes Lender to send any and all similar notices
to such Insurers and employers by Lender, and (ii) shall do anything further
that may be lawfully required by Lender to secure Lender and effectuate the
intentions and objects of this Agreement, including but not limited to the
execution and delivery of lockbox agreements, continuation statements,
amendments to financing statements, and any other documents required hereunder.
At Lender's request, Borrower shall also immediately deliver to Lender all
items of Collateral for which Lender must receive possession to obtain a
perfected security interest. Borrower shall, on Lender's demand, deliver to
Lender all notes, certificates, and documents of title, chattel paper,
warehouse receipts, instruments, and any other similar instruments constituting
Collateral.
SECTION 3.5. SEARCHES. Prior to Closing, and thereafter (as and when
reasonably requested by Lender in its sole discretion), Borrower shall obtain
and deliver to Lender the following searches against Borrower (the results of
which are to be consistent with Borrower's representations and warranties under
this Agreement), all at its own expense:
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(a) Uniform Commercial Code searches with the Secretary of
State and local filing offices of each jurisdiction where Borrower maintains
its executive offices, a place of business, or assets;
(b) Judgment and federal tax lien searches, in each
jurisdiction searched under clause (a) above; and
(c) Good standing certificates showing Borrower to be in good
standing in its state of formation and in each other state in which it is doing
and presently intends to do business for which qualification is required.
SECTION 3.6. POWER OF ATTORNEY. Each of the officers of Lender is
hereby irrevocably made, constituted and appointed the true and lawful attorney
for Borrower (without requiring any of them to act as such) with full power of
substitution to do the following, upon the occurrence and during the
continuation of an Event of Default: (a) endorse the name of Borrower upon any
and all checks, drafts, money orders, and other instruments for the payment of
money that are payable to Borrower and constitute collections on Borrower's
Accounts; (b) execute in the name of Borrower any financing statements,
schedules, assignments, instruments, documents, and statements that Borrower is
obligated to give Lender hereunder; and (c) do such other and further acts and
deeds in the name of Borrower that Lender may deem necessary or desirable to
enforce any Account or other Collateral or perfect Lender's security interest
or lien in any Collateral.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender, and shall be
deemed to represent and warrant on each day on which Borrower makes a request
for a Revolving Credit Loan, that:
SECTION 4.1. SUBSIDIARIES. Except as set forth in Schedule 4.1,
Borrower has no subsidiaries as of the date hereof.
SECTION 4.2. ORGANIZATION AND GOOD STANDING. Borrower is a
corporation duly organized, validly existing, and in good standing under the
laws of its state of formation, is in good standing as a foreign corporation in
each jurisdiction in which the character of the properties owned or leased by
it therein or the nature of its business makes such qualification necessary
except where the failure to qualify would not have a material adverse effect on
the business or financial condition of Borrower and its subsidiaries, taken as
a whole, has the corporate power and authority to own its assets and transact
the business in which it is engaged, and has obtained all certificates,
licenses and qualifications required under all laws, regulations, ordinances,
or orders of public authorities necessary for the ownership and operation of
all of its properties and transaction of all of its business except to the
extent that the failure to do so would not have a material adverse effect on
the business or financial condition of Borrower and its subsidiaries taken as a
whole.
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SECTION 4.3. AUTHORITY. Borrower has full corporate power and
authority to enter into, execute, and deliver this Agreement and to perform its
obligations hereunder, to borrow the Loan, to execute and deliver the Note, and
to incur and perform the obligations provided for in the Loan Documents, all of
which have been duly authorized by all necessary corporate action. No consent
or approval of shareholders of, or lenders to, Borrower and no consent,
approval, filing or registration with any Governmental Authority is required as
a condition to the validity of the Loan Documents or the performance by
Borrower of its obligations thereunder.
SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan
Documents constitute, and the Note, when issued and delivered pursuant hereto
for value received, will constitute, the valid and legally binding obligations
of Borrower, enforceable against Borrower in accordance with their respective
terms, subject to bankruptcy, insolvency and other laws affecting creditors'
rights and general principles of equity.
SECTION 4.5. LITIGATION. Except as disclosed in Schedule 4.5, there
are no actions, suits, proceedings or investigations pending or threatened
against Borrower before any court or arbitrator or before or by any
Governmental Authority which, in any one case or in the aggregate, is likely to
have a material adverse effect on the business, properties, condition
(financial or otherwise) or operations, present or prospective, of Borrower and
its subsidiaries taken as a whole, or upon its ability to perform its
obligations under the Loan Documents. Borrower is not in default in any
material respect with respect to any order of any court, arbitrator, or
Governmental Authority applicable to Borrower or its properties.
SECTION 4.6. NO CONFLICTS. The execution and delivery by Borrower of
this Agreement and the other Loan Documents do not, and the performance of its
obligations thereunder will not, violate, conflict with, constitute a default
under, or result in the creation of a lien or encumbrance upon the property of
Borrower under: (a) any provision of Borrower's certificate of incorporation or
bylaws), (b) any provision of any law, rule, or regulation applicable to
Borrower, or (c) any of the following: (i) any indenture or other material
agreement or instrument to which Borrower is a party or by which Borrower or
its property is bound; or (ii) any judgment, order or decree of any court,
arbitration tribunal, or Governmental Authority having jurisdiction over
Borrower which is applicable to Borrower.
SECTION 4.7. FINANCIAL CONDITION. The annual financial statements of
the Borrower as of June 30, 1996 audited by Ehrhardt Keefe Steiner & Hattman
P.C. and the unaudited financial statements of the Borrower as of December 31,
1996, certified by the chief financial officer of the Borrower, which have been
delivered to Lender, fairly present the financial condition of the Borrower and
the results of its operations and changes in financial condition as of the
dates and for the periods referred to, and have been prepared in accordance
with GAAP. Except as disclosed on Schedule 4.7, there are no material
unrealized or anticipated
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liabilities, direct or indirect, fixed or contingent, of the Borrower as of the
dates of such financial statements which are not reflected therein or in the
notes thereto. There has been no material adverse change in the business,
properties, condition (financial or otherwise) or operations (present or
prospective) of the Borrower and its subsidiaries, taken as a whole, since
December 31, 1996. The Borrower's fiscal year ends on June 30. The federal
tax identification number of Borrower is as shown on Schedule 4.7.
SECTION 4.8. NO DEFAULT. Borrower is not in default under or with
respect to any material obligation in any respect which is likely to be
materially adverse to the business, operations, property or financial condition
of Borrower and its subsidiaries taken as a whole, or which could adversely
affect the ability of Borrower to perform its obligations under the Loan
Documents. No Event of Default or event which, with the giving of notice or
lapse of time, or both, could become an Event of Default, has occurred and is
continuing.
SECTION 4.9. TITLE TO PROPERTIES. Borrower and its subsidiaries and
the PA have good and marketable title to their respective properties and
assets, including the Collateral and the properties and assets reflected in the
financial statements described in Section 4.7, subject to no lien, mortgage,
pledge, encumbrance or charge of any kind, other than Permitted Liens.
Borrower has not agreed or consented to cause any of its properties or assets
whether owned now or hereafter acquired to be subject in the future (upon the
happening of a contingency or otherwise) to any lien, mortgage, pledge,
encumbrance or charge of any kind other than Permitted Liens.
SECTION 4.10. TAXES. Borrower has filed, or has obtained extensions
for the filing of, all federal, state and other tax returns which are required
to be filed, and has paid all taxes shown as due on those returns and all
assessments, fees and other amounts due as of the date hereof, except such
taxes the non-payment of which would not have a material adverse effect on the
business or financial condition of Borrower and its subsidiaries taken as a
whole and except as disclosed on Schedule 4.10. All tax liabilities of
Borrower were, as of December 31, 1996, and are now, adequately provided for on
Borrower's books. No tax liability has been asserted by the Internal Revenue
Service or other taxing authority against Borrower for taxes in excess of those
already paid.
SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS.
(a) The use of the proceeds of the Loan and Borrower's
issuance of the Note will not directly or indirectly violate or result in a
violation of the Securities Act of 1933 or the Securities Exchange Act of 1934,
as amended, or any regulations issued pursuant thereto, including without
limitation Regulations U, T, G, or X of the Board of Governors of the Federal
Reserve System. Borrower is not engaged in the business of extending credit
for the purpose of the purchasing or carrying "margin stock" within the meaning
of those regulations. No part of the proceeds of the Loan hereunder will be
used to purchase or carry any margin stock or to extend credit to others for
such purpose.
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(b) Borrower is not an investment company within the meaning
of the Investment Company Act of 1940, as amended, nor is it, directly or
indirectly, controlled by or acting on behalf of any Person which is an
investment company within the meaning of that Act.
SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to
the Employee Retirement Income Security Act of 1974 ("ERISA") and regulations
issued pursuant thereto that is maintained by Borrower or under which Borrower
could have any liability under ERISA (a) has failed to meet minimum funding
standards established in Section 302 of ERISA, (b) has failed to comply in all
material respects with all applicable requirements of ERISA and of the Internal
Revenue Code, including all applicable rulings and regulations thereunder, (c)
has engaged in or been involved in a prohibited transaction (as defined in
ERISA) under ERISA or under the Internal Revenue Code, or (d) has been
terminated. Borrower has not assumed, or received notice of a claim asserted
against Borrower for, withdrawal liability (as defined in the Multi-Employer
Pension Plan Amendments Act of 1980, as amended) with respect to any
multi-employer pension plan and is not a member of any Controlled Group (as
defined in ERISA) except the Controlled Group that includes its subsidiaries.
Borrower has timely made when due all contributions with respect to any
multi-employer pension plan in which it participates and no event has occurred
triggering a claim against Borrower for withdrawal liability with respect to
any multi-employer pension plan in which Borrower participates.
SECTION 4.13. COMPLIANCE WITH LAW. Except as described in Schedule
4.13, and except to the extent that any violation, absence or non-compliance
would not have a material adverse effect on the business or financial condition
of Borrower and its subsidiaries taken as a whole: Borrower is not in violation
of any statute, rule or regulation of any Governmental Authority (including,
without limitation, any statute, rule or regulation relating to employment
practices or to environmental, occupational and health standards and controls).
Borrower has obtained all licenses, permits, franchises, and other governmental
authorizations necessary for the ownership of its properties and the conduct of
its business. Borrower is current with all reports and documents required to
be filed with any state or federal securities commission or similar
Governmental Authority and is in full compliance with all applicable rules and
regulations of such commissions.
SECTION 4.14. ENVIRONMENTAL MATTERS. No use, exposure, release,
generation, manufacture, storage, treatment, transportation or disposal of
Hazardous Material has occurred or is occurring on or from any real property on
which the Collateral is located or which is owned, leased or otherwise occupied
by Borrower (the "Premises"), or off the Premises as a result of any action of
Borrower, except as described in Schedule 4.14 or except to the extent that the
same would not have a material adverse effect on the business or financial
condition of Borrower and its subsidiaries, taken as a whole. All Hazardous
Material used, treated, stored, transported to or from, generated or handled on
the Premises, or off the Premises by Borrower, has been disposed of on or off
the Premises by or on behalf of Borrower in a lawful manner. There are no
underground storage tanks present on or under the Premises
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owned or leased by Borrower. No other environmental, public health or safety
hazards exist with respect to the Premises, except to the extent that the same
would not have a material adverse effect on the business or financial condition
of Borrower and its subsidiaries, taken as a whole..
SECTION 4.15. PLACES OF BUSINESS. The only places of
business of Borrower, and the places where it keeps and intends to keep the
Collateral and records concerning the Collateral as of the date hereof, are at
the addresses set forth in Schedule 4.15. Schedule 4.15 also lists the owner
of record of each such property.
SECTION 4.16. INTELLECTUAL PROPERTY. Borrower exclusively owns or
possesses all the patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, franchises, licenses, and
rights with respect to the foregoing necessary for the present and planned
future conduct of its business, without any conflict with the rights of others
or except to the extent that the same would not have a material adverse effect
on the business or financial condition of Borrower and its subsidiaries, taken
as a whole. A list of all such intellectual property (indicating the nature of
Borrower's interest), as well as all outstanding franchises and licenses given
by or held by Borrower as of the date hereof, is attached as Schedule 4.16.
Borrower is not in default of any obligation or undertaking with respect to
such intellectual property or rights or except to the extent that the same
would not have a material adverse effect on the business or financial condition
of Borrower and its subsidiaries, taken as a whole.
SECTION 4.17. CAPITALIZATION. The capitalization of Borrower as of
the date hereof showing all classes of the outstanding stock of the Borrower is
as set forth on Schedule 4.17.
SECTION 4.18. MATERIAL FACTS. Neither this Agreement nor any other
Loan Document nor any other agreement, document, certificate, or statement
furnished to Lender by or on behalf of Borrower in connection with the
transactions contemplated hereby contains any untrue statement of material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact known to Borrower
that materially adversely affects or in the future may materially adversely
affect the business, operations, affairs or financial condition of Borrower and
its subsidiaries taken as a whole, or any of its properties or assets.
SECTION 4.19. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS.
Borrower does not own or hold any equity or long-term debt investments in, have
any outstanding advances to, have any outstanding guarantees for the
obligations of, or have any outstanding borrowings from, any Person as of the
date hereof, except as described on Schedule 4.19. Borrower is not a party to
any contract or agreement, or subject to any corporate restriction, which
materially adversely affects the business of it and its Subsidiaries taken as a
whole.
SECTION 4.20. BUSINESS INTERRUPTIONS. Within five years prior to the
date hereof, neither the business, property or assets, or operations of
Borrower has been materially
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adversely affected in any way by any casualty, strike, lockout, combination of
workers, or order of the United States of America or other Governmental
Authority, directed against Borrower. There are no pending or threatened labor
disputes, strikes, lockouts, or similar occurrences or grievances against
Borrower or its business.
SECTION 4.21. NAMES. Within five years prior to the date hereof,
Borrower has not conducted business under or used any other name (whether
corporate, partnership or assumed) other than as shown on Schedule 4.21.
Borrower is the sole owner of all names listed on that Schedule and any and all
business done and invoices issued in such names are Borrower's sales, business,
and invoices. Each trade name of Borrower represents a division or trading
style of Borrower and not a separate Person or independent Affiliate.
SECTION 4.22 JOINT VENTURES. Borrower is not engaged in any joint
venture or partnership with any other Person as of the date hereof, except as
set forth on Schedule 4.22.
SECTION 4.23 ACCOUNTS. Lender may rely, in determining which
Accounts are Qualified Accounts, on all statements and representations made by
Borrower with respect to any Account or Accounts. Unless otherwise indicated
in writing to Lender, with respect to each Account:
(a) It is genuine and in all respects what it purports to be,
and is not evidenced by a judgment;
(b) It arises out of a completed, bona fide sale and delivery
of goods or rendition of services by Borrower or its subsidiaries or by PA in
the ordinary course of business and in accordance with the terms and conditions
of all purchase orders, contracts, certification, participation, certificate of
need, or other documents relating thereto and forming a part of the contract
between Borrower, a subsidiary or PA and the Account Debtor;
(c) It is for a liquidated amount maturing as stated in a
duplicate claim or invoice covering such sale or rendition of services, a copy
of which has been furnished or is available to Lender;
(d) Such Account, and Lender's security interest therein, is
not, and will not (by voluntary act or omission by Borrower), be in the future,
subject to any offset, lien, deduction, defense, dispute, counterclaim or any
other adverse condition, and each such Account is absolutely owing to Borrower,
a subsidiary or PA and is not contingent in any respect or for any reason;
(e) There are no facts, events or occurrences which in any way
impair the validity or enforceability of any Accounts or reduces the amount
payable thereunder from the face amount of the claim or invoice and statements
delivered to Lender with respect thereto;
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(f) To the best of Borrower's knowledge, (i) the Account
Debtor thereunder had the capacity to contract at the time any contract or
other document giving rise to the Account was executed and (ii) such Account
Debtor is solvent;
(g) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Account Debt
thereunder which might result in any material adverse change in such Account
Debtor's financial condition or the collectibility of such Account;
(h) It has been billed and forwarded to the Account Debtor for
payment in accordance with applicable laws and compliance and conformance with
any and requisite procedures, requirements and regulations governing payment by
such Account Debtor with respect to such Account, and such Account if due from
a Medicaid/Medicare Account Debtor is properly payable directly to Borrower, a
subsidiary or PA; and
(i) Borrower, its subsidiaries and PA, as the case may be,
obtained and currently has all certificates of need, Medicaid and Medicare
provider numbers, licenses, permits and authorizations as necessary in the
generation of such Accounts.
ARTICLE V
CLOSING AND CONDITIONS OF LENDING
SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of
Lender to enter into and perform this Agreement and to make Revolving Credit
Loans is subject to the following conditions precedent:
(a) Lender shall have received two (2) originals of this
Agreement and all other Loan Documents required to be executed and delivered at
or prior to Closing (other than the Note, as to which Lender shall receive only
one original), executed by Borrower and any other required Persons, as
applicable.
(b) Lender shall have received all searches and good standing
certificates required by Section 3.5.
(c) Borrower shall have complied in all material respects and
shall then be in compliance in all material respects with all the terms,
covenants and conditions of the Loan Documents.
(d) There shall have occurred no Event of Default and no event
which, with the giving of notice or the lapse of time, or both, could
constitute such an Event of Default.
(e) The representations and warranties contained in Article IV
shall be true and correct in all material respects.
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(f) Lender shall have received copies of all board of
directors resolutions of the Borrower, and other corporate action taken by
Borrower to authorize the execution, delivery and performance of the Loan
Documents and the borrowing of the Loan thereunder, as well as the names and
signatures of the officers of Borrower authorized to execute documents on its
behalf in connection herewith, all as also certified as of the date hereof by
Borrower's chief financial officer, and such other papers as Lender may
require.
(g) Lender shall have received copies, certified as true,
correct and complete by a corporate officer of Borrower, of the certificate of
incorporation of Borrower, with any amendments to any of the foregoing, and all
other documents necessary for performance of the obligations of Borrower under
this Agreement and the other Loan Documents.
(h) Lender shall have received a written opinion of counsel
for Borrower, dated the date hereof, in the form of Exhibit D.
(i) Lender shall have received such financial statements,
reports, certifications, and other operational information required to be
delivered hereunder, including without limitation an initial borrowing base
certificate calculating the Borrowing Base.
(j) Lender shall have received the Commitment Fee.
(k) The Lockbox and the Concentration Account shall have been established.
(l) Lender shall have received a certificate of Borrower's
chief financial officer, dated the Closing Date, certifying that all of the
conditions specified in this Section have been fulfilled.
SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any
other provision of this Agreement, no proceeds from a Revolving Credit Loan,
shall be disbursed hereunder unless the following conditions have been
satisfied or waived immediately prior to such disbursement:
(a) The representations and warranties on the part of
Borrower contained in Article IV of this Agreement shall be true and correct in
all material respects at and as of the date of disbursement or advance, as
though made on and as of such date (except to the extent that such
representations and warranties expressly relate solely to an earlier date and
except that the references in Section 4.7 to financial statements shall be
deemed to be a reference to the then most recent annual and interim financial
statements of Borrower furnished to Lender pursuant to Section 6.1 hereof).
(b) No Event of Default or event which, with the giving
of notice of the lapse of time, or both, could become an Event of Default shall
have occurred and be continuing or would result from the making of the
disbursement or advance.
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(c) No material adverse change in the condition
(financial or otherwise), properties, business, or operations of Borrower and
its subsidiaries taken as a whole shall have occurred and be continuing with
respect to Borrower since the date hereof.
SECTION 5.3. CLOSING. Subject to the conditions of this Article V,
the Loan shall be made available on the date as is mutually agreed by the
parties (the "Closing Date") at such time as may by mutually agreeable to the
parties upon the execution hereof (the "Closing") at such place as may be
requested by Lender.
SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing hereunder,
or by making advances under the Loan, Lender does not waive a breach of any
representation or warranty of Borrower hereunder or under any other Loan
Document, and all of Lender's claims and rights resulting from any breach or
misrepresentation by Borrower are specifically reserved by Lender.
ARTICLE VI
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that for so long as Borrower may borrow
hereunder and until payment in full of the Note and performance of all other
obligations of Borrower under the Loan Documents:
SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. Borrower
will furnish to Lender (a) a sales and collections report and accounts
receivable aging schedule on a form acceptable to Lender within fifteen (15)
days after the end of each calendar month, which shall include, but not be
limited to, a report of sales, credits issued, and collections received; (b)
payable aging schedules within fifteen (15) days after the end of each calendar
month; (c) internally prepared monthly financial statements for Borrower,
certified by the chief financial officer of Borrower, within forty-five (45)
days of the end of each calendar month, accompanied by management analysis and
actual vs. budget variance reports; (d) to the extent prepared by Borrower,
annual projections, profit and loss statements, balance sheets, and cash flow
reports (prepared on a monthly basis) for the succeeding fiscal year within
thirty (30) days before the end of each of Borrower's fiscal years; (e)
internally prepared annual financial statements for Borrower within
seventy-five (75) days after the end of each of Borrower's fiscal years; (f)
annual audited financial statements for the Borrower prepared by Ehrhardt Keefe
Steiner & Hattman P.C., or a firm of independent public accountants reasonably
satisfactory to Lender, within one hundred thirty-five (135) days after the end
of each of Borrower's fiscal year; (g) promptly upon receipt thereof, copies of
any reports submitted to Borrower by independent accountants in connection with
any interim audit of the books of Borrower and copies of each management
control letter provided to Borrower by independent accountants; (h) as soon as
available, copies of all financial statements and notices provided by Borrower
to all of its stockholders; and (i) such additional information, reports or
statements as Lender may from time to time reasonably request. Annual
financial statements
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shall set forth in comparative form figures for the corresponding periods in
the prior fiscal year. All financial statements shall include a balance sheet
and statement of earnings and shall be prepared in accordance with GAAP.
SECTION 6.2. PAYMENTS HEREUNDER. Borrower will make all payments of
principal, interest, fees, and all other payments required hereunder, under the
Loan, and under any other agreements with Lender to which Borrower is a party,
as and when due.
SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS.
Borrower will do or cause to be done all things necessary (a) to obtain and
keep in full force and effect all corporate existence, rights, licenses,
privileges, and franchises of Borrower and its subsidiaries necessary to the
ownership of its property or the conduct of its business, and comply with all
applicable present and future laws, ordinances, rules, regulations, orders and
decrees of any Governmental Authority having or claiming jurisdiction over
Borrower and its subsidiaries; and (b) to maintain and protect the properties
used or useful in the conduct of the operations of Borrower and its
subsidiaries, in a prudent manner, including without limitation the maintenance
at all times of such insurance upon its insurable property and operations as
required by law or by Section 6.7 hereof, (i) except in each case to the extent
that the failure to do so would not have a material adverse effect on the
business or financial condition of Borrower and its subsidiaries taken as a
whole and (ii) except that Borrower and its subsidiaries may dispose of
operations, assets or properties for reasonably equivalent value as the Board
of Directors of Borrower may determine is in the best interests of the business
of Borrower and its subsidiaries taken as a whole, which disposition shall not
exceed in any fiscal year the aggregate of $200,000.
SECTION 6.4. LEGALITY. The making of the Loan and each disbursement
or advance under the Loan shall not be subject to any penalty or special tax,
shall not be prohibited by any governmental order or regulation applicable to
Borrower, and shall not violate any rule or regulation of any Governmental
Authority, and necessary consents, approvals and authorizations of any
Governmental Authority to or of any such disbursement or advance shall have
been obtained.
SECTION 6.5. LENDER'S SATISFACTION. All instruments and legal
documents and proceedings in connection with the transactions contemplated by
this Agreement shall be reasonably satisfactory in form and substance to Lender
and its counsel, and Lender shall have received all documents, including
records of corporate proceedings and opinions of counsel, which Lender may have
reasonably requested in connection therewith.
SECTION 6.6. TAXES AND CHARGES. Borrower will timely file all tax
reports and pay and discharge all taxes, assessments and governmental charges
or levies imposed upon Borrower or its subsidiaries, or their income or profits
or upon its properties or any part thereof, before the same shall be in default
and prior to the date on which penalties attach thereto, as well as all lawful
claims for labor, material, supplies or otherwise which, if unpaid, might
become a lien or charge upon the properties or any part thereof of Borrower,
except to
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the extent that the failure to do so would not have a material adverse effect
on the business or financial condition of Borrower and its subsidiaries taken
as a whole; provided, however, that the Borrower shall not be required to pay
and discharge or cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith and by appropriate proceedings by Borrower, and the
Borrower shall have set aside on their book, if required by GAAP, adequate
reserve therefor; and provided further, that such deferment of payment is
permissible only so long as Borrower's title to, and its right to use, the
Collateral is not materially adversely affected thereby and Lender's lien and
priority on the Collateral are not materially adversely affected, altered or
impaired thereby.
SECTION 6.7. INSURANCE. Borrower will carry adequate public
liability and professional liability insurance with responsible companies
satisfactory to Lender in such amounts and against such risks as is customarily
maintained by similar businesses and by owners of similar property in the same
general area.
SECTION 6.8. GENERAL INFORMATION. Borrower will furnish to Lender
such information as Lender may, from time to time, reasonably request with
respect to the business or financial affairs of Borrower, and permit any
officer, employee or agent of Lender to visit and inspect any of the
properties, to examine the minute books, books of account and other records,
including management letters prepared by Borrower's auditors, of Borrower, and
make copies thereof or extracts therefrom, and to discuss its and their
business affairs, finances and accounts with, and be advised as to the same by,
the accountants and officers of Borrower, all at such times and as often as
Lender may reasonably require. All confidential or proprietary information so
obtained shall be kept confidential by Lender and not used for any purpose
other than in connection with the administration of this Agreement.
SECTION 6.9. MAINTENANCE OF PROPERTY. Borrower will maintain, keep
and preserve all of its properties in good repair, working order and condition
and from time to time make all needful and proper repairs, renewals,
replacements, betterments and improvements thereto, so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
SECTION 6.10. NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE
DEVELOPMENTS. Borrower promptly will notify Lender upon the occurrence of: (a)
any Event of Default; (b) any event which, with the giving of notice or lapse
of time, or both, could constitute an Event of Default; (c) any event,
development or circumstance whereby the financial statements previously
furnished to Lender fail in any material respect to present fairly, in
accordance with GAAP, the financial condition and operational results of
Borrower; (d) any judicial, administrative or arbitration proceeding pending
against Borrower, and any judicial or administrative proceeding known by
Borrower to be threatened against it which, if adversely decided, could
adversely affect its condition (financial or otherwise) or operations (present
or prospective) or which may expose Borrower to uninsured liability of
$125,000.00 or more; (e) any default claimed by any other creditor for Borrowed
Money of Borrower other than
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Lender; and (f) any other development in the business or affairs of Borrower
which is likely to have a material adverse effect on the business or financial
condition of Borrower and its subsidiaries taken as a whole; in each case
describing the nature thereof and (in the case of notification under clauses
(a) and (b)) the action Borrower proposes to take with respect thereto.
SECTION 6.11. EMPLOYEE BENEFIT PLANS. Borrower will (a) comply in
all material requests with the funding requirements of ERISA with respect to
the Plans for its employees, or will promptly satisfy any accumulated funding
deficiency that arises under Section 302 of ERISA; (b) furnish Lender, promptly
after filing the same, with copies of all reports or other statements filed
with the United States Department of Labor, the Pension Benefit Guaranty
Corporation, or the Internal Revenue Service with respect to all Plans, or
which Borrower, or any member of a Controlled Group, may receive from such
Governmental Authority with respect to any such Plans, and (c) promptly advise
Lender of the occurrence of any Reportable Event or Prohibited Transaction with
respect to any such Plan and the action which Borrower proposes to take with
respect thereto. Borrower will make all contributions when due with respect to
any multi-employer pension plan in which it participates and will promptly
advise Lender: (a) upon its receipt of notice of the assertion against Borrower
of a claim for withdrawal liability; (b) upon the occurrence of any event which
could trigger the assertion of a claim for withdrawal liability against
Borrower; and (c) upon the occurrence of any event which would place Borrower
in a Controlled Group as a result of which any member (including Borrower)
thereof may be subject to a claim for withdrawal liability, whether liquidated
or contingent.
SECTION 6.12. FINANCING STATEMENTS. Borrower shall provide to Lender
evidence reasonably satisfactory to Lender as to the due recording of
termination statements, releases of collateral, and Forms UCC-3, and shall
cause to be recorded financing statements on Form UCC-1, duly executed by
Borrower and Lender, in all places necessary to release all existing security
interests and other liens in the Collateral (other than as permitted hereby)
and to perfect and protect Lender's first priority lien and security interest
in the Collateral, as Lender may reasonably request.
SECTION 6.13. FINANCIAL RECORDS. Borrower shall keep current and
accurate books of records and accounts in which full and correct entries will
be made of all of its business transactions, and will reflect in its financial
statements adequate accruals and appropriations to reserves, all in accordance
with GAAP.
SECTION 6.14. COLLECTION OF ACCOUNTS. Borrower shall continue to
collect its Accounts in the ordinary course of business.
SECTION 6.15. PLACES OF BUSINESS. Borrower shall give thirty (30)
days' prior written notice to Lender of any change in the location of any of
its places of business, of the places where its records concerning its Accounts
are kept, of the places where the Collateral is kept, or of the establishment
of any new, or the discontinuance of any existing, places of business.
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SECTION 6.16. BUSINESS CONDUCTED. Borrower shall continue in the
business presently conducted by it using its best efforts to maintain its
customers and goodwill except to the extent permitted by Section 6.3 hereof.
Borrower shall not engage, directly or indirectly, in any line of business
substantially different from the business conducted by it immediately prior to
the Closing Date, or engage in business or lines of business which are not
reasonably related thereto.
SECTION 6.17. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give
prompt notice to Lender of any litigation, arbitration, or other proceeding
before any Governmental Authority against or affecting Borrower if the amount
claimed is more than $125,000.00
SECTION 6.18. BANK ACCOUNTS. Borrower shall assign all of its
depository and disbursement accounts to Lender.
SECTION 6.19. SUBMISSION OF COLLATERAL DOCUMENTS. To the fullest
extent permitted by law, Borrower will, on demand of Lender, make available to
Lender copies of shipping and delivery receipts evidencing the shipment of
goods that gave rise to an Account, medical records, insurance verification
forms, assignment of benefits, in-take forms or other proof of the satisfactory
performance of services that gave rise to an Account, a copy of the claim or
invoice for each Account and copies of any written contract or order from which
the Account arose. Borrower shall promptly notify Lender if an Account becomes
evidenced or secured by an instrument or chattel paper and upon request of
Lender, will promptly deliver any such instrument or chattel paper to Lender.
SECTION 6.20. LICENSURE; MEDICAID/MEDICARE COST REPORTS. Borrower
will maintain all certificates of need, provider numbers and licenses necessary
to conduct its business as presently conducted, and take any steps required to
comply with any such new or additional requirements that may be imposed on
providers of medical products and services. Except to the extent permitted by
Section 6.3 hereof. If required, all Medicaid/Medicare costs reports will be
properly filed.
SECTION 6.21. OFFICER'S CERTIFICATES. Together with the monthly
financial statements delivered pursuant to clause (c) of Section 6.1, and
together with the audited annual financial statements delivered pursuant to
clause (f) of that Section, Borrower shall deliver to Lender a certificate of
its chief financial officer, in form and substance reasonably satisfactory to
Lender setting forth:
(a) The information (including detailed calculations) required
in order to establish whether Borrower is in compliance in all material
respects with the requirements of Articles VI and VII as of the end of the
period covered by the financial statements then being furnished; and
(b) That the signer has reviewed the relevant terms of this
Agreement, and has made (or caused to be made under his supervision) a review
of the transactions and conditions
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of Borrower from the beginning of the accounting period covered by the income
statements being delivered to the date of the certificate, and that such review
has not disclosed the existence during such period of any condition or event
which constitutes an Event of Default or which is then, or with the passage of
time or giving of notice or both, could become an Event of Default, and if any
such condition or event existed during such period or now exists, specifying
the nature and period of existence thereof and what action Borrower has taken
or proposes to take with respect thereto.
SECTION 6.22. VISITS AND INSPECTIONS. Borrower agrees to permit
representatives of Lender, from time to time, as often as may be reasonably
requested, but only during normal business hours, to visit and inspect the
properties of Borrower and its subsidiaries, and to inspect, audit and make
extracts from its books and records, and discuss with its officers, its
employees and its independent accountants, the business, assets, liabilities,
financial condition, business prospects and results of operations of Borrower
and its subsidiaries.
SECTION 6.23. NET WORTH. Borrower will not at any time allow its
consolidated net worth, as computed in accordance with GAAP, to fall below
$12.5 million.
ARTICLE VII
NEGATIVE COVENANTS
Borrower covenants and agrees that so long as Borrower may borrow
hereunder and until payment in full of the Note and performance of all other
obligations of the Borrower under the Loan Documents:
SECTION 7.1. BORROWING. Borrower will not create, incur, assume or
suffer to exist any liability for Borrowed Money except: (a) indebtedness to
Lender; (b) indebtedness of Borrower secured by mortgages, encumbrances or
liens expressly permitted by Section 7.3 hereof; (c) accounts payable to trade
creditors and current operating expenses (other than for borrowed money) which
are not aged more than ninety (90) days from the billing date, in each case
incurred in the ordinary course of business and paid within such time period,
unless the same are being contested in good faith and by appropriate and lawful
proceedings, and Borrower shall have set aside such reserves, if any, with
respect thereto as are required by GAAP and deemed adequate by Borrower and its
independent accountants; (d) borrowings incurred in the ordinary course of its
business and not exceeding $125,000.00 in the aggregate outstanding at any one
time; (e) existing indebtedness listed on Schedule 7.1 hereto, and any
extension, modification, refunding or replacement thereof; (f) purchase money
indebtedness and leases required to be capitalized in accordance with GAAP; (g)
indebtedness representing the deferred purchase price of clinics or related
operations or facilities representing not more than 50% of the purchase price
therefor; and (h) indebtedness relating to clinics or related operations or
facilities existing at the time of the acquisition thereof. Accounts to which
Borrower acquires rights as a result of the purchase of clinics, related
operations or facilities shall not be considered "Qualified Accounts" for
purposes of this Agreement, and Lender
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shall be under no obligation to finance such accounts, unless and until Lender
has completed its credit underwriting of the accounts and has determined,
consistent with the policies employed hereunder for the initial Qualified
Accounts, to permit the accounts to be considered "Qualified Accounts."
Borrower will not make prepayments on any existing or future indebtedness for
Borrowed Money to any Person (other than Lender, to the extent permitted by
this Agreement or any subsequent agreement between Borrower and Lender), except
as contemplated by Schedule 7.1 hereto.
SECTION 7.2. JOINT VENTURES. Borrower will not invest directly or
indirectly in any joint venture other than the ventures described on Schedule
4.1 hereto for any purpose without the prior written notice to, and the express
written consent of, Lender, which consent may be not unreasonably withheld.
SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create,
incur, assume or suffer to exist any mortgage, pledge, lien or other
encumbrance of any kind (including the charge upon property purchased under a
conditional sale or other title retention agreement) upon, or any security
interest in, any of its Collateral, whether now owned or hereafter acquired,
except for Permitted Liens.
SECTION 7.4. MERGER, ACQUISITION, OR SALE OF ASSETS. Borrower will
not enter into any merger or consolidation with or acquire all or substantially
all of the assets of any Person, and will not sell, lease, or otherwise dispose
of any of its assets except in the ordinary course of its business (a) except
to the extent permitted by Section 6.3 hereof and (b) except that Borrower and
its subsidiaries may acquire clinics and related operations and facilities
without the prior written consent of Lender so long as (i) the maximum number
of such acquisitions shall not exceed five in any fiscal year and (ii) the
maximum cash consideration payable for any acquisition may not exceed $500,000.
SECTION 7.5. SALE AND LEASEBACK. Borrower will not, directly or
indirectly, enter into any arrangement whereby Borrower sells or transfers all
or any part of its assets and thereupon and within one year thereafter rents or
leases the assets so sold or transferred without the prior written notice to,
and the express written consent of, Lender, which consent may not be
unreasonably withheld.
SECTION 7.6. DISTRIBUTIONS AND MANAGEMENT FEES. Borrower will not
declare or pay any dividends or other distributions with respect to, purchase,
redeem or otherwise acquire for value any of its outstanding stock now or
hereafter outstanding, or return any capital of its stockholders, nor shall
Borrower pay or become obligated to pay management fees or fees of a similar
nature to any Person; provided, however, that so long as Lender has not
notified Borrower of the existence of an Event of Default hereunder, Borrower
may make any such dividends or other distributions or purchase, redeem or
otherwise acquire such interest, return any such capital, or pay any such
management fees subject any other terms and conditions of this Agreement.
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SECTION 7.7. LOANS. Borrower will not make loans or advances to any
Person, other than (i) trade credit extended in the ordinary course of its
business, (ii) advances for business travel and similar temporary advances in
the ordinary course of business to officers, stockholders, directors, and
employees, and (iii) loans or advances to subsidiaries, the PA and the joint
venture described on Schedule 4.1 hereto.
SECTION 7.8. CONTINGENT LIABILITIES. Borrower will not assume,
guarantee, endorse, contingently agree to purchase or otherwise become liable
upon the obligation of any Person, other than a subsidiary, the joint venture
described on Schedule 4.1 hereto or the PA, except by the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business.
SECTION 7.9. SUBSIDIARIES. Borrower will not form any subsidiary, or
make any investment in or any loan in the nature of an investment to, any other
Person, except as permitted by Sections 7.4, 7.7 and 7.8 hereto.
SECTION 7.10. COMPLIANCE WITH ERISA. Borrower will not permit with
respect to any Plan covered by Title IV of ERISA any Prohibited Transaction or
any Reportable Event.
SECTION 7.11. CERTIFICATES OF NEED. Borrower will not amend, alter
or suspend or terminate or make provisional in any material way, any
certificate of need or provider number without the prior written consent of
Lender, except as permitted by Section 6.3 hereto.
SECTION 7.12. TRANSACTIONS WITH AFFILIATES. Borrower will not enter
into any transaction, including without limitation the purchase, sale, or
exchange of property, or the loaning or giving of funds to any Affiliate or
subsidiary, except in the ordinary course of business and pursuant to the
reasonable requirements of Borrower's business and upon terms substantially the
same and no less favorable to Borrower as it would obtain in a comparable arm's
length transaction with any Person not an Affiliate or subsidiary, and so long
as the transaction is not otherwise prohibited hereunder. For purposes of the
foregoing, Lender consents to the transactions described on Schedule 7.12.
SECTION 7.13. USE OF LENDER'S NAME. Borrower will not use Lender's
name (or the name of any of Lender's affiliates) in connection with any of its
business operations. Borrower may disclose to third parties that Borrower has
a borrowing relationship with Lender. Nothing herein contained is intended to
permit or authorize Borrower to make any contract on behalf of Lender.
SECTION 7.14. CAPITALIZATION. There shall occur no change in
Borrower's capital structure as set forth in Schedule 4.17, such that Borrower
is no longer a reporting company under the Securities Exchange Act of 1934.
SECTION 7.15. CONTRACTS AND AGREEMENTS. Borrower will not become or
be a party to any contract or agreement which would breach this Agreement.
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SECTION 7.16. MARGIN STOCK. Borrower will not carry or purchase any
"margin security" within the meaning of Regulations U, G, T or X of the Board
of Governors of the Federal Reserve System.
SECTION 7.17. TRUTH OF STATEMENTS AND CERTIFICATES. Borrower will
not furnish to Lender any certificate or other document that contains any
untrue statement of a material fact or that omits to state a material fact
necessary to make it not misleading in light of the circumstances under which
it was furnished.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. Each of the following (individually,
an "Event of Default" and collectively, the "Events of Default") shall
constitute an event of default hereunder:
(a) A default in the payment of any installment of principal
of, or interest upon, the Note when due and payable, whether at maturity or
otherwise, which default shall have continued unremedied for a period of five
(5) days after written notice thereof from Lender to Borrower;
(b) A default in the payment of any other charges, fees, or
other monetary obligations owing to Lender arising out of or incurred in
connection with this Agreement when such payment is due and payable, which
default shall have continued unremedied for a period of five (5) days after
written notice from Lender;
(c) A default in the due observance or performance by Borrower
in any material respect of any other term, covenant or agreement contained in
any of the Loan Documents, which default shall have continued unremedied for a
period of ten (10) days after written notice from Lender;
(d) If any representation or warranty made by Borrower herein
or in any of the other Loan Documents, any financial statement, or any
statement or representation made in any other certificate, report or opinion
delivered in connection herewith or therewith proves to have been incorrect or
misleading in any material respect when made, which default shall have
continued unremedied for a period of ten (10) days after written notice from
Lender;
(e) If any obligation of Borrower (other than its Obligations
hereunder) for the payment of Borrowed Money exceeding $125,000 is not paid
when due or within any applicable grace period, or such obligation becomes or
is declared to be due and payable prior to the expressed maturity thereof.
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(f) If Borrower makes an assignment for the benefit of
creditors, offers a composition or extension to creditors, or makes or sends
notice of an intended bulk sale of any business or assets now or hereafter
conducted by Borrower;
(g) If Borrower files a petition in bankruptcy, is adjudicated
insolvent or bankrupt, petitions or applies to any tribunal for any receiver of
or any trustee for itself or any substantial part of its property, commences
any proceeding relating to itself under any reorganization, arrangement,
readjustment or debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there is commenced against
Borrower any such proceeding which remains undismissed for a period of sixty
(60) days, or any Borrower by any act indicates its consent to, approval of, or
acquiescence in, any such proceeding or the appointment of any receiver of or
any trustee for a Borrower or any substantial part of its property, or suffers
any such receivership or trusteeship to continue undischarged for a period of
sixty (60) days;
(h) If one or more final judgments against Borrower or
attachments against its property in an aggregate amount exceeding $125,000 not
fully and unconditionally covered by insurance shall be rendered by a court of
record and shall remain unpaid, unstayed on appeal, undischarged, unbonded and
undismissed for a period of twenty (20) days;
(i) A Reportable Event which might constitute grounds for
termination of any Plan covered by Title IV of ERISA or for the appointment by
the appropriate United States District Court of a trustee to administer any
such Plan or for the entry of a lien or encumbrance to secure any deficiency,
has occurred and is continuing thirty (30) days after its occurrence, or any
such Plan is terminated, or a trustee is appointed by an appropriate United
States District Court to administer any such Plan, or the Pension Benefit
Guaranty Corporation institutes proceedings to terminate any such Plan or to
appoint a trustee to administer any such Plan, or a lien or encumbrance is
entered to secure any deficiency or claim, and the financial exposure to
Borrower exceeds $125,000;
(j) Intentionally deleted.
(k) If there shall occur any uninsured damage to or loss,
theft or destruction of any portion of the Collateral exceeding $125,000.00;
(l) If Borrower breaches of violates in any material respect
the terms of, or if a default or an event which could, whether with notice or
the passage of time, or both, constitute a default in any material respect,
occurs under any other existing or future agreement (related or unrelated)
between Borrower and Lender;
(m) Upon the issuance of any execution or distraint process
against Borrower or any of its property or assets;
31
<PAGE> 33
(n) If Borrower ceases any material portion of its business
operations as presently conducted, except as permitted by Section 6.3 hereof;
(o) Borrower has directly or indirectly been engaged in any
type of activity which is likely to result in the forfeiture of any property
of Borrower having an aggregate value of over $125,000 to any Governmental
Authority, which default shall have continued unremedied for a period of twenty
(20) days after written notice from Lender;
(p) Borrower or any Affiliate of Borrower, shall challenge or
contest, in any action, suit or proceeding, the validity or enforceability of
this Agreement, or any of the other Loan Documents, the legality or the
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to Lender;
(q) Borrower shall be criminally indicted or convicted under
any law that is likely to lead to a forfeiture of any Collateral having an
aggregate value over $125,000;
(r) There shall occur a material adverse change in the
financial condition or business prospects of Borrower and its subsidiaries,
taken as a whole, which material adverse change shall have continued unremedied
for a period of ten (10) days after written notice from Lender.
(s) An Event of Default shall have occurred under the
Secured Term Note dated as of April 15, 1997 (the "Secured Term Note") executed
by Borrower in favor of HealthCare Financial Partners--Funding II, L.P.
("Funding II").
SECTION 8.2. ACCELERATION. Upon the occurrence of any of the
foregoing Events of Default, the Note shall become and be immediately due and
payable upon declaration to that effect delivered by Lender to Borrower;
provided that, upon the happening of any event specified in Section 8.1.(g)
hereof, the Note shall be immediately due and payable without declaration or
other notice to Borrower.
SECTION 8.3. REMEDIES.
(a) In addition to all other rights, options, and remedies
granted to Lender under this Agreement, upon the occurrence of an Event of
Default and until cured by Borrower to Lender's satisfaction in its sole
discretion (with Borrower hereby acknowledging that it has no right to cure an
Event of Default unless Lender specifically grants such right in writing),
Lender may (i) terminate the Loan, whereupon all outstanding Obligations shall
be immediately due and payable, (ii) exercise all other rights granted to it
hereunder and all rights under the Uniform Commercial Code in effect in the
applicable jurisdiction(s) and under any other applicable law, and (iii)
exercise all rights and remedies under all Loan Documents now or hereafter in
effect, including the following rights and remedies (which list is given by way
of example and is not intended to be an exhaustive list of all such rights and
remedies):
32
<PAGE> 34
(i) The right to take possession of, send notices
regarding, and collect directly the Collateral, with or without judicial
process, and to exercise all rights and remedies available to Lender with
respect to the Collateral under the Uniform Commercial Code in effect in the
jurisdiction(s) in which such Collateral is located;
(ii) The right to (by its own means or with judicial
assistance) enter any of Borrower's premises and take possession of the
Collateral, or render it unusable, or dispose of the Collateral on such
premises in compliance with subsection (b), without any liability for rent,
storage, utilities, or other sums, and Borrower shall not resist or interfere
with such action;
(iii) The right to require Borrower at Borrower's
expense to assemble all or any part of the Collateral and make it available to
Lender at any place designated by Lender;
(iv) The right to reduce the Maximum Loan Amount or
to use the Collateral and/or funds in the Concentration Account in amounts up
to the Maximum Loan Amount to pay the Obligations in such order as it shall
determine.
(b) Borrower agrees that a notice received by it at least ten
(10) days before the time of any intended public sale, or the time after which
any private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable Collateral which threatens to speedily
decline in value or which is sold on a recognized marked may be sold
immediately by Lender without prior notice to Borrower. At any sale or
disposition of Collateral, Lender may (to the extent permitted by applicable
law) purchase all or any part of the Collateral, free from any right of
redemption by Borrower, which right is hereby waived and released. Borrower
covenants and agrees not to interfere with or impose any obstacle to Lender's
exercise of its rights and remedies with respect to the Collateral, provided
Lender proceeds in a commercially reasonable manner.
SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to
proceed against all or any portion of the Collateral to satisfy, in any order,
the Obligations of Borrower to Lender upon an Event of Default under this
Agreement, and the indebtedness of Borrower to Funding II upon the occurrence
of an Event of Default under the Secured Term Note. All rights and remedies
granted Lender hereunder and under any agreement referred to herein, or
otherwise available at law or in equity, shall be deemed concurrent and
cumulative, and not alternative remedies, and Lender may proceed with any
number of remedies at the same time until the Obligations are satisfied in
full. The exercise of any one right or remedy shall not be deemed a waiver or
release of any other right or remedy, and Lender, upon the occurrence and
during the continuation of an Event of Default, may proceed against Borrower,
and/or the Collateral, at any time, under any agreement, with any available
remedy and in any order.
33
<PAGE> 35
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. EXPENSES AND TAXES.
(a) Borrower agrees to pay, whether or not the Closing
occurs, a reasonable documentation preparation fee, together with actual audit
and appraisal fees and all other reasonable out-of-pocket charges and expenses
incurred by Lender in connection with the negotiation, preparation and
execution of each of the Loan Documents and preparation for Closing. Borrower
also agrees to pay all reasonable out-of-pocket charges and expenses incurred
by Lender (including the reasonable fees and expenses of Lender's counsel) in
connection with the enforcement, protection or preservation of any right or
claim of Lender and the collection of any amounts due under the Loan Documents.
(b) Borrower shall pay all taxes (other than taxes based upon
or measured by Lender's income or revenues or any personal property tax), if
any, in connection with the issuance of the Note and the recording of the
security documents therefor. The obligations of Borrower under this clause (b)
shall survive the payment of Borrower's indebtedness hereunder and the
termination of this Agreement.
SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
other Loan Documents constitute the full and entire understanding and agreement
among the parties with regard to their subject matter and supersede all prior
written or oral agreements, understandings, representations and warranties made
with respect thereto. No amendment, supplement or modification of this
Agreement nor any waiver of any provision thereof shall be made except in
writing executed by the party against whom enforcement is sought.
SECTION 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party
hereto of any one or more defaults by the other party in the performance of any
of the provisions of this Agreement shall operate or be construed as a waiver
of any future default or defaults, whether of a like or different nature. No
failure or delay on the part of any party in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any party hereto at law, in equity or
otherwise.
34
<PAGE> 36
SECTION 9.4. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and personally delivered, mailed by
registered or certified mail (return receipt requested and postage prepaid),
sent by telecopier (with a confirming copy sent by regular mail), or sent by
prepaid overnight courier service, and addressed to the relevant party at its
address set forth below, or at such other address as such party may, by written
notice, designate as its address for purposes of notice hereunder:
(a) If to Lender, at:
HCFP Funding, Inc.
2 Wisconsin Circle, Suite 320
Chevy Chase, Maryland 20815
Attn: John K. Delaney, President
Telephone: (301) 961-1640
Telecopier: (301) 664-9860
(b) If to Borrower, at:
The Company Doctor, Inc.
5215 N. O'Connor Blvd., Ste 1800
Irving, Texas 75039
Attn: Shaun P. Mahoney, CFO
Telephone: (972) 401-8300
Telecopier: (972) 401-0839
If mailed, notice shall be deemed to be given five (5) days after being sent,
if sent by personal delivery or telecopier, notice shall be deemed to be given
when delivered, and if sent by prepaid courier, notice shall be deemed to be
given on the next Business Day following deposit with the courier.
SECTION 9.5. SEVERABILITY. If any term, covenant or condition of
this Agreement, or the application of such term, covenant or condition to any
party or circumstance shall be found by a court of competent jurisdiction to
be, to any extent, invalid or unenforceable, the remainder of this Agreement
and the application of such term, covenant, or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term, covenant or condition shall be
valid and enforced to the fullest extent permitted by law. Upon determination
that any such term is invalid, illegal or unenforceable, the parties hereto
shall amend this Agreement so as to effect the original intent of the parties
as closely as possible in an acceptable manner.
SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and
the other Loan Documents shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors and assigns.
Notwithstanding the foregoing, Borrower may not assign any of its rights or
delegate any of its obligations hereunder without the prior written consent
35
<PAGE> 37
of Lender, which may be withheld in its sole discretion. Lender may sell,
assign, transfer, or participate any or all of its rights or obligations
hereunder without notice to or consent of Borrower.
SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute but one instrument.
SECTION 9.8. INTERPRETATION. No provision of this Agreement or any
other Loan Document shall be interpreted or construed against any party because
that party or its legal representative drafted that provision. The titles of
the paragraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement. Any pronoun used in this
Agreement shall be deemed to include singular and plural and masculine,
feminine and neuter gender as the case may be. The words "herein," "hereof,"
and "hereunder" shall be deemed to refer to this entire Agreement, except as
the context otherwise requires.
SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements,
representations and warranties made in this Agreement, any other Loan Document,
and in any certificates and other instruments delivered in connection therewith
shall be considered to have been relied upon by Lender and shall survive the
making by Lender of the Loans herein contemplated and the execution and
delivery to Lender of the Note, and shall continue in full force and effect
until all liabilities and obligations of Borrower to Lender are satisfied in
full.
SECTION 9.10. Intentionally deleted.
SECTION 9.11. TIME. Whenever Borrower is required to make any
payment or perform any act on a Saturday, Sunday, or a legal holiday under the
laws of the State of Maryland (or other jurisdiction where Borrower is required
to make the payment or perform the act), the payment may be made or the act
performed on the next Business Day. Time is of the essence in Borrower's
performance under this Agreement and all other Loan Documents.
SECTION 9.12. COMMISSIONS. The transaction contemplated by this
Agreement was brought about by Lender and Borrower acting as principals and
without any brokers, agents, or finders being the effective procuring cause.
Borrower represents that it has not committed Lender to the payment of any
brokerage fee, commission, or charge in connection with this transaction. If
any such claim is made on Lender by any broker, finder, or agent or other
person, Borrower will indemnify, defend, and hold Lender harmless from and
against the claim and will defend any action to recover on that claim, at
Borrower's cost and expense, including Lender's counsel fees. Borrower further
agrees that until any such claim or demand is adjudicated in Lender's favor,
the amount demanded will be deemed a liability of Borrower under this
Agreement, secured by the Collateral.
36
<PAGE> 38
SECTION 9.13. THIRD PARTIES. No rights are intended to be created
hereunder or under any other Loan Document for the benefit of any third party
donee, creditor, or incidental beneficiary of Borrower. Nothing contained in
this Agreement shall be construed as a delegation to Lender of Borrower's duty
of performance, including without limitation Borrower's duties under any
account or contract in which Lender has a security interest.
SECTION 9.14. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its
sole discretion, shall have the right at any time, and from time to time
without prior notice to Borrower if Borrower fails to do so after notice and
the expiration of ten (10) days thereafter (a) to obtain insurance covering any
of the Collateral as required hereunder; (b) pay for the performance of any of
Borrower's obligations hereunder; (c) discharge taxes, liens, security
interests, or other encumbrances at any time levied or placed on any of the
Collateral in violation of this Agreement unless Borrower is in good faith with
due diligence by appropriate proceedings contesting those items; and (d) pay
for the maintenance and preservation of any of the Collateral. Expenses and
advances shall be added to the Loan, until reimbursed to Lender and shall be
secured by the Collateral. Such payments and advances by Lender shall not be
construed as a waiver by Lender of an Event of Default.
SECTION 9.15. INFORMATION TO PARTICIPANTS. Subject to Section 6.8
hereof. Lender may divulge to any participant it may obtain in the Loan, or any
portion thereof, all information, and furnish to such participant copies of
reports, financial statements, certificates, and documents obtained under any
provision of this Agreement or any other Loan Document.
SECTION 9.16. INDEMNITY. Borrower hereby agrees to indemnify and
hold harmless Lender, its partners, officers, agents and employees
(collectively, "Indemnitee") from and against any liability, loss, cost,
expense, claim, damage, suit, action or proceeding ever suffered or incurred by
Lender (including reasonable attorneys' fees and expenses) arising from
Borrower's failure to observe, perform or discharge any of its covenants,
obligations, agreements or duties hereunder, or from the breach of any of the
representations or warranties contained in Article IV hereof; provided that
there shall be no indemnification for Lender's recklessness, gross negligence
or willful misconduct. In addition, Borrower shall defend Indemnitee against
and save it harmless from all claims of any Person with respect to the
Collateral. Notwithstanding any contrary provision in this Agreement, the
obligation of Borrower under this Section 9.16 shall survive the payment in
full of the Obligations and the termination of this Agreement.
SECTION 9.17. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS AGREEMENT
AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES
OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE NOTE
IS COMMENCED BY LENDER IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN THE
STATE OF MARYLAND, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH
37
<PAGE> 39
ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY
SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID,
TO THE BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 9.4 HEREOF.
SECTION 9.18. WAIVER OF TRIAL BY JURY. BORROWER HEREBY (A) COVENANTS
AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A
JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY
SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY
IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH
THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED
AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER
THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE
EVIDENCE OF BORROWER'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER
HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S
COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL
NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
38
<PAGE> 40
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first written above.
"LENDER"
HCFP FUNDING, INC.
a Delaware corporation
By: /s/ Howard Widra
------------------------------------------
Name: Howard Widra
Title: Vice President
"BORROWER"
THE COMPANY DOCTOR
a Delaware corporation
By: /s/ Donald F. Angle, M.D.
-----------------------------------------
Name: Donald F. Angle, M.D.
Title: President
ANDICARE, INC.
a Louisiana corporation
By: /s/ Donald F. Angle, M.D.
-----------------------------------------
Name: Donald F. Angle, M.D.
Title: President
EMERGENCY OCCUPATIONAL
PHYSICIAN'S SERVICES, INC.
a Texas corporation
By: /s/ Donald F. Angle, M.D.
-----------------------------------------
Name: Donald F. Angle, M.D.
Title: President
39
<PAGE> 41
LIST OF EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Lockbox Agreement
Exhibit C - Locations of Collateral
Exhibit D - Form of Legal Opinion
40
<PAGE> 42
LIST OF SCHEDULES
Schedule 1.36 - Permitted Liens
Schedule 4.1 - Subsidiaries
Schedule 4.5 - Litigation
Schedule 4.7 - Federal Tax Identification Numbers
Schedule 4.10 - Taxes
Schedule 4.13 - Non-Compliance with Law
Schedule 4.14 - Environmental Matters
Schedule 4.15 - Places of Business
Schedule 4.16 - Licenses
Schedule 4.17 - Stock Ownership
Schedule 4.19 - Borrowings and Guarantees
Schedule 4.21 - Trade Names
Schedule 4.22 - Joint Ventures
Schedule 7.12 - Transactions with Affiliates
41
<PAGE> 1
EXHIBIT 10.14.2
AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment") is
made as of this 13th day of May, 1997, by and between THE COMPANY DOCTOR, a
Delaware corporation, ANDICARE, INC., a Louisiana corporation, and EMERGENCY
OCCUPATIONAL PHYSICIAN'S SERVICES, INC., a Texas corporation (collectively, the
"Borrower"), and HCFP FUNDING, INC., a Delaware corporation ("Lender").
RECITALS
A. In Article VI, Section 6.23 of the Loan and Security Agreement
(the "Loan Agreement"), Borrower covenants that it will not at any time allow
its consolidated net worth to fall below $12.5 million.
B. In Article VII, Section 7.1(c) of the Loan Agreement, Borrower
covenants that it will not allow any liability for Borrowed Money to exist
except under the circumstances set forth in Section 7.1(c).
C. The parties have agreed to amend the Loan Agreement, by means
of this Amendment, to restate Section 6.23 and Section 7.1(c) on the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the promises and covenants
contained in this Agreement, and for other consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
1. AMENDMENT TO NET WORTH COVENANT. Article VI, Section 6.23 of
the Loan Agreement shall be amended and restated as follows:
"SECTION 6.23. NET WORTH. Borrower will not at any time allow its
consolidated net worth, as computed in accordance with GAAP, to fall below
$10.5 million."
2. AMENDMENT TO BORROWER MONEY COVENANT. Article VII, Section
7.1(c) of the Loan Agreement shall be amended and restated as follows:
"(c) accounts payable to trade creditors and current
operating expenses (other than for borrowed money) which are not aged more than
(i) one hundred fifty (150) days from the billing date, at all times through
June 30, 1997, and (ii) one hundred and twenty (120) days from the billing
date, at all times thereafter, in each case incurred in the ordinary course of
business and paid within such time period, unless the same are being contested
in good faith and by appropriate and lawful proceedings, and Borrower shall
have set aside such reserves, if any, with respect thereto as are required by
GAAP and deemed adequate by Borrower and its independent accounts;"
3. CONDITIONS TO EFFECTIVENESS. The obligations of Lender to
enter into and perform this Amendment and to make Revolving Credit Loans under
the Loan Agreement are subject to the following conditions precedent:
(a) Lender shall have received two (2) originals of this
Amendment.
<PAGE> 2
(b) Borrower shall have complied and shall then be in
compliance in all material respects with all the terms, covenants and
conditions of the Loan Documents, as amended hereby.
(c) There shall have occurred no Event of Default and no
event which, with the giving of notice or the lapse of time, or both, could
constitute such an Event of Default, after giving effect to the amendments
effected hereby.
4. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower
represents and warrants as follows:
(a) This Amendment constitutes the legal, valid and
binding obligation of Borrower and is enforceable against Borrower in
accordance with its terms, subject to bankruptcy, insolvency and other laws
affecting creditors' rights and general principles of equity.
(b) Upon the effectiveness of this Amendment, Borrower
hereby reaffirms all covenants, representations and warranties made in the Loan
Agreement, as amended hereby, and agrees that all such covenants,
representations and warranties shall be deemed to have been made again as of
the effective date of this Amendment (except to the extent that such
representations and warranties expressly relate solely to an earlier date).
5. REFERENCE TO THE EFFECT ON THE LOAN AGREEMENT.
(a) Upon the effectiveness of this Amendment, and on and
after the date of this Amendment, each reference in the Loan Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of similar import shall
mean and be a reference to the Loan Agreement as amended hereby.
(b) Except as specifically amended above, the Loan
Agreement, and all other Loan Documents, shall remain in full force and effect,
and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of
Lender, nor constitute a waiver of any provision of the Loan Agreement, or any
other documents, instruments and agreements executed or delivered in connection
with the Loan Agreement, except to the extent of the amendments effected
hereby.
6. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Maryland.
7. HEADINGS. Section headings in this Amendment are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
8. COUNTERPARTS. This Amendment may be executed in counterpart,
and both counterparts taken together shall be deemed to constitute one and the
same instrument.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the date first written above.
LENDER:
HCFP FUNDING, INC.
a Delaware corporation
By: /s/ Michael Gardullo
-----------------------------------
Name: Michael Gardullo
Title: Vice President and Senior
Credit Officer
BORROWER:
THE COMPANY DOCTOR
a Delaware corporation
By: /s/ Donald F. Angle, M.D.
-----------------------------------
Name: Donald F. Angle, M.D.
Title: President
ANDICARE, INC.
a Louisiana corporation
By: /s/ Donald F. Angle, M.D.
-----------------------------------
Name: Donald F. Angle, M.D.
Title: President
EMERGENCY OCCUPATIONAL
PHYSICIAN'S SERVICES, INC.
a Texas corporation
By: /s/ Donald F. Angle, M.D.
-----------------------------------
Name: Donald F. Angle, M.D.
Title: President
-3-
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' REPORT
We consent to the incorporation by reference in these Registration Statements
of The Company Doctor on Forms S-3, (333-21705 and 333-30977) and S-8 of our
report dated August 8, 1997 appearing in the annual report on Form 10-KSB of
The Company Doctor and Subsidiaries for the year ended June 30, 1997 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
these Registration Statements.
Ehrhardt Keefe Steiner & Hottman PC
September 29, 1997
Denver, Colorado
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 414,422
<SECURITIES> 350,000
<RECEIVABLES> 2,130,719
<ALLOWANCES> 210,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,061,296
<PP&E> 2,549,493
<DEPRECIATION> 939,935
<TOTAL-ASSETS> 17,505,880
<CURRENT-LIABILITIES> 3,560,496
<BONDS> 0
0
0
<COMMON> 13,856,222
<OTHER-SE> (2,534,009)
<TOTAL-LIABILITY-AND-EQUITY> 17,505,880
<SALES> 11,034,467
<TOTAL-REVENUES> 11,034,467
<CGS> 5,460,919
<TOTAL-COSTS> 12,027,285
<OTHER-EXPENSES> (300,097)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 480,488
<INCOME-PRETAX> (1,173,209)
<INCOME-TAX> 127,000
<INCOME-CONTINUING> (1,300,209)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,300,209)
<EPS-PRIMARY> (.27)
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