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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File No. 0-21721
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CLINICOR, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 88-0309093
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1717 WEST SIXTH STREET, SUITE 400, AUSTIN, TEXAS 78703
(Address of Principal Executive Offices) (Zip Code)
(512) 344-3300
(Issuer's Telephone Number, Including Area Code)
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Securities registered under Section 12(b) of the Exchange
Act: None Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
-- --
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is 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. [ ]
Issuer's gross revenues for fiscal year ended December 31, 1997: $10,856,562
As of March 10, 1998, the aggregate market value of the common stock held by
non-affiliates of the Registrant, computed by reference to the last quoted price
at which such stock was sold on such date as reported on the Over-the-Counter
Bulletin Board was $6,804,083.
As of March 10, 1998, 4,136,400 shares of the Issuer's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III (Items 9, 10, 11 and
12) hereof.
Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business......................................... 3
Item 2. Description of Property......................................... 12
Item 3. Legal Proceedings............................................... 12
Item 4. Submission of Matters to a Vote of
Security Holders.............................................. 12
PART II
Item 5. Market For Common Equity and Related
Shareholder Matters........................................... 13
Item 6. Management's Discussion and Analysis or
Plan of Operation.............................................. 14
Item 7. Financial Statements............................................ 18
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure........................... 19
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act..... 19
Item 10. Executive Compensation.......................................... 19
Item 11. Security Ownership of Certain Beneficial
Owners and Management.......................................... 19
Item 12. Certain Relationships and Related Transactions.................. 19
Item 13. Exhibits List and Reports on Form 8-K........................... 20
Signatures...................................................... 24
Audited Financial Statements.................................... F-1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Clinicor, Inc. (together with its predecessor, described below,
"Clinicor" or the "Company") is a fully-integrated contract research
organization ("CRO") serving the pharmaceutical, biotechnology and medical
device industries. The Company designs, manages and monitors clinical trials in
North America and Europe and provides integrated clinical and product
development services, including patient recruitment, data management,
biostatistical analysis, regulatory affairs, medical device and other
consultation and quality assurance and control ("QA/QC") services for its
clients. The Company generates substantially all of its revenue from services
related to the clinical testing of new pharmaceutical, medical device and
biotechnology products.
The Company, a Nevada corporation, was formed in December 1993. A
predecessor company, also named Clinicor, Inc. (the "Predecessor Company"), was
formed as a Texas corporation in September 1992 and merged into the Nevada
corporation in February 1995. References herein to "Clinicor" or the "Company"
denote the existing Nevada corporation and the Predecessor Company.
The Company performs and manages clinical trials in North America from
its corporate headquarters in Austin, Texas. The Company also maintains a
regional clinical service office in San Antonio, Texas and a regional sales
office in Bridgewater, New Jersey. The Company's European operations are
headquartered in offices in Windsor, England.
The Company's principal executive offices are located at 1717 West 6th
Street, Suite 400, Austin, Texas 78703, and its telephone number is (512)
344-3300.
BUSINESS
The Company designs, manages and monitors clinical trials in North
America and Europe and provides clinical and product development services,
including patient recruitment, data management, biostatistical analysis,
regulatory affairs, medical device and other consultation and QA/QC services for
its clients. The Company provides centralized patient recruitment services on a
nationwide basis using its patient recruiting department and computer database
system located in Austin, Texas. In the CRO industry, this service is typically
an ancillary one, offered outside of the standard CRO services model by
investigative sites or site management organizations ("SMOs"). Clinicor is one
of a small number of CROs that has integrated this service into its services
model.
NEW PRODUCT DEVELOPMENT
Before a new pharmaceutical, biotechnology, medical device or diagnostic
product may be marketed, it generally must undergo extensive testing and
regulatory review to determine that it is safe and effective. This development
process consists of two stages, pre-clinical and clinical. In the pre-clinical
stage, the sponsor of the new product conducts laboratory analyses and animal
tests, generally over a one to three year period, to determine the basic
biological activity and clinical processes and safety of the product. Upon
successful completion of the pre-clinical phase, the product undergoes a series
of clinical tests in humans, including healthy volunteers as well as patients
with the targeted disease or condition. These tests are generally longer in
duration, at times averaging from two to six years. In the United States,
pre-clinical and clinical testing must comply with the requirements of Good
Clinical Practices ("GCP") and other standards promulgated by the Food and Drug
Administration ("FDA") and other federal and state governmental authorities. GCP
stipulates procedures which are designed to ensure
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the quality and integrity of data obtained from clinical testing and to protect
the rights and safety of clinical subjects.
In the United States, a sponsor must file an Investigational New Drug
Application ("IND"), an Investigational Device Exemption ("IDE") or other filing
with the FDA before the commencement of human testing of an investigational
product. The filing includes pre-clinical testing results and sets forth the
sponsor's plans for conducting human clinical trials. The design of these plans,
also referred to as study "protocols," is critical to the success of the
development effort because the protocol must correctly anticipate the data and
results that the FDA will require before approving the product.
Human trials usually start on a small scale to assess safety and then
expand to larger trials to test for both safety and efficacy. Trials are usually
grouped into four phases, with multiple trials generally conducted within each
phase. Trials may be local or international and multi-center.
Phase I. Phase I trials are usually conducted on healthy
volunteers, typically 20 to 80 persons, to develop basic safety data relating to
toxicity, metabolism, absorption and other pharmacological actions.
Phase II. Phase II trials are conducted on a relatively small
number of subjects, typically 100 to 200 patients, who suffer from the product's
targeted disease or condition. Phase II trials offer the first evidence of
clinical efficacy, as well as additional safety data.
Phase III. Phase III trials are typically conducted on a larger
population of several hundred to several thousand patients who suffer from the
targeted disease or condition. Phase III trials are designed to measure safety
and efficacy on a large scale as well as side effects. Before granting an
approval to market, the FDA generally requires completion of two pivotal,
multi-site Phase III trials to demonstrate and confirm safety and efficacy.
Phase IV. As a condition of granting marketing approval, the FDA
may require that a sponsor continue to conduct additional clinical trials, known
as Phase IV post-submission trials, to monitor long-term risks and benefits,
study different dosage levels, or evaluate different safety and efficacy
parameters in target patient populations. In addition, Phase IV trials may be
necessary to support a sponsor's promotional claims, expanded indications or
comparative trials.
Clinical trials often represent the most expensive and time-consuming
part of the overall development process. The information generated during these
trials is critical for gaining marketing approval from the FDA or other
regulatory agencies. After the completion of Phase III trials, the sponsor of a
new product must submit a New Drug Application ("NDA") or other approval to
market application to the FDA. This application is a comprehensive filing that
includes, among other things, the results of all pre-clinical and clinical
studies, information about the product's composition, and the sponsor's plans
for formulating, producing, packaging and labelling the product.
A clinical trial is a scientific experiment to test the efficacy and
safety of an investigational product in accordance with a detailed plan as
documented in the protocol. The investigational product is administered to
patients who meet specific inclusion/exclusion criteria. Typically, the
investigational product is compared to another approved product and/or a
placebo. Usually, neither the patient nor the physician investigator knows which
patients receive which substance, although that information is readily available
if needed. The protocol will specify when, how often and how much of the study
product a patient will receive, how often they will be examined by the
investigator during the study (i.e., the number and frequency of patient visits)
and what measurements and assessments will be made and recorded at each patient
visit. The resulting data is recorded in source documents and transcribed into
Case Report Forms ("CRFs"). The recorded data is monitored to verify its
accuracy and consistency with source documents. The data from the CRFs is
entered into a computer database for biostatistical analysis.
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PATIENT RECRUITMENT MODEL
Traditionally, clinical trials have been managed by pharmaceutical
companies' in-house staffs of Clinical Research Associates ("CRAs") who in turn
subcontract (outsource) the actual performance of the trials to physician
investigators serving as investigational sites. The investigators enroll
qualified patients into studies from their practices one-by-one. Administrative
tasks are handled by a clinical coordinator, typically a nurse who has
additional duties within the physician's practice. The advent of managed care
has made this approach increasingly inefficient due to greater separation of
specialist investigators from the patient populations.
The function of CRAs is primarily to monitor compliance of the
investigative site with the protocol and adherence to GCP. If investigational
sites fail to produce qualified patients, they must be replaced with additional
sites to reach overall and minimal per site patient recruitment quotas in order
to maintain statistical validity.
The major full-service CROs have organized themselves along the same
lines as pharmaceutical companies. They generally employ the same traditional
methodology of subcontracting patient recruitment and the actual performance of
the clinical trials to investigational sites. The Company also manages studies
utilizing this traditional approach. However, for studies not requiring critical
care or hospital confinement, the Company also utilizes a patient recruitment
model on a nationwide basis to expedite patient enrollment, speed study
completion and improve the quality and uniformity of study data.
The Company's model removes the physician investigator as the primary
source of study patients. Rather than relying on the patient population of one
or more investigators in a particular city, the Company's approach is to recruit
from all of the potential study patients in an entire geographic area. Patients
are recruited via advertising, referral programs and other means. Potential
patients call the Company's centralized patient recruiting department where
personnel prescreen, schedule and capture relevant data on each patient included
in the Company's customized patient database system.
For certain therapeutic specialties, the Company assembles a number of
patients to enter a study in group clinics which are generally scheduled on
evenings and weekends. This approach works particularly well for studies
involving chronic medical conditions. A group clinic may include from as few as
ten to over 300 patients. The Company contracts with a physician to serve as the
independent investigator, and the Company staffs the clinic with experienced,
part-time Company employees who perform all of the study coordinator functions.
SERVICES
The Company's services include clinical trials management, patient
recruitment, clinical data management, biostatistical analysis, regulatory
affairs, medical device and other consultation and QA/QC, and product
registration services. The Company will provide these products separately or as
an integrated, "turn-key" package. Services from each of these categories can be
utilized for the development and preparation of a variety of regulatory filings,
e.g., NDA, Premarket Approval Applications ("PMA"), and Product License
Applications ("PLA").
Clinical Trials Management Services. The Company offers complete
services for the design, placement, performance, patient recruitment, monitoring
and management of clinical trial programs. The Company has performed services in
connection with trials in many therapeutic areas. The Company has the ability to
examine a product's existing pre-clinical and clinical data for the purpose of
designing protocols for clinical trials in order to demonstrate the product's
safety and efficacy in the treatment of the targeted disease.
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The Company manages every aspect of trials in Phases I through IV,
including design of operations manuals, identification and recruitment of trial
investigators, initiation of sites, recruitment of patients, site monitoring
visits to determine compliance with protocol procedures, adherence to GCP and
proper collection of data, data management, biostatistical analysis,
interpretation of trial results and report preparation. The Company's current
projects involve Phase I, II, III and IV clinical trials. The Company does not
own or maintain a Phase I facility for the confinement of study subjects.
The Company assists clients with one or more of the following steps of
clinical trials:
. Study Protocol. The protocol defines the disease and treatment the
study seeks to examine and the statistical tests that will be conducted.
Accordingly, the protocol defines: (i) the targeted patient population; (ii) the
frequency and type of laboratory and clinical measures that are to be recorded
and analyzed; (iii) the number of patients required to produce a statistically
significant result; (iv) the period of time over which the measurements must be
recorded; and (v) the frequency and dosage of drug or other product
administration.
. Case Report Forms. Once the study protocol has been finalized, special
forms for recording study-specific data must be developed. These forms are
called CRFs. Study data are transcribed onto CRFs from original source
documents. The CRF for one patient in a given study may consist of as many as
100 pages or more.
. Site and Investigator Recruitment. The drug or other product is
administered to patients by investigators at hospitals, academic centers,
clinics or other locations, referred to as sites. Potential investigators may be
identified by the sponsor or the CRO. The investigators are then solicited to
participate in the study. Generally, the Company locates properly qualified
investigators who contract directly with the Company.
. Patient Recruitment and Enrollment. One of the Company's main
competitive strengths is its ability to quickly and efficiently recruit patients
using mass marketing techniques and a centralized patient management system. The
clinical trial's success depends upon the rapid recruitment of patients that
meet all of the trial criteria. Patients are prescreened for eligibility by
personnel using an on-line computer scheduling and database system which
captures relevant data for each patient. Prospective patients are required to
review information about the study drug or other product and possible side
effects and sign an informed consent to record their knowledge and acceptance of
potential risks. Patients also undergo a medical examination performed by the
investigator to determine whether they meet the requirements of the study
protocol. Patients then receive the study drug or other product and are examined
by the investigator as specified by the study protocol.
. Study Monitoring and Data Collection. As patients are examined and
tests are conducted in accordance with the study protocol, data are recorded on
source documents and laboratory reports and are then transcribed onto CRFs. The
data are collected from study sites by specially trained CRAs. CRAs visit sites
regularly to ensure that the CRFs are completed correctly and are consistent
with the underlying source documents and that all data specified in the protocol
are collected. The CRAs take completed CRFs to the study coordinating site,
where the CRFs are reviewed for consistency and accuracy before the information
is entered into an electronic database.
. QA/QC. The Company can provide quality assurance and control audit
services to its sponsors. These services involve auditing all aspects of the
preclinical and clinical trial process for regulatory compliance with FDA
rules, regulations and guidelines.
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. Medical Writing. The results of biostatistical analysis of data
collected during the trial, together with other clinical data, are included in a
final report generated for inclusion in regulatory documents.
. Medical Affairs. Throughout the course of a clinical trial, the
Company may provide various medical and research services, including medical
monitoring of clinical trials, interpretation of clinical trial results, and
preparation of clinical study reports.
Clinical Data Management and Biostatistical Services. The Company's data
management professionals assist in the design of protocols and CRFs, as well as
training manuals and training sessions for investigational staff, to ensure that
data are collected in an organized and consistent format. Databases are designed
according to the analytical specifications of the project and the particular
needs of the client. Prior to data entry, the Company's personnel screen CRFs
for errors, omissions and other deficiencies. The Company provides clients with
data abstraction, data review and coding, data entry, database verification and
editing, and problem data resolution.
The Company's biostatistics professionals provide biostatistical
consulting and plans, database design, data analysis, biostatistical reporting,
and assistance in all phases of drug development. These professionals develop
and review protocols, design appropriate analysis plans and design report
formats to address the objectives of the study protocol as well as the client's
individual objectives. Working with the programming staff, biostatisticians
perform appropriate analyses and produce tables, graphs, listings and other
applicable displays of results according to the analysis plan. Biostatisticians
assist clients before panel hearings at the FDA.
These services are utilized by clients to process data that have
previously been collected by either the client itself or the Company as part of
a distinct phase in the drug development process. The Company believes that its
data management and biostatistical services capabilities can be utilized by a
client more effectively when packaged as part of its total clinical trials
management services. This permits a faster and less costly clinical trial
process, because the data is collected and analyzed more rapidly. The Company
emphasizes this data management and biostatistical integration as a "turn-key"
approach in its marketing efforts.
Product Registration Services. The Company provides comprehensive
product registration services in the United States and Europe. The Company
provides regulatory strategy formulation, document preparation, and Good
Manufacturing Practice consultation. The Company also acts as liaison with the
FDA and other regulatory agencies. Although these services have not generated
material revenue to date, the Company offers them in order to provide a full
range of services for its clients.
The Company works closely with clients to devise regulatory strategies
and comprehensive product development programs. The Company's scientific and
regulatory affairs experts review existing published literature, assess the
scientific background of a product, assess the competitive and regulatory
environment, identify deficiencies and define the steps necessary to obtain
registration in the most expeditious manner. Through this service, the Company
helps its clients determine the feasibility of developing a particular product
or product line.
The Company's scientific and regulatory affairs professionals have
experience in the analysis, preparation and submission of regulatory documents
covering a wide range of products, including drugs and over-the-counter
products. The Company also offers the preparation of regulatory documentation
for submission to regulatory authorities.
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RISK FACTORS
Portions of this report contain certain "forward-looking" statements
within the meaning of the federal securities laws. In addition, the Company and
its representatives may from time to time make oral and other written
forward-looking statements. The Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include the factors set forth below.
Operating History; Unprofitability. The Company was organized in
September 1992. As of December 31, 1997, the Company had an accumulated deficit
of $6,075,884 and had reported net losses since its organization, including net
losses of $1,177,226, $1,966,196 and $2,340,535 for the years ended December 31,
1995, 1996 and 1997, respectively. There can be no assurance that the Company
will be able to operate profitably in the future. See the discussion in the
remainder of this Item 1, below.
Loss or Delay of Clinical Research Contracts. Clients of the Company
generally have the right to terminate a clinical research contract upon 60 to 90
days notice, potentially causing periods of excess capacity and reductions in
service revenue and net income. Contracts may be terminated for various reasons,
including unexpected or undesired results, inadequate patient enrollment or
investigator recruitment, production problems resulting in shortages of the
drug, adverse patient reactions to the drug, or the client's decision to
de-emphasize a particular trial. Clinical trials may often be delayed for
similar reasons. The loss or delay of a large contract or the simultaneous loss
or delay of multiple contracts could result in unplanned periods of excess
capacity, thereby materially and adversely affecting the Company's backlog,
revenue and profitability. In most instances, if a contract is terminated, the
Company is entitled to receive revenue earned to date. However, in the case of
fixed-price contracts, the Company bears the risk of cost overruns. See
"Description of Business--Clients" and the discussion in the remainder of this
Item 1, below.
Dependence on Certain Industries and Clients. The Company provides
services primarily to the pharmaceutical, medical device and biotechnology
industries. Accordingly, the Company's service revenue is substantially
dependent on these industries' expenditures on research and development.
Although these expenditures are large, the number of potential CRO clients is
relatively limited, and concentrations of business in the CRO industry are not
uncommon. In fiscal 1996, the Company's top five clients accounted for 75% of
the Company's revenue. In fiscal 1997, the Company's top three clients accounted
for 57% of the Company's revenue. The Company is likely to continue to derive a
substantial portion of its revenue from a relatively limited number of major
projects or clients. The loss of business from a significant client could have a
material adverse effect on the Company. Additionally, the Company's operations
could be materially and adversely affected by, among other factors, any economic
downturn in the pharmaceutical, medical device or biotechnology industries, any
decrease in their research and development expenditures, or a change in the
governmental regulations pursuant to which these industries operate.
Furthermore, management believes that the Company has benefited to date from the
increasing tendency of pharmaceutical, medical device and biotechnology
companies to outsource the performance and analysis of clinical research
projects to independent outside organizations. A reversal or slowing of this
trend could have a material adverse effect on the Company. See "Description of
Business--Clients."
Impact of Government Regulation; Compliance with Regulatory Standards.
The market for the Company's services depends upon the comprehensive government
regulation of the drug development process. In the United States, the historical
trend has been in the direction of continued or increased regulation by the FDA
and other governmental agencies, although the FDA recently announced regulatory
changes intended to streamline the approval process for biotechnology products
by applying the same standards as are in effect for conventional drugs. Changes
in regulation, including a relaxation in
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regulatory requirements or the introduction of simplified drug approval
procedures, could materially and adversely affect the demand for the services
offered by the Company. In addition, failure on the part of the Company to
comply with applicable regulations could result in the termination of ongoing
research or the disqualification of data, either of which could have a material
and adverse affect on the Company, including damage to the Company's reputation
in the CRO industry. See "Description of Business--Government Regulation."
Competition; Industry Consolidation. The CRO industry is not capital
intensive and the financial costs of entry into this industry are relatively
low. The industry, therefore, is highly fragmented with many small,
limited-service providers in addition to several medium-sized CROs and a few
large, full-service CROs with global operations. Clinicor competes primarily
against other CROs, pharmaceutical companies' in-house research departments,
SMOs, and academic centers, many of which have substantially greater financial
and other resources than the Company. CROs generally compete on the basis of
previous experience, medical and scientific expertise in specific therapeutic
areas, the quality of contract research, the ability to organize and manage
large-scale trials on a global basis, the ability to manage large and complex
medical databases, the ability to provide biostatistical analysis and regulatory
services, the ability to recruit investigators, the ability to integrate
information technology with systems to improve the efficiency of contract
research, an international presence with strategically located facilities,
financial viability and price. There can be no assurance that the Company will
be able to compete favorably in these areas. Competitive pressures have resulted
in an increasing consolidation of the CRO industry, which is likely to result in
heightened competition among the larger CROs for both clients and acquisition
candidates. In addition, consolidation within the CRO and pharmaceutical
industries as well as a trend by pharmaceutical companies to outsource among
fewer CROs and to develop preferred provider relationships has led to heightened
competition for CRO contracts. Increased competition may lead to price and other
forms of competition that may materially and adversely affect the Company's
business. See "Description of Business--Competition."
Fluctuation in Quarterly Operating Results; Potential Volatility of
Stock Price. The Company's quarterly operating results have fluctuated as a
result of factors such as client delays in implementing particular clinical
trials and the costs associated with start-up operations. Because a high
percentage of the Company's operating costs are relatively fixed while revenue
recognition is subject to fluctuation, minor variations in the timing of
contracts or the progress of clinical trials may cause significant variations in
quarterly operating results. Results of one quarter are not necessarily
indicative of results for future quarters. In addition, the market price of the
Company's Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, changes in earnings
estimates by analysts, market conditions in the industry, prospects of health
care reform, changes in government regulation and general economic conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have been unrelated to the operating
performance of particular companies. These market fluctuations may adversely
affect the market price of the Company's Common Stock. Investors in the
Company's Common Stock must be willing to bear the risk of such fluctuations in
earnings and stock price.
Potential Liability from Operations. Clinical trials involve the testing
of approved and experimental drugs on human volunteers pursuant to study
protocols. Such testing involves a risk of liability for personal injury or
death to participants due to, among other reasons, possible unforeseen adverse
reactions or side effects. The Company may be subject to claims in the event of
personal injury or death of persons participating in clinical trials.
Additionally, the Company, on behalf of its clients, contracts with physicians
who render professional services, including the administration of the substance
being tested, to trial participants. As a result, the Company may be subject to
claims arising from professional malpractice of such physicians.
The Company attempts to manage its liability risk through contractual
indemnification provisions with clients and its physician investigators. The
contractual indemnifications generally do not protect the
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Company against certain of its own actions such as negligence. The contractual
arrangements are subject to negotiation with clients, and the terms and scope of
such indemnification vary from client to client and from trial to trial.
Although most of the Company's clients are large, well-capitalized companies,
the financial performance of these indemnities is not secured. Therefore, the
Company bears the risk that the indemnifying party may not have the financial
ability to fulfill its indemnification obligations. The financial position of
the Company could be materially and adversely affected if it were required to
pay damages or incur defense costs in connection with an uninsured or
inadequately insured claim that is beyond the scope of an indemnity provision or
where the indemnifying party does not fulfill its indemnification obligations.
The Company currently maintains an errors and omissions professional
liability insurance policy. There can be no assurance that this insurance
coverage will be adequate or that insurance coverage will continue to be
available on terms acceptable to the Company. The Company has not experienced
any claims to date arising out of any clinical trial managed or monitored by it.
Potential Adverse Impact of Health Care Reform. In the last several
years, several comprehensive health care reform proposals have been introduced
in the U.S. Congress. The intent of the proposals was, generally, to expand
health care coverage for the uninsured and control growing health care costs.
While none of the proposals were adopted, health care reform may again be
addressed by the U.S. Congress. Implementation of government health care reform
may adversely affect research and development expenditures by pharmaceutical and
biotechnology companies, resulting in a decrease of the business opportunities
available to the Company. See "Description of Business--Clients." Management is
unable to predict the likelihood of health care reform proposals being enacted
into law or the effect such law would have on the Company.
Dependence on Personnel. The Company relies on a number of key
executives, including Robert S. Sammis, its President and Secretary, upon whom
the Company maintains key man life insurance, and James W. Clark, Jr., its Vice
President of Finance, Treasurer and Chief Financial Officer. The loss of the
services of any of the Company's key executives could have a material adverse
effect on the Company. The Company's performance also depends on its ability to
attract and retain qualified professional, scientific and technical operating
staff. See "Description of Business--Services." The level of competition among
employers for skilled technical and scientific personnel, particularly those
with M.D., Ph.D. or equivalent degrees, is high. There can be no assurance the
Company will be able to continue to attract and retain sufficient numbers of
qualified personnel.
Management of Business Expansion; Need for Improved Systems; Expansion
of Foreign Operations. Since the Company was organized, its business and
operations have experienced substantial expansion. The Company believes that
such expansion places a strain on operational, human and financial resources. In
order to manage such expansion, the Company must continue to improve on its
operating, administrative and information systems, accurately predict its future
personnel and resource needs to meet client contract commitments, track the
progress of ongoing client projects and attract and retain qualified management,
professional, scientific and technical operating personnel. Expansion of foreign
operations also may involve the additional risks of adjusting to differences in
foreign business practices, hiring and retaining qualified personnel, and
overcoming language and cultural barriers. Failure of the Company to meet the
demands of and to manage expansion of its business and operations could have a
material adverse effect on the Company's business.
Risks Associated with Future Acquisitions. The Company has not made any
acquisitions to date but intends to review acquisition opportunities in 1998. If
the Company were to make one or more acquisitions, these acquisitions would
involve numerous risks, such as the difficulties and expenses that would be
incurred in connection with the acquisition and the subsequent assimilation of
the operations and services of the acquired companies and the diversion of
management's attention from other business concerns.
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CLIENTS
The Company has performed or is currently performing studies for 34
different clients, including seven of the 25 largest pharmaceutical companies in
the world. All of the Company's foreign-based clients have operations in the
United States. The Company's revenues have historically been derived primarily
from services performed in the United States.
The Company derives a significant portion of its revenue from a
relatively limited number of projects or clients. Concentrations of business in
the CRO industry are typical, and the Company is likely to experience such
concentrations in 1998 and future years. In 1996, five clients each accounted
for more than 10% of the Company's total revenue, or 23%, 17%, 13%, 11% and 11%.
In 1997, three clients each accounted for more than 10% of the Company's total
revenue, or 11%, 24%, and 22%, respectively. The Company's total revenues for
1996 and 1997 were provided from 18 and 21 separate clients, respectively.
COMPETITION
The Company primarily competes against in-house departments of
pharmaceutical companies, other full service CROs, and, to a lesser extent, SMOs
and academic centers. Some of these competitors have substantially greater
capital, technical and other resources than the Company. CROs generally compete
on the basis of previous experience, medical and scientific expertise in
specific therapeutic areas, quality of contract research, ability to organize
and manage large-scale trials on a global basis, ability to manage large,
complex medical databases, ability to provide biostatistical analysis and
regulatory services, ability to recruit investigators, ability to rapidly
recruit patients, ability to integrate information technology with systems to
improve the efficiency of contract research, an international presence,
financial viability and price. The Company believes that it competes favorably
in these areas, except that it does not have a significant international
presence.
The CRO industry is highly fragmented, with participants ranging from
several hundred small, limited-service providers to several large, full-service
CROs with global operations. Some of the largest CROs are Quintiles
Transnational Corporation, Covance, Inc., Parexel International Corporation, PPD
Pharmaco, Inc. and ClinTrials Research, Inc. The trend toward consolidation in
the CRO and pharmaceutical industries has resulted in heightened competition
among the larger CROs for clients and acquisition candidates. In addition,
pharmaceutical companies in recent years have tended to outsource among fewer
CROs and to designate a limited number of CROs as "preferred providers." If the
Company does not succeed in developing preferred provider relationships with
major pharmaceutical companies, the Company's ability to retain existing
sponsors and to attract new business could be materially and adversely affected.
GOVERNMENT REGULATION
The clinical investigation of new pharmaceutical, biotechnology and
medical device products is highly regulated by governmental agencies. The
purpose of these regulations is to ensure that only those products which have
been proven to be safe and effective are made available to the public. The FDA
has set forth regulations and guidelines that pertain to applications to
initiate trials of products, approval and conduct of studies, report and record
retention, informed consent, applications for the approval of new products, and
post-marketing requirements. Pursuant to these regulations, CROs that assume
obligations of a drug sponsor are required to comply with applicable regulations
and are subject to regulatory action for failure to comply with such
regulations. In the United States, the historical trend has been in the
direction of increased regulation by the FDA, although the FDA in the last four
years has made some modifications to expedite certain processes and recent
legislative initiatives have been proposed to accelerate that trend.
11
<PAGE>
The services provided by the Company are ultimately subject to FDA
regulation in the United States and comparable agencies in other countries,
although the level of applicable regulation in other countries can be less
comprehensive than regulation present in the United States. The Company is
obligated to comply with FDA regulations governing such activities as selecting
qualified investigators, obtaining required forms from investigators, recruiting
patients, verifying that patient informed consent is obtained, monitoring the
validity and accuracy of data, verifying drug/device accountability, and
instructing investigators to maintain records and reports. The Company must also
maintain records for each study for specified periods for inspection by the
study sponsor and the FDA. The FDA has the authority to audit the Company's
compliance with Federal regulations and guidelines, and if such audits document
that the Company has failed to adequately comply, it could have a material
adverse effect on the Company. In addition, the Company's failure to comply with
applicable regulations could possibly result in termination of ongoing research
or the disqualification of data, either of which could have a material adverse
effect on the Company, including, without limitation, damage to the Company's
reputation.
INTELLECTUAL PROPERTY
The Company has registered CLINICORx(R) as a service mark with the
United States Patent and Trademark Office.
EMPLOYEES
At December 31, 1997, the Company had approximately 230 employees,
approximately 95 of whom were full time.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 21,634 square feet in Austin, Texas.
The Company believes it will not encounter any unusual difficulty obtaining
additional leased office space at acceptable terms and rates if required for
future expansion. The Company also has short term leases of office space in San
Antonio, Texas, Bridgewater, New Jersey and Windsor, England.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 24, 1997, at a special meeting of the shareholders of the
Company, the holders of the Company's Common Stock and Convertible Preferred
Stock approved an amendment to the Company's Articles of Incorporation (i) to
create a new class of Preferred Stock, which was denominated "Class B
Convertible Preferred Stock," (ii) to increase the number of the authorized
shares of the Company to 75,055,181 to add 50,000 shares of Class B Convertible
Preferred Stock and (iii) to redesignate the existing class of Convertible
Preferred Stock as Class A Convertible Preferred Stock and to modify certain
other terms of the Class A Convertible Preferred Stock. A total of 2,761,182
shares of the Company's Common Stock, or 68% of the outstanding stock of that
class, and 3,776 of the Company's Convertible Preferred Stock, or 100% of that
class, were represented at the special meeting in person or by proxy. Of the
shares represented at the meeting, 2,756,992 shares of the Common Stock and
3,776 shares of the Convertible Preferred Stock voted in favor of the amendments
to the Articles of
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Incorporation, 300 shares of the Company's Common Stock voted against the
amendments and 3,890 shares of the Company's Common Stock abstained from voting.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock has, since March 1995, traded on the
Over-the-Counter Bulletin Board ("OTCBB"). Set forth below for the fiscal
quarters indicated are the range of high and low bids of the Common Stock on the
OTCBB:
1996 1997
---- ----
High Low High Low
First Quarter 2-1/4 1-1/2 8-3/8 4
Second Quarter 4-5/8 1-7/8 6-5/16 3-3/4
Third Quarter 4 2-5/8 5-3/4 3-1/16
Fourth Quarter 4-3/8 3-1/16 4-7/8 3-7/8
The foregoing quotations, which were obtained from Prophet Information Services,
Inc., reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
As of March 10, 1998, there were 51 shareholders of record of the
Company's Common Stock.
The Company has never paid dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. The Company is
prohibited from paying dividends on its Common Stock without the consent of the
holders of the Company's Preferred Stock.
The Company has made the following sales of its Common Stock and
Preferred Stock during the fiscal year ended December 31, 1997. None of the
sales have involved the use of underwriters.
<TABLE>
<CAPTION>
Amount of
Date of Sale Class of Securities Total
or Issuance Securities (Shares) Purchasers Consideration
----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
1. June 1997 Class A Preferred 145 4 entities dividend
2. November 1997 Class B Preferred 50,000 1 entity $ 5,000,000
3. December 1997 Class A Preferred 154 4 entities dividend
</TABLE>
The issuances described in items 1 and 3 above were scheduled dividends
on the Company's outstanding shares of Class A Convertible Preferred Stock. The
Class A Convertible Preferred Stock terms provide for semi-annual dividends,
which are payable in kind at the rate of 8% per annum. The Company does not
believe that payment of these dividends constitutes a separate sale and believes
that, to the extent the issuance may be deemed to be a sale, it is exempt
pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 thereunder.
Certificates representing securities issued in payment of the dividends bore
restrictive legends. For a description of the terms of the Class A Convertible
Preferred Stock, see Note 8 of Notes to Financial Statements.
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<PAGE>
Sales pursuant to item 2 above were made in reliance upon Section 4(2)
of the Securities Act of 1933 and Rule 506 thereunder. A Form D was timely filed
with respect thereto. The purchaser was an accredited institutional investment
fund. Extensive due diligence was conducted in connection with the sale by its
purchaser and its legal counsel. The certificate representing securities issued
pursuant to item 1 bore a restrictive legend. For a description of the terms of
the Class B Convertible Preferred Stock, see Note 8 of Notes to Financial
Statements.
In connection with the issuance described in item 2 above, the Company
issued a warrant to purchase 100,000 shares of the Company's Common Stock at an
exercise price of $5.50 per share to The Robinson-Humphrey Company, LLC
("Robinson-Humphrey"). The warrant was issued in reliance upon an exemption from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Robinson-Humphrey is an institutional accredited investor. The warrant is not
transferable except upon compliance with all applicable securities laws.
In connection with a loan to the Company from Oracle Partners, L.P.
("Oracle") in July 1997, one of the holders of the Company's Class A Convertible
Preferred Stock, the Company issued to Oracle a warrant to purchase 200,000
shares of the Company's Common Stock at an exercise price of $5.50 per share.
The warrant is subject to anti-dilution protection and other adjustments to the
exercise price in certain events. The warrant exercise price was adjusted to
$5.17 per share (with a corresponding increase in the number of shares
purchasable thereunder to 212,766) in connection with the issuance of Class B
Convertible Preferred Stock pursuant to item 1 above. The warrant was originally
issued in reliance upon an exemption pursuant to Section 4(2) of the Securities
Act of 1933, as amended. Oracle is an institutional accredited investor.
Extensive due diligence was conducted by Oracle and its counsel in connection
with the loan transaction of which the warrant issuance was a part. The warrant
is not transferable except upon compliance with all applicable securities laws.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company is a fully-integrated contract research organization ("CRO")
serving the pharmaceutical, biotechnology and medical device industries
("sponsors"). The Company designs, manages and monitors clinical trials in North
America and Europe and provides integrated clinical and product development
services, including patient recruitment, data management, biostatistical
analysis, regulatory affairs, medical device and other consultation and QA/QC
services for its sponsors. The Company generates substantially all of its
revenue from services related to the clinical testing of new pharmaceutical,
medical device and biotechnology products.
The Company's contracts for services generally vary from a few months to
several years in duration. A portion of the contract fee is typically required
to be paid when the contract is initiated, with the balance payable in
installments over the contract's duration. The installment payments are based on
performance or the achievement of milestones, relating payment to previously
negotiated events such as patient enrollment, patient completion or delivery of
databases, or periodic, based on personnel fees and actual expenses, typically
billed on a monthly basis.
In accordance with the terms of the Company's contracts, sponsors may
terminate or delay the performance of a contract, potentially causing the
Company to experience periods of excess capacity and reductions in service
revenue and net income. Trials may be terminated or delayed for a variety of
reasons, including unexpected or undesired results, production problems
resulting in shortages of the product or delays in supplying the product,
adverse patient reaction to the product, or the sponsor's decision to
de-emphasize a particular trial. If a trial is terminated, the contract
generally provides for a short continuation or wind-down period, as the Company
manages required investigator obligations
14
<PAGE>
through the termination date. The Company is typically entitled to all amounts
owed for work performed through the notice of termination and all costs
associated with termination of the study. In addition, contracts may require the
payment of a separate early termination fee, the amount of which usually
declines as the trial progresses.
Revenue from contracts is recognized as work is performed. Some contracts
contain a fixed price per patient plus either fixed or variable fees for
additional service components such as monitoring, project management,
advertising, travel, data management, consulting and report writing. Other
contracts are time and materials based. Payments received on contracts in excess
of amounts earned are recorded as deferred revenue.
The Company's gross revenue backlog consists of anticipated service revenue
from clinical trials and other services that have not been completed and that
generally specify completion dates within 24 months. To qualify as "backlog"
anticipated projects must be represented by contracts or letter agreements or
must be projects for which the Company has commenced a significant level of
effort based upon sponsor commitment and approval of a written budget. Once work
commences, service revenue is recognized over the life of the contract. The
Company's gross revenue backlog was approximately $14.0 million at December 31,
1997 and approximately $16.5 million at December 31, 1996. The Company believes
that its backlog at any given date is not necessarily a meaningful predictor of
future results, and no assurances can be given that the Company will fully
realize all of its backlog as service revenue.
Reimbursable costs can include patient and investigator stipends,
Institutional Review Board fees, laboratory and medical supplies, patient
recruitment advertising, travel and consulting fees. Reimbursable costs that are
paid to the Company directly by the client, and for which the Company does not
bear the risk of economic loss, are deducted from gross service revenue in
accordance with CRO industry practice.
Direct costs include project personnel costs and related allocated overhead
costs such as rent, supplies, postage, express delivery and telecommunications,
as well as study-related costs not reimbursed by clients. Selling, general and
administrative expenses consist primarily of compensation and benefits for
marketing and administrative personnel, professional services, facility costs,
and other allocated overhead items.
RESULTS OF OPERATIONS
Year ended December 31, 1997 compared to the year ended December 31, 1996
The following table sets forth, for the periods indicated, certain items
included in the Company's audited statements of operations for the years ended
December 31, 1997 and 1996, and the percentage of net service revenue for each
item. Any results or trends illustrated in the following table may not be
indicative of future results or trends.
15
<PAGE>
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenues $10,856,562 $3,581,402
Reimbursable costs 3,790,416 781,354
---------- ---------
Net service revenue 7,066,146 100.0% 2,800,048 100.0%
Operating costs and expenses:
Direct costs 5,052,698 71.5% 1,990,798 71.1%
Selling, general and administrative 3,549,622 50.2% 2,623,278 93.7%
Depreciation and amortization 474,464 6.7% 157,597 5.6%
------- -------
Total operating costs and expenses 9,076,784 128.4% 4,771,673 170.4%
--------- ---------
Loss from operations (2,010,638) -28.4% (1,971,625) -70.4%
Net interest income (expense) (329,897) -4.7% 5,429 0.1%
------- -----
Net loss $(2,340,535) -33.1% $(1,966,196) -70.3%
=========== ===========
</TABLE>
Net service revenues increased approximately $4,266,000, or 152%. The
increase is primarily attributable to an increase in the volume and size of
clinical trials and, to a lesser extent, an increase in data management
services.
Reimbursable costs increased to approximately 35% of gross revenue for
1997, as compared to 22% of gross revenue for 1996. This increase is a direct
result of the contract mix for which revenue was recognized during the
respective periods. Contracts in process during 1997 contained a higher
percentage of reimbursable costs as compared to those in 1996. Part of this
increase in the reimbursable cost component resulted from a higher ratio of time
and materials based contracts.
Direct costs increased approximately $3,062,000, or 154%. The increase in
direct costs is consistent with the percentage increase in net service revenues
for the year ended December 31, 1997. Most of the increase in direct costs is
due to additions of full-time study, patient and data management staff and
related overhead. As a percentage of net service revenues, direct costs were
approximately 71% for both 1997 and 1996. Management had expected that direct
costs as a percentage of net service revenue would have approximated 65% for the
year ended December 31, 1997. Staffing levels were increased in 1997 in
anticipation of additional growth in contract backlog and certain sponsor
programs which were scheduled to commence in the third quarter of 1997 but which
were delayed until 1998.
Selling, general and administrative expenses increased approximately
$926,000 or 35%, primarily due to increased personnel and related costs
resulting from the addition of accounting, information technology, marketing and
administrative employees. Office expenses, which include rent, supplies, and
telecommunication costs, increased due to the increase in personnel. During
1997, a noncash charge of approximately $158,000 for compensation expense was
recorded related to certain performance-based stock options, as compared to
$535,000 in 1996. Selling, general and administrative expenses were
approximately 50% of net service revenue for 1997, as compared to 94% for 1996.
This improvement in the percentage of selling, general and administrative
expenses to net service revenues is a result of the growth in net service
revenues exceeding the growth in these expenses.
Depreciation and amortization expenses increased approximately $317,000 or
201%. This increase is primarily a result of the purchase of approximately
$1,100,000 in property, plant and equipment during the last half of 1996.
Included in the capital purchases were additions to the Company's computer
16
<PAGE>
information systems, facility expansion costs, and office furniture and
equipment related to the Company's growing staff and its move to a new corporate
office in December 1996.
Interest expense increased by approximately $323,000 ($180,000 of which was
a noncash charge related to the issuance of a warrant described below). This
increase is directly related to the term loan entered into in July 1997 with
Oracle Partners, L.P. The term note required interest of 10%, the issuance of a
warrant for 200,000 shares of common stock with a term of five years at $5.50
per share, and issuance costs of approximately $90,000. The Company determined
the fair market value of the warrants to be $180,000 which, along with the
issuance costs, were amortized over the term of the loan.
This loan was repaid in November, 1997.
The Company recorded no income tax benefit as a result of the net operating
losses for the years ended December 31, 1997 and 1996, due to the uncertainty
that the loss carryforwards will be utilized.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and internal
growth with proceeds from private placements of equity securities, advances from
shareholders and borrowing arrangements under capital leases and lines of
credit. Investing activities have consisted of capital expenditures, primarily
for leasehold improvements, information systems, furniture and office equipment.
Typically, cash flows from contracts include a payment at the time a
contract commences and the balance in installments over the contract's duration,
in some cases on a milestone completion basis. Consequently, cash receipts do
not necessarily correspond to costs incurred and revenue recognized on
contracts. The Company's cash flow is influenced by changes in levels of
accounts receivable, net of amounts billed representing unearned revenue.
Accounts receivable increased to approximately $2,490,000 at December 31, 1997
from approximately $1,490,000 at December 31, 1996. The increase of
approximately $1,000,000 is a result of the growth in revenues and the timing of
payments by sponsors. Deferred or unearned revenue increased by approximately
$1,000,000 during 1997. The increase in deferred revenue offset the negative
cash effect of the increase in accounts receivable. Cash collections from
clinical study contracts for 1997 totaled approximately $10,860,000 as compared
with $2,700,000 for 1996.
Net cash flow used in operating activities was approximately $1,557,000 for
1997, as compared to approximately $2,000,000 in 1996. The improvement of
approximately $443,000 is the result of the increase of deferred revenue during
1997. The operating losses which continued in 1997 were due to increased
staffing and overhead levels incurred in 1997 in anticipation of higher levels
of net service revenues being earned in 1997. Certain clinical trials under
contract were delayed or reduced in scope during 1997 which negatively impacted
1997 earnings and contract backlog levels. Expected growth in contract backlog
did not occur in 1997. As a result, the operating losses did not improve in
1997. Management intends to control future staff expansion and overhead cost
increases until the growth of net service revenues absorbs the current level of
excess capacity.
Net cash increased by approximately $2,780,000 during 1997. The improvement
in net cash for 1997 was primarily a result of the net proceeds of approximately
$4,600,000 from the November, 1997 sale to Tandem Capital, a division of Sirrom
Capital Corporation ("Tandem"), of $5,000,000 of 12% Class B Convertible
Preferred Stock. The proceeds from this transaction were used to repay a
$1,000,000 short term loan from Oracle Partners, L.P.
Investing activities are attributable to purchases of property and
equipment and were approximately $229,000 in 1997 as compared to approximately
$1,100,000 in 1996. In addition, the Company utilized operating and capital
leases in 1997 to provide approximately $400,000 of property and equipment
additions. During 1998, the Company plans to implement an Oracle database on a
Unix network server to support study management, patient recruitment, data
management and accounting departments. The
17
<PAGE>
Oracle project is expected to improve operational efficiency and support future
growth. The Company expects to invest approximately $750,000 in the Oracle
project during the next 12 months.
The Company in December, 1997 entered into a loan agreement with a national
banking institution to provide a $2,500,000 working capital line of credit
secured by accounts receivable. The purpose of this line of credit is to provide
the Company with additional working capital to fund its accounts receivable.
Management believes that its existing capital resources, together with cash
flows from operations and borrowing capacity under its working capital line of
credit, will be sufficient to fund its operations in 1998. In the future, the
Company may acquire businesses to expand its contract backlog and to enhance its
therapeutic expertise. Any such acquisition would require additional external
financing, and the Company may seek such funds from public or private issuances
of equity, debt securities, or bank financing. There can be no assurance that
such financing will be available on terms acceptable to the Company.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
Certain statements made in Management's Discussion and Analysis or Plan of
Operation may constitute "forward-looking" statements within the meaning of the
federal securities laws. The Company notes that a variety of factors could cause
the Company's actual results and experience to differ materially from the
anticipated results expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include the "Risk Factors" discussed in
Item 1 above.
RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," both of which will be effective for
the Company's 1998 fiscal year. SFAS No. 130 will require companies to present
certain items as separate components of stockholders' equity. SFAS No. 131 will
require companies to report certain financial and descriptive information about
their reportable operating segments. Management does not believe that the effect
of implementing these standards will materially impact the Company's financial
statements.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements:
Page
----
Report of Price Waterhouse LLP, Independent Accountants F-1
Balance Sheet - December 31, 1997 and 1996 F-2
Statement of Operations - Years ended December 31, 1997 and 1996 F-3
Statement of Shareholders' Equity - December 31, 1997 and 1996 F-4
Statement of Cash Flows - Years ended December 31, 1997 and 1996 F-5
Notes to Financial Statements F-6 - F-15
18
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 2, 1996, the Company dismissed BDO Seidman, LLP as its
independent public accountant and retained Price Waterhouse LLP. The decision to
change accountants was approved by the Company's Board of Directors. There were
no disagreements with BDO Seidman on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to BDO Seidman's satisfaction, would have caused it to
make reference to the subject matter of the disagreement in connection with its
report.
PART III
The Company plans to file with the Securities and Exchange Commission a
definitive proxy statement for its 1998 Annual Meeting of Shareholders (the
"Proxy Statement") not later than April 30, 1998, and certain information
included therein is incorporated herein by reference.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information regarding the Company's directors and executive officers
required by this Item is incorporated by reference to the sections in the
Company's Proxy Statement entitled "Election of Directors" and "Management."
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 by the directors, executive officers and beneficial owners
of more than ten percent of the Common Stock of the Company required by this
Item is incorporated by reference to the section in the Company's Proxy
Statement entitled "Compliance Under Section 16(a) of the Securities Exchange
Act of 1934."
ITEM 10. EXECUTIVE COMPENSATION
The information regarding compensation of directors and executive officers
of the Company required by this Item is incorporated by reference to the section
in the Company's Proxy Statement entitled "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding security ownership of certain beneficial owners
and management required by this Item is incorporated herein by reference to the
section in the Company's Proxy Statement entitled "Ownership of Common Stock and
Preferred Stock."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions
required by this Item is incorporated by reference to the section in the
Company's Proxy Statement entitled "Certain Transactions."
19
<PAGE>
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS.
2 Not applicable
3(a) Articles of Incorporation, as previously amended
(incorporated herein by reference to Exhibit 3(a) filed
with the Registration Statement on Form 10-SB, as amended,
declared effective January 13, 1997) and as amended by the
Certificate of Amendment of Articles of Incorporation
filed with the Secretary of State of Nevada on November
24, 1997
3(b) Amended and Restated Bylaws, as amended (incorporated
herein by reference to Exhibit 3(b) filed with the
Registration Statement on Form 10-SB, as amended, declared
effective January 13, 1997 and Exhibit 3(a) to the
registrant's Quarterly Report on Form 10-QSB as filed with
the Securities and Exchange Commission on August 13, 1997)
4(a) Stock Purchase Agreement dated as of July 15, 1996 between
the registrant and Oracle Partners, L.P., Quasar
International Partners, C.V., Oracle Institutional
Partners, L.P. and GSAM Oracle Fund, Inc. (incorporated
herein by reference to Exhibit 4(a) filed with the
Registration Statement on Form 10-SB, as amended, declared
effective January 13, 1997)
4(b) Articles of Incorporation of the registrant, as amended,
incorporated herein by reference to Exhibit 3(a)
4(c) Amended and Restated Bylaws of the registrant, as amended,
incorporated herein by reference to Exhibit 3(b)
4(d) Terms of Warrants issued by the registrant (incorporated
herein by reference to Exhibit 4(d) filed with the
Registration Statement on Form 10-SB, as amended, declared
effective January 13, 1997)
4(e) Sales Agent Warrant dated May 20, 1996 issued to SJ
Capital, Inc. (incorporated herein by reference to Exhibit
4(f) filed with the Registration Statement on Form 10-SB,
as amended, declared effective January 13, 1997)
4(f) Warrant to purchase shares of the registrant's common
stock issued to Oracle Partners, L.P. on July 1, 1997
(incorporated herein by reference to Exhibit 4(a) to the
registrant's Quarterly Report on Form 10-QSB as filed with
the Securities and Exchange Commission on August 13, 1997)
4(g) Preferred Stock Purchase Agreement dated November 7, 1997
between the registrant and Sirrom Capital Corporation
d/b/a Tandem Capital (incorporated herein by reference to
Exhibit 4(a) to the registrant's Quarterly Report on Form
10-QSB as filed with the Securities and Exchange
Commission on November 14, 1997)
4(h) Registration Rights Agreement dated as of November 25,
1997 between the registrant and Sirrom Capital Corporation
d/b/a Tandem Capital
20
<PAGE>
4(i) Amended and Restated Registration Rights Agreement dated
as of November 25, 1997 between the registrant, Oracle
Partners, L.P., Quasar International Partners, C.V.,
Oracle Institutional Partners, L.P. and GSAM Oracle Fund,
Inc.
4(j) Lock-Up Agreement dated as of November 25, 1997 between the
registrant, O'Donnell Family Limited Partnership, Messrs.
Robert S. Sammis and Thomas P. O'Donnell, Oracle Partners,
L.P., Quasar International Partners, C.V., Oracle
Institutional Partners, L.P., GSAM Oracle Fund, Inc. and
Sirrom Capital Corporation d/b/a Tandem Capital
4(k) Warrant to purchase shares of the registrant's common
stock issued to The Robinson-Humphrey Company, LLC on
November 25, 1997
9 Not applicable
10(a) Voting and Pre-Merger Agreement dated February 14, 1995
among the registrant, Thomas P. O'Donnell, Robert S. Sammis
and Steven J. Dell, M.D. (incorporated herein by reference
to Exhibit 10(a) filed with the Registration Statement on
Form 10-SB, as amended, declared effective January 13, 1997)
10(b) Voting and Pre-Merger Agreement dated February 14, 1995
among the registrant, Thomas P. O'Donnell, Robert S. Sammis
and William M. Ramsdell, M.D. (incorporated herein by
reference to Exhibit 10(b) filed with the Registration
Statement on Form 10-SB, as amended, declared effective
January 13, 1997)
10(c) Voting and Pre-Merger Agreement dated February 14, 1995
among the registrant, Thomas P. O'Donnell, Robert S. Sammis
and David Shulman, M.D. (incorporated herein by reference to
Exhibit 10(c) filed with the Registration Statement on Form
10-SB, as amended, declared effective January 13, 1997)
10(d) Sales Agent Agreement effective September 15, 1995 between
the registrant and SJ Capital, Inc. (incorporated herein
by reference to Exhibit 10(d) filed with the Registration
Statement on Form 10-SB, as amended, declared effective
January 13, 1997)
10(e) Option Agreement dated March 5, 1996 between the
registrant and Randolph J. Haag (incorporated herein by
reference to Exhibit 10(j) filed with the Registration
Statement on Form 10-SB, as amended, declared effective
January 13, 1997)
10(f) Stock Option Agreement dated February 27, 1995 between the
registrant and Robert S. Sammis (incorporated herein by
reference to Exhibit 10(m) filed with the Registration
Statement on Form 10-SB, as amended, declared effective
January 13, 1997)
10(g) Employment Agreement dated July 15, 1996 between the
registrant and Robert S. Sammis (incorporated herein by
reference to Exhibit 10(o) filed with the Registration
Statement on Form 10-SB, as amended, declared effective
January 13, 1997)
10(h) Unsecured Note dated October 1, 1995 executed by the
registrant and payable to Robert Sammis (incorporated
herein by reference to Exhibit 10(q) filed with the
Registration Statement on Form 10-SB, as amended, declared
effective January 13, 1997)
21
<PAGE>
10(i) Letter Agreement dated August 21, 1996 between the
registrant and Zola P. Horovitz (incorporated herein by
reference to Exhibit 10(s) filed with the Registration
Statement on Form 10-SB, as amended, declared effective
January 13, 1997)
10(j) Lease dated October 23, 1996 between the registrant and
Lake Austin Commons, Ltd. (incorporated herein by
reference to Exhibit 10(t) filed with the Registration
Statement on Form 10-SB, as amended, declared effective
January 13, 1997)
10(k) First Amendment to Office Lease Agreement dated November
21, 1996 between the registrant and Lake Austin Commons,
Ltd. (incorporated herein by reference to Exhibit 10(u) to
the registrant's Annual Report on Form 10-KSB as filed
with the Securities and Exchange Commission on April 15,
1997)
10(l) Agreement Regarding Option Grant effective January 1, 1997
between the registrant and Robert S. Sammis (incorporated
herein by reference to Exhibit 10(x) to the registrant's
Annual Report on Form 10-KSB as filed with the Securities
and Exchange Commission on April 15, 1997)
10(m) Stock Option Agreement dated May 12, 1997 between the
registrant and James W. Clark, Jr. (incorporated herein by
reference to Exhibit 10(a) to the registrant's Quarterly
Report on Form 10-QSB as filed with the Securities and
Exchange Commission on August 13, 1997)
10(n) Employment Agreement effective June 1, 1997 between the
registrant and James W. Clark, Jr. (incorporated herein by
reference to Exhibit 10(a) to the registrant's Quarterly
Report on Form 10-QSB as filed with the Securities and
Exchange Commission on November 14, 1997)
10(o) Loan and Security Agreement effective December 19, 1997
between the registrant and NationsCredit Commercial
Corporation, through its NationsCredit Commercial Funding
Division
10(p) Employment Agreement effective March 17, 1998 between the
registrant and Susan Krivacic
10(q) Amended and Restated 1995 Director, Employee and Consultant
Stock Option Plan
11 Not applicable
13 Not applicable
16 Letter on Change in Certifying Accountant (incorporated
herein by reference to Exhibit 16 filed with the
Registration Statement on Form 10-SB, as amended, declared
effective January 13, 1997)
18 Not applicable
21 Not applicable
22 Not applicable
23 Not applicable
22
<PAGE>
24 Not applicable
27 Financial Data Schedule
99 Not applicable
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the fiscal
year covered by this report.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CLINICOR, INC.
Date March 30, 1998 By /s/ ROBERT S. SAMMIS
------------------ --------------------------------------
Robert S. Sammis
President, Principal Executive Officer
and Secretary
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ ROBERT S. SAMMIS President, Principal Executive March 30, 1998
- ---------------------------- Officer, Secretary, Director --------------
(Robert S. Sammis)
/s/ JAMES W. CLARK, JR. Vice President of Finance, March 30, 1998
- ---------------------------- Principal Financial Officer, --------------
(James W. Clark, Jr.) Treasurer, Director
/s/ ARTHUR P. HAAG Director March 30, 1998
- ---------------------------- --------------
(Arthur P. Haag)
/s/ JOSEPH L. DOWLING Director March 30, 1998
- ---------------------------- --------------
(Joseph L. Dowling)
/s/ ZOLA P. HOROVITZ Director March 30, 1998
- ---------------------------- --------------
(Zola P. Horovitz, Ph.D.)
/s/ CRAIG MACNAB Director March 30, 1998
- ---------------------------- --------------
(Craig Macnab)
24
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Clinicor, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Clinicor, Inc. at December 31, 1997
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Austin, Texas
March 13, 1998
F-1
<PAGE>
CLINICOR, INC.
BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash, restricted cash and cash equivalents $ 3,255,182 $ 1,483,974
Accounts receivable, net 2,472,928 1,489,555
Prepaid and other current assets 129,823 143,992
----------- -----------
Total current assets 5,857,933 3,117,521
Property and equipment, net 1,029,122 1,118,877
Other assets -- 39,739
----------- -----------
TOTAL ASSETS $ 6,887,055 $ 4,276,137
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases $ 45,929 $ 11,733
Accounts payable and accrued liabilities 1,052,957 1,088,505
Line of credit -- 850,000
Deferred revenue 1,053,150 35,000
Notes payable to shareholders -- 181,000
----------- -----------
Total current liabilities 2,152,036 2,166,238
Obligations under capital leases, less current portion 68,173 16,047
----------- -----------
Total liabilities 2,220,209 2,182,285
----------- -----------
Commitments and contingencies (Note 7)
Shareholders' equity :
Class A convertible preferred stock, no par value, 5,181 shares authorized,
3,930 and 3,631 shares issued and outstanding, respectively 3,930,000 3,631,000
Class B convertible preferred stock, no par value, 50,000 shares
authorized, 50,000 and 0 issued and outstanding, respectively 5,000,000 --
Common stock, $0.001 par value, 75,000,000 shares authorized,
4,086,400 and 4,086,400 shares issued and outstanding, respectively 4,086 4,086
Additional paid-in capital 1,875,536 2,418,915
Deferred compensation (66,892) (224,800)
Accumulated deficit (6,075,884) (3,735,349)
----------- -----------
Total shareholders' equity 4,666,846 2,093,852
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,887,055 $ 4,276,137
=========== ===========
</TABLE>
F-2
<PAGE>
CLINICOR, INC.
STATEMENT OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
--------------------------------
1997 1996
--------------- -------------
<S> <C> <C>
Service revenue:
Gross revenue $ 10,856,562 $ 3,581,402
Reimbursable costs 3,790,416 781,354
------------ ------------
Net service revenue 7,066,146 2,800,048
Operating costs and expenses:
Direct costs 5,052,698 1,990,798
Selling, general and administrative 3,549,622 2,623,278
Depreciation and amortization 474,464 157,597
------------ ------------
Total operating costs and expenses 9,076,784 4,771,673
------------ ------------
Loss from operations (2,010,638) (1,971,625)
Other income and expenses:
Interest income 37,274 49,851
Interest expense (367,171) (44,422)
------------ ------------
Other income and expenses (329,897) 5,429
------------ ------------
NET LOSS $ (2,340,535) $ (1,966,196)
============ ============
Net loss $ (2,340,535) $ (1,966,196)
Preferred stock dividends and conversion discount (2,027,880) (131,444)
------------ ------------
Net loss applicable to common stock $ (4,368,415) $ (2,097,640)
============ ============
BASIC/DILUTED EARNINGS PER SHARE $ (1.07) $ (0.52)
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,086,400 4,059,433
</TABLE>
F-3
<PAGE>
CLINICOR, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE ADDITIONAL
PREFERRED PREFERRED COMMON STOCK PAID-IN DEFERRED ACCUMULATED
STOCK A STOCK B SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
----------- ----------- --------- ------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ - $ 3,939,000 $3,939 $1,938,499 $(150,000) $(1,769,153) $ 23,285
Common stock issued in connection with
the continuation of the Company's
private placement dated
September 15, 1995 - - 135,400 135 309,715 - - 309,850
Common stock issued on May 20, 1996 - - 12,000 12 11,988 - - 12,000
Convertible preferred stock issued on
July 15, 1996, 3,500 shares, net 3,500,000 - - - (319,823) - - 3,180,177
Deferred stock option compensation - - - - 609,980 (609,980) - -
Amortization of deferred compensation - - - - - 535,180 - 535,180
Net loss - - - - - - (1,966,196) (1,966,196)
Dividends on convertible preferred stock 131,000 - - - (131,444) - - (444)
---------- ---------- --------- ------ ---------- --------- ----------- ----------
Balance at December 31, 1996 $3,631,000 $ - 4,086,400 $4,086 $2,418,915 $(224,800) $(3,735,349) $2,093,852
Convertible preferred stock issued on
November 25,1997, 50,000 shares, net - 5,000,000 - - (362,868) - - 4,637,132
Amortization of deferred compensation - - - - - 157,908 - 157,908
Warrants issued in connection with
debt obtained - - - - 180,000 - - 180,000
Net loss - - - - - - (2,340,535) (2,340,535)
Dividend on preferred stock - - - - (61,511) - - (61,511)
Dividends on convertible preferred stock 299,000 - - - (299,000) - - -
---------- ---------- --------- ------ ---------- --------- ----------- ----------
Balance at December 31, 1997 $3,930,000 $5,000,000 4,086,400 $4,086 $1,875,536 $ (66,892) $(6,075,884) $4,666,846
========== ========== ========= ====== ========== ========= =========== ==========
</TABLE>
F-4
<PAGE>
CLINICOR, INC.
STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,340,535) $(1,966,196)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 474,464 157,597
Noncash stock option compensation expense 157,908 535,180
Accretion of debt discount 180,000 -
Allowance for doubtful accounts 20,000 -
Net changes in assets and liabilities:
Accounts receivable (1,003,373) (856,015)
Prepaid expenses and other assets 14,169 (169,716)
Accounts payable and accrued liabilities (97,503) 290,975
Deferred revenue 1,018,150 (10,000)
----------- -----------
Net cash used in operating activities (1,576,720) (2,018,175)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (228,718) (1,094,040)
----------- -----------
FINANCING ACTIVITIES:
Payments on capital leases (29,486) (23,119)
Repayments of shareholder loans (181,000) -
Proceeds from term loan 1,000,000 -
Repayment of term loan (1,000,000) -
Net proceeds from issuing common stock - 321,850
Net proceeds from issuing preferred stock 4,637,132 3,180,177
Borrowings (repayments) under line of credit (850,000) 850,000
Restricted cash securing line of credit 1,009,840 (1,009,840)
----------- -----------
Net cash provided by financing activities 4,586,486 3,319,068
----------- -----------
Net increase in unrestricted cash and cash equivalents 2,781,048 206,853
Unrestricted cash and cash equivalents at beginning of year 474,134 267,281
----------- -----------
Unrestricted cash and cash equivalents at end of year $ 3,255,182 $ 474,134
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 206,388 $ 29,942
=========== ===========
Non-cash financing activities:
Preferred stock dividends and conversion discount $ 1,965,667 $ 131,000
=========== ===========
Capital lease obligations $ 115,808 $ -
=========== ===========
</TABLE>
F-5
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1 - Organization and Summary of Significant Accounting Policies
Description of Business
Clinicor, Inc. ("Clinicor" or the "Company") is a contract research
organization serving companies in the pharmaceutical, biotechnology and
medical device industries. Clinicor manages, monitors and performs
clinical trials which are studies of investigational drugs and medical
devices performed with human patients to support sponsors' applications
to the Food and Drug Administration and other governmental authorities.
The Company operates in one business segment.
Basis of Presentation
On February 27, 1995, Clinicor was merged into a non-reporting publicly
held, inactive Nevada corporation in a reverse merger transaction (the
"Merger") which has been accounted for as a "pooling of interests." The
surviving corporation assumed the name Clinicor, Inc., and effective
January 13, 1997, became a publicly reporting company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash, Restricted Cash and Cash Equivalents
Cash and cash equivalents consist primarily of funds invested in
short-term interest bearing accounts. The Company considers all highly
liquid investments purchased with initial maturities of three months or
less to be cash equivalents.
Included in cash, restricted cash and cash equivalents at December 31,
1996, is a $1,009,840 certificate of deposit pledged as collateral for
the $1,000,000 revolving line of credit discussed in Note 4. This
certificate of deposit is excluded from cash and cash equivalents for
statement of cash flow purposes.
Concentration of Credit Risk
Financial investments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial
Accounting Standards No. 105, consist primarily of trade accounts
receivable.
The majority of the Company's customer base are large pharmaceutical
companies. Although the Company is directly affected by the well being
of the pharmaceutical industry, management does not believe significant
credit risks existed at December 31, 1997.
Property and Equipment
Property and equipment is stated at cost, net of accumulated
depreciation and amortization. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets
ranging from three to five years. Repair and maintenance costs are
charged to expense as incurred.
F-6
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Revenue Recognition
Fixed price contract revenue is recognized using the percentage of
completion method based upon the ratio of services provided to date
compared to total services to be provided under each contract. Revenue
from other contracts is recognized as the services are provided. Losses
on contracts, if any, are accrued when they become probable.
Study contracts generally provide for payments based upon the
achievement of defined benchmarks. Deferred revenue represents amounts
invoiced prior to rendering the related services, while unbilled
revenue represents the billing value of services rendered prior to
being invoiced. Substantially all the deferred revenue and unbilled
revenue will be earned and billed, respectively, within one year.
Direct Costs
Direct costs are direct expenses of performing studies, including
compensation and related benefits for project personnel, investigator
fees, patient stipends, laboratories, advertising, labor, other
clinical costs, and allocated overhead expenses.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109") under which deferred tax assets and liabilities are
provided on differences between carrying value for financial reporting
purposes and tax bases of assets and liabilities using the enacted tax
rates. A valuation allowance is recognized, if on the weight of
available evidence, it is more likely than not that some portion or all
of the deferred tax asset will not be realized.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share". This statement establishes new
standards for computing and presenting earnings per share ("EPS") and
requires restatement of all prior-period EPS data.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information", both of which
will be effective for the Company's 1998 fiscal year. SFAS No. 130 will
require companies to present certain items as separate components of
stockholders' equity. SFAS No. 131 will require companies to report
certain financial and descriptive information about their reportable
operating segments. Management does not believe that the effect of
implementing these standards will materially impact the Company's
financial statements.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including
cash and cash equivalents and trade accounts receivable and payable
approximate fair values.
Comparative Information
Certain amounts related to the prior year have been reclassified to
conform to the current year presentation.
F-7
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 2 - Accounts Receivable
Accounts receivable consisted of the following at December 31:
1997 1996
------------------ ------------------
Billed $ 1,259,614 $ 1,145,076
Unbilled 1,233,314 344,479
Allowance for
doubtful accounts (20,000) -
------------------ ------------------
$ 2,472,928 $ 1,489,555
================== ==================
Note 3 - Property and Equipment
Property and equipment consisted of the following at December 31:
1997 1996
------------------- ------------------
Computer systems $ 720,509 $ 549,596
Leasehold improvements 416,511 413,404
Office equipment 512,171 331,220
Medical equipment 57,987 57,987
------------------- ------------------
1,707,178 1,352,207
Less accumulated
depreciation and
amortization 678,056 233,330
------------------- ------------------
$ 1,029,122 $ 1,118,877
=================== ==================
Depreciation expense was $444,726 and $153,914 for the years ended
December 31, 1997 and 1996, respectively.
Included in the December 31, 1997 and 1996 balances of equipment are
$163,000 and $64,000, respectively, of assets acquired under capital
leases. Accumulated depreciation of these assets was $69,000 and
$35,000 at December 31, 1997 and 1996, respectively, and depreciation
expense was $46,790 and $25,871, respectively, for the years ended
December 31, 1997 and 1996.
F-8
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 4 - Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following at
December 31:
1997 1996
------------------------------
Accounts payable trade $ 537,204 $ 545,638
Accrued legal and professional 31,906 277,000
Accrued investigators 293,877 -
Accrued other 189,970 265,867
--------- ---------
$ 1,052,957 $ 1,088,505
========= =========
Note 5 - Long-term Debt
At December 31, 1996, the Company had a $1,000,000 secured revolving
line of credit with a bank. Interest on the line accrues at the rate
the bank offers on certificates of deposit for a similar term and
amount, plus 150 basis points (6.22% at December 31, 1996). The line
was collateralized by a $1,009,840 certificate of deposit at December
31, 1996. The Company had drawn $850,000 on this line of credit as of
December 31, 1996. This line was repaid in May, 1997 with the proceeds
from the certificate of deposit which secured it.
On July 1, 1997, the Company entered into a six month term loan with
its Class A Preferred Stockholder. The loan terms required the payment
of interest at 10%. In connection with negotiating the loan, the
Company issued a warrant to purchase 200,000 shares of Clinicor's
common stock at $5.50 per share. The warrant exercise price was
adjusted to $5.17 per share and the shares purchasable were adjusted to
212,766 in connection with the issuance of the Class B Preferred Stock
(Note 8). The warrants are immediately exercisable and expire five
years from the date of issuance. The Company valued the warrant at
$180,000 and reflected such amount as a discount to the related debt.
This discount was amortized using the effective interest method over
the six month term of the related debt. Total interest expense
recognized in 1997 related to this loan was approximately $314,750. The
loan was repaid on November 25, 1997.
On December 30, 1997, the Company entered into a four-year, $2.5
million secured revolving credit facility with a national banking
institution. The interest rate at December 31,1997 on this credit
facility was 10.75%. There were no amounts outstanding under this
credit facility and unused availability approximated $500,000 at
December 31, 1997.
Note 6 - Notes Payable to Shareholders
Certain shareholders, including an officer and director, advanced
$181,000 to the Company during 1995 under the terms of unsecured demand
notes of the Company. The notes bear interest at 8% and at December 31,
1996, accrued interest payable in connection with these notes totaled
$19,217. These notes and related accrued interest were paid in 1997.
Note 7 - Commitments and Contingencies
The Company leases office space, computers and other equipment under
noncancellable operating and capital lease agreements. These leases
have expiration dates ranging from 1997 through 2001. Rent expense
under operating leases totaled $423,000 and $81,000 for the years ended
December 31, 1997 and 1996, respectively. During December 1996, the
Company leased 21,634 square feet of new office space to house its
expanding operations.
F-9
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Future minimum lease payments under all leases as of December 31, 1997
were as follows:
Capital Operating
Leases Leases
--------- ---------
1998 $ 56,481 $ 508,345
1999 49,288 467,850
2000 18,748 400,395
2001 - 348,438
2002 and thereafter - -
--------- ----------
Total minimum lease payments 124,517 $ 1,725,028
==========
Less amounts representing
interest (10,415)
---------
Present value of net minimum
lease payments 114,102
Less current portion of capital
lease obligations 45,929
---------
$ 68,173
=========
The Company and an officer and director whom the Company has
indemnified were involved in a lawsuit brought by a former employer.
Amounts expended during 1996 relating to the settlement and associated
legal fees aggregated $243,000. This matter was resolved and the
settlement paid in May 1997.
Note 8 - Capital Stock
Class A Preferred Stock
On July 15, 1996, the Company issued to Oracle Partners, L.P. and
certain affiliates 3,500 shares of convertible Class A preferred stock,
no par value (the "Class A Preferred Stock"), for total consideration
of $3,500,000, which provided the Company net proceeds of $3,180,177
after deducting offering costs of $319,823. Included in these offering
costs was $125,000 of expense to cancel certain preemptive rights held
by three shareholders. The Class A Preferred Stock carries a
liquidation preference of $1,000 per share. The Class A Preferred Stock
provides for annual cumulative dividends, which for a five-year period
following issuance are payable in kind and which accrue at the rate of
8% per annum. On the fifth anniversary of the date of issuance, the
dividend rate increases to 10% per annum, and the rate thereafter
increases by an additional 2% on each successive anniversary date.
Dividends accruing after the fifth anniversary date are payable in
cash. Through 1997, the Company issued Class A Preferred Stock
dividends of 430 shares.
The Class A Preferred Stock is redeemable at the option of the Company
at any time after July 15, 1998; there is no mandatory redemption. The
Class A Preferred Stock is convertible into that number of shares of
Common Stock of the Company as is equal to the liquidation preference
of the Class A Preferred Stock being
F-10
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
converted, divided by a "conversion value," which is initially $1.50
and which is subject to adjustment if certain events occur. No such
events had occurred as of December 31, 1997.
Class B Preferred Stock
On November 25, 1997, the Company issued to Tandem Capital, a division
of Sirrom Capital Corporation, 50,000 shares of Class B Convertible
Preferred Stock, no par value ("Class B Preferred Stock"), for total
consideration of $5,000,000, which provided the Company net proceeds of
$4,637,132 after deducting offering costs of $362,868. The Class B
Preferred Stock carries a liquidation preference of $100 per share. The
Class B Preferred Stock provides for annual cumulative dividends of $12
per share payable quarterly. The annual dividend rate of $12 per share
will be increased by $2 per share beginning on the fifth anniversary of
the issuance and subsequently every six months thereafter.
The Class B Preferred Stock cannot be redeemed during the first year of
issuance unless the Company has first offered to redeem all Class A
Preferred Stock. After the first year and prior to the fifth
anniversary of the original issue date, the Company may redeem the
Class B Preferred Stock, as long as the average bid price of the Common
Stock exceeds $6.00 per share for each of the immediately preceding 20
consecutive trading days.
The Class B Preferred Stock is convertible at any time into that number
of shares of common stock of the Company as is equal to the liquidation
preference divided by the conversion price which is initially set at
$3.00 per share, which is subject to future adjustment if certain
events occur. No such events have occurred as of December 31, 1997.
The $3.00 conversion price represented a discount from the market price
of Clinicor common stock at the date of issuance of the Class B
Preferred Stock. As a result, $1,666,667 of the proceeds, representing
the conversion discount, was allocated to additional paid in capital.
The carrying amount of the Class B Preferred Stock was accreted to
redemption value during 1997 as a charge to paid in capital. The
conversion discount is reflected as a reduction of income available to
common shareholders in the 1997 earnings per share calculation (Note
10).
The holders of the Class A and B Preferred Stock have various
additional rights, including registration rights, pursuant to the
Company's Articles of Incorporation, as amended, and pursuant to
various agreements entered into with the holders of the Class A and B
Preferred Stock.
Stock Option Plan
In December 1994, the Company and the shareholders approved the 1995
Directors, Employees and Consultants Stock Option Plan (the "Option
Plan"), which provides for the grant of both incentive and
non-qualified stock options to directors, employees and certain other
persons affiliated with the Company. The stock options granted under
the Option Plan are generally granted at the fair value of the Common
Stock on the date of grant. The terms of each option (including
duration of the options, which is typically 5 to 10 years, and
provisions as to vesting) are determined by the Board of Directors at
the time of grant and are set forth in an option agreement between the
Company and the optionee. At December 31, 1997 and 1996, the Company
had reserved 2,000,000 shares of Common Stock under the option plan.
The Company adopted Statement of Financial Accounting Standards No. 123
(Accounting for Stock-Based Compensation) effective January 1, 1996 and
has elected to continue to apply APB No. 25 and related interpretations
in accounting for the Option Plan. Accordingly, no compensation expense
has been recognized for option grants made at fair value and containing
fixed vesting terms. The Company has recorded deferred compensation
equal to the fair value of fixed option grants made to individuals
other than employees and directors and fixed option grants to employees
made below fair value, as well as performance based stock
F-11
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
option grants. Amortization of deferred compensation, which is being
charged against income over the vesting period of the options, totaled
$157,908 and $535,180 in 1997 and 1996, respectively.
Of the 1,188,220 options outstanding at December 31, 1997, 212,720 have
performance based vesting provisions which allow for 108,481 of such
options to vest anytime after January 1, 1998, if for any previous
twelve-month period the Company achieves revenues of $12 million or
pre-tax earnings of $2 million. The remaining 104,239 of these options
vest anytime after January 1, 1999, if for any previous twelve-month
period the Company achieves revenues of $18 million or pre-tax earnings
of $3 million. In early 1997, the vesting provisions of these options
were restated to make clear that all of the options that have not
previously vested will vest on February 27, 2000.
Had compensation cost of all stock option grants been determined based
on their fair value at the grant date consistent with the method
prescribed by SFAS No. 123, the Company's net loss and loss per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C> <C>
Net loss applicable As reported $(4,368,415) $(2,097,640)
to common stock Pro forma $(4,739,726) $(1,759,388)
Net loss applicable
to common stock As reported $(1.07) $(0.52)
per share Pro forma $(1.16) $(0.43)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1997 and 1996, respectively;
dividend yield of zero for both years; expected volatility of 55% and
60%; risk-free interest rate of 6.1 and 6.0 percent; and respective
lives of 5 and 4 years.
F-12
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
A summary of option grants is presented below at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- --------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 487,720 $ 1.05 427,720 $ 1.09
At market 710,500 4.73 10,000 1.50
Below market - - 50,000 1.00
Exercised - - - -
Canceled (10,000) 1.50 - -
---------------- --------------
Outstanding at end of year 1,188,220 $ 3.25 487,720 $ 1.05
================ ==============
Options exercisable at
year end 265,168 $ 1.25 173,334 $ .76
Weighted-average fair value of
options granted during year:
At market $ 2.66 $ .81
Below market $ 0 $ .90
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------- ---------------------------------------
Weighted-
Average
Remaining
Range of Contractual Weighted- Weighted-
Exercise Prices Number Life Average Price Number Average Price
-------------------- ----------------- ----------------- -------------- ------------------
(Years)
<S> <C> <C> <C> <C> <C>
$0.10 50,000 1.24 $ 0.10 50,000 $ 0.10
$1.00 to $1.25 427,720 2.48 $ 1.15 181,668 $ 1.04
$4.00 to $4.25 57,500 7.10 $ 4.08 33,500 $ 4.13
$4.68 to $4.88 653,000 6.59 $ 4.79 - -
---------------- --------------
1,188,220 265,168
================ ==============
</TABLE>
F-13
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Common Stock Warrants
A discussed in Note 4, the Company issued a warrant in 1997 to purchase
a total of 200,000 shares of Clinicor common stock in conjunction with
obtaining the term loan. In addition, the Company issued a warrant in
1997 to purchase a total of 100,000 shares of Clinicor common stock at
$5.50 per share for professional services in connection with the Class
B Preferred Stock offering.
Note 9 - Income Taxes
At December 31, 1997, the Company had a net operating loss carryforward
of approximately $4,800,000 for federal tax purposes. The carryforward
along with smaller temporary differences including depreciation and
miscellaneous accruals result in a deferred tax asset of approximately
$1,600,000. This asset has been fully reserved through a valuation
allowance. Due to sales of stock in 1997 and 1996, the annual
utilization of these loss carryforwards will be limited under Internal
Revenue Code Section 382
Note 10 - Earnings per Share
Earnings per share have been calculated in accordance with the
provisions of SFAS No. 128. All prior years' earnings per share data
have been restated to reflect the provisions of SFAS No. 128. The
implementation of the standard has resulted in the presentation of a
basic EPS calculation in the consolidated financial statements as well
as a diluted EPS calculation. Basic EPS is computed by dividing net
income (loss) applicable to common stockholders by the weighted average
number of common shares outstanding during each period. Diluted EPS is
computed by dividing net income (loss) applicable to common
stockholders by the weighted average number of common shares and common
share equivalents outstanding (if dilutive), during each period. The
number of common share equivalents outstanding is computed using the
treasury stock method.
The following is a reconciliation of the basic per share computations:
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------
1997 1996
---------------------------------
<S> <C> <C>
Loss from continuing operations $(2,340,535) $(1,966,196)
Less-Preferred stock dividends-Class A Preferred (299,702) (131,444)
Preferred stock dividends-Class B Preferred (61,511) -
Accretion of discount on Class B Preferred (1,666,667) -
----------------------------------
Loss applicable to common shareholders $(4,368,415) $(2,097,640)
==================================
Shares used in computing basic earnings per share 4,086,400 4,059,433
Loss per share
Basic/Diluted $(1.07) $(0.52)
==================================
</TABLE>
At December 31, 1997, potentially dilutive securities consisted of stock
options convertible into 1,188,220 shares of common stock; Series A
convertible preferred stock convertible into 2,620,000 shares of common stock;
Series B convertible preferred stock convertible into 1,666,667 shares of
common stock; and warrants convertible into 758,720 shares of common stock.
F-14
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 11 - Significant Clients
The Company has had up to five clients who each accounted for more than
10% of the Company's revenues as follows:
1997 1996
---------------- ---------------
Client A 3% 13%
Client B 11% 17%
Client C 24% 23%
Client D 4% 11%
Client E - 11%
Client F 22% -
Additionally, at December 31, 1997 and 1996, certain clients had
accounts receivable and unbilled revenue balances with the Company
which represented the following amounts of total net accounts
receivable and unbilled revenues:
1997 1996
---------------- ---------------
Client A 18% -
Client B - 19%
Client C 18% -
Client D 7% 14%
Client E 10% -
Client F 11% -
Client G - 36%
Note 12 - Employees' Savings Plan
The Company's 401(k) Savings and Retirement Plan, effective January 1,
1996, is a defined contribution retirement plan as described in Section
401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k)
Plan is intended to be qualified under Section 401(a) of the Code. All
full time employees of the Company are eligible to participate in the
401(k) Plan after approximately 90 days of employment. The 401(k) Plan
provides that each participant make elective contributions up to 15% of
his or her compensation, subject to statutory limits. The Company did
not make contributions to the 401(k) Plan for the year ended December
31, 1997 and 1996.
F-15
<PAGE>
EXHIBIT 3(a)
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CLINICOR, INC.
The undersigned, being the President and Assistant Secretary of CLINICOR,
INC., do certify and set forth:
1. The name of the Corporation is CLINICOR, INC.
2. Article VI, Sections 1 and 2, of the Articles of Incorporation of the
Corporation are amended to read in their entirety as follows:
"Section 1. Authorized Shares. The aggregate number of shares which the
Corporation shall have authority to issue is 75,055,181, of which (a) 75,000,000
shares shall be designated "Common Stock", par value $.001 per share, (b) 5,181
shares shall be designated "Class A Convertible Preferred Stock", without par
value, and (c) 50,000 shares shall be designated "Class B Convertible Preferred
Stock", without par value. The "Class A Convertible Preferred Stock" is
sometimes referred to as the "Class A Preferred Stock", the "Class B Convertible
Preferred Stock" is sometimes referred to as the "Class B Preferred Stock", and
both such classes of stock are sometimes referred to collectively as the
"Convertible Preferred Stock".
Section 2. Relative Rights. Subject to the rights of the holders of
the Convertible Preferred Stock, the Common Stock shall be entitled to dividends
out of funds legally available therefor, when, as and if declared and paid to
the holders of Common Stock, and upon liquidation, dissolution or winding up of
the Corporation, to share ratably in the assets of the Corporation available for
distribution to the holders of Common Stock. Except as otherwise provided
herein or by law, the holders of the Common Stock shall have full voting rights
and powers and each share of Common Stock shall be entitled to one vote. The
following is a statement of the designations, preferences, limitations and
relative rights in respect of the shares of each class of Convertible Preferred
Stock of the Corporation. Unless otherwise indicated, references to "Sections"
contained herein shall refer to subdivisions of this Section 2 of Article VI.
A. Class A Preferred Stock
Each share of Class A Preferred Stock shall be subject to the
following provisions:
<PAGE>
1. Dividends.
a. Right to Receive Dividends. The holders of the Class A
Preferred Stock shall be entitled to receive, when, if and as declared by the
Corporation's Board of Directors, out of funds legally available therefor,
cumulative dividends payable as set forth in this Section A(1).
b. Cumulative Dividends and Dividend Payment Dates. Dividends
on the Class A Preferred Stock shall accrue and shall be cumulative from July
15, 1996, the date of issuance of the shares of Class A Preferred Stock (the
"Class A Date of Original Issue"), whether or not earned or declared by the
Board of Directors of the Corporation. Until paid, the right to receive
dividends on the Class A Preferred Stock shall accumulate, and shall be payable
in kind in additional shares of Class A Preferred Stock, as set forth below, in
arrears, on June 30 and December 31 of each year (a "Class A Dividend Payment
Date"), commencing on December 31, 1996 (the "Initial Class A Dividend Payment
Date") except that if such Class A Dividend Payment Date is not a business day,
then the Class A Dividend Payment Date will be the immediately preceding
business day.
Not later than noon on the business day immediately preceding
each Class A Dividend Payment Date, the Corporation shall set aside a sufficient
number of shares of Class A Preferred Stock for the payment of declared
dividends and shall deliver such shares of Class A Preferred Stock to the
holders of shares of Class A Preferred Stock as of the record date for such
dividend in payment of such declared dividends on such Class A Dividend Payment
Date. Each such dividend declared by the Board of Directors on the Class A
Preferred Stock shall be paid to the holders of record of shares of the Class A
Preferred Stock as they appear on the Stock Register on the record date which
shall be the business day next preceding a Class A Dividend Payment Date.
Dividends in arrears for any past dividend period may be declared by the Board
of Directors of the Corporation and paid on shares of the Class A Preferred
Stock on any date fixed by the Board of Directors of the Corporation, whether or
not a regular Class A Dividend Payment Date, to holders of record of shares of
the Class A Preferred Stock as they appear on such Stock Register on the record
date, which shall not be greater than 15 days before such Class A Dividend
Payment Date, as may be fixed by the Board of Directors of the Corporation. Any
dividend payment made on shares of the Class A Preferred Stock shall first be
credited against the dividends accumulated with respect to the earliest dividend
period for which dividends have not been paid.
No dividends shall be declared or paid or set apart for payment
on the shares of Common Stock or any other class or series of capital stock of
the Corporation (other than dividends on shares of the Class A Preferred Stock
and the Class B Preferred Stock, in each case as further provided herein) for
any dividend period unless full cumulative dividends in accordance with the
terms hereof have been or contemporaneously are declared and paid on (i) the
Class A Preferred Stock through the most recent Class A Dividend Payment Date,
and (ii) the Class B Preferred Stock through the most recent Class B Dividend
Payment Date (as hereinafter defined). The Corporation shall not declare or pay
or set apart for payment any cash dividends on the shares of Class A Preferred
Stock for any dividend period unless (x) full cumulative dividends have been
2
<PAGE>
or contemporaneously are declared and paid on the Class B Preferred Stock
through the most recent Class B Dividend Payment Date or (y) simultaneously
therewith an amount equal to the Class B Proportional Accumulated Dividend (as
hereinafter defined), calculated as of the Class A Dividend Payment Date, is set
apart for the benefit of the Class B Preferred Stock to be paid on the next
Class B Dividend Payment Date, and (z) on such Class A Dividend Payment Date, no
violation shall have occurred which has not been cured of the provisions of
Sections B(5)(a) - (e). The Corporation shall not declare or pay or set apart
for payment less than all of the cash dividends payable on the shares of Class A
Preferred Stock for any dividend period unless simultaneously therewith an
amount equal to the Class B Proportional Accumulated Dividend (as hereinafter
defined), calculated as of the Class A Dividend Payment Date, is set apart for
the benefit of the Class B Preferred Stock to be paid on the next Class B
Dividend Payment Date. If full cumulative dividends have not been paid or,
pursuant to the provisions of this Section A(1)(b), are not entitled to be paid
on shares of the Class A Preferred Stock, any dividends thereafter declared on
shares of the Class A Preferred Stock shall be paid pro rata to the holders of
outstanding shares of the Class A Preferred Stock. Holders of the shares of
Class A Preferred Stock shall not be entitled to any cash dividends, in excess
of full cumulative dividends as set forth in this paragraph. No interest or sum
of money in lieu of interest shall be payable in respect of any dividend payment
or payments on the Class A Preferred Stock which may be in arrears.
The "Class B Proportional Accumulated Dividend" shall be an
amount equal to the result obtained by multiplying (i) the aggregate amount
available for declaration and payment as a cash dividend to all holders of
Convertible Preferred Stock on the Class A Dividend Payment Date times (ii) the
result obtained by dividing (A) the aggregate amount of accumulated but unpaid
cash dividends on the Class B Preferred Stock for each Class B dividend period
or part thereof as of the Class A Dividend Payment Date (computed for partial
Class B dividend periods by multiplying the Class B Dividend Rate (as
hereinafter defined) applicable to such partial Class B dividend period by a
fraction the numerator of which shall be the number of days in such partial
Class B dividend period prior to the Class A Dividend Payment Date (calculated
by counting the first day thereof but excluding the last day thereof) and the
denominator of which shall be 360) by (B) the aggregate amount of all
accumulated but unpaid dividends on the Convertible Preferred Stock as of the
Class A Dividend Payment Date.
c. Class A Dividend Rate. The dividend rate (the "Class A
Dividend Rate") on each share of Class A Preferred Stock shall be 8% per share
per annum on the Class A Liquidation Preference (as hereinafter defined) of each
such share for the period from the Class A Date of Original Issue until the
Initial Class A Dividend Payment Date and, for each dividend period thereafter,
which shall commence on the last day of the preceding dividend period and shall
end on the next Class A Dividend Payment Date, shall be at the Class A Dividend
Rate (as adjusted from time to time as hereinafter provided) on such Class A
Liquidation Preference and no more. The amount of dividends per share of the
Class A Preferred Stock payable for each dividend period or part thereof shall
be computed by multiplying the Class A Dividend Rate for such dividend period by
a fraction the numerator of which shall be the number of days in the dividend
period or part thereof (calculated by counting the first day thereof but
excluding the last day thereof) such share
3
<PAGE>
was outstanding and the denominator of which shall be 360 and multiplying the
result by the Class A Liquidation Preference. Any such dividend declared shall
be payable in kind in additional shares of Class A Preferred Stock. The
Corporation shall issue, in payment of such dividend, such number of shares of
Class A Preferred Stock as will have an aggregate Class A Liquidation Preference
equal to the amount of the dividend so payable by the Corporation. In
furtherance thereof, the Corporation shall reserve out of the authorized but
unissued shares of Class A Preferred Stock, solely for issuance in respect of
the payment of dividends as herein described, a sufficient number of shares of
Class A Preferred Stock to pay such dividends, when, if and as declared by the
Board of Directors of the Corporation. Notwithstanding anything to the contrary
contained herein, from and after July 15, 2001, the Class A Dividend Rate shall
increase to 10% per annum on the Class A Liquidation Preference of the shares of
Class A Preferred Stock, and thereafter, the Class A Dividend Rate shall
increase by an additional 2% per annum on each successive Class A Dividend
Payment Date. All such dividends accruing from and after July 15, 2001 shall be
payable in cash.
d. Purchase of Class A Preferred Stock if Dividends are in
Arrears. So long as any shares of the Class A Preferred Stock are outstanding,
the Corporation may not purchase or otherwise acquire for any consideration
(except through a redemption of all the outstanding shares of the Class A
Preferred Stock) any shares of the Class A Preferred Stock during any period
when dividends on the Class A Preferred Stock are in arrears for any past
dividend period.
e. Waiver of Limitation on Dividends. Dividends may be paid on
the Class A Preferred Stock even if, after giving effect thereto, the
Corporation's total assets would be less than the sum of its total liabilities,
plus the amount that would be needed, if the Corporation were to be dissolved at
the time of such distribution, to satisfy the preferential rights upon
dissolution of stockholders, if any, whose preferential rights are superior to
those receiving the distribution.
2. Voting Rights.
a. Except as otherwise provided herein or by law, the holders
of Class A Preferred Stock shall have full voting rights and powers, and they
shall be entitled to vote on all matters as to which holders of Common Stock
shall be entitled to vote, voting together with the holders of Common Stock and
the Class B Preferred Stock as one class; provided, however, that solely with
respect to the right to elect and remove directors, the holders of the Class A
Preferred Stock shall not be entitled to vote pursuant to this Section A(2)(a).
The provisions of Section A(2)(b) hereof shall govern the rights of the holders
of Class A Preferred Stock with respect to the election and removal of
directors. Each holder of shares of Class A Preferred Stock shall be entitled
to the number of votes equal to the number of shares of Common Stock into which
such shares of Class A Preferred Stock could be converted. Fractional votes
shall not, however, be permitted and any fractional voting rights resulting from
the above formula (after aggregating all shares into which shares of Class A
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
4
<PAGE>
b. In addition to the rights specified in Section A(2)(a) and
Section A(4) hereof, the holders of the Class A Preferred Stock, voting
separately as one class, shall have the exclusive and special right at all times
to elect that number of directors to the Board of Directors of the Corporation
(each, a "Class A Preferred Director") as is proportional to their percentage
ownership of the Corporation's shares of Common Stock, assuming conversion of
all shares of Convertible Preferred Stock then outstanding (with fractional
numbers rounded upward to the nearest whole number) and at all times to remove
such directors. Such directors shall be elected by the vote of the holders of a
majority, and removed by the vote of the holders of two-thirds (2/3), of the
shares of Class A Preferred Stock then outstanding. The right of holders of the
Class A Preferred Stock contained in this Section A(2)(b) may be exercised
either at a special meeting of the holders of Class A Preferred Stock, or at any
annual or special meeting of the stockholders of the Corporation, or by written
consent of such holders in lieu of a meeting. Upon the written request of the
holders of record of at least 33-1/3% of the Class A Preferred Stock then
outstanding, the Secretary of the Corporation shall call a special meeting of
the holders of Class A Preferred Stock for the purpose of (i) removing any
director elected pursuant to this A(2)(b) and/or (ii) electing directors to fill
a vacancy in the directorship authorized to be filled by the holders of Class A
Preferred Stock pursuant to this Section A(2)(b). Such meeting shall be held at
the earliest practicable date.
At any meeting held for the purpose of electing or removing
directors at which the holders of Class A Preferred Stock shall have the right
to elect or remove directors as provided in this Section A(2)(b), the presence,
in person or by proxy, of the holders of record of two-thirds (2/3) of the Class
A Preferred Stock then outstanding shall be required to constitute a quorum of
the Class A Preferred Stock for such election.
A vacancy in the directorship to be elected by the holders of
Class A Preferred Stock pursuant to this Section A(2)(b) may be filled only by
vote or written consent in lieu of a meeting of the holders of a majority of the
shares of Class A Preferred Stock then outstanding and may not be filled by the
remaining directors.
3. Rights on Liquidation.
a. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (any such event being hereinafter
referred to as a "Liquidation") occurring prior to the first anniversary of the
Class B Original Issue Date (as defined in Section B(1)(a) below), before any
distribution of assets of the Corporation shall be made to or set apart for the
holders of any class of capital stock of the Corporation, including the holders
of Common Stock or the holders of Class B Preferred Stock, the holders of Class
A Preferred Stock shall receive payment out of such assets of the Corporation in
an amount per share equal to equal to $1,000 (such amount being referred to as
the "Class A Liquidation Preference"), plus any accumulated and unpaid dividends
thereon (whether or not earned or declared). If the assets of the Corporation
available for distribution to the holders of the Class A Preferred Stock shall
not be sufficient at such time to make in full the payment herein required, such
assets shall be distributed pro-rata among the holders of
5
<PAGE>
the Class A Preferred Stock. If the assets of the Corporation available for
distribution to the holders of Class A Preferred Stock shall exceed the
distribution required to be made to the holders of Class A Preferred Stock, the
holders of Class B Preferred Stock shall receive payment out of such assets of
the Corporation in an amount per share equal to the Class B Preference Amount
(as defined in Section B(2)(a) below). Upon the occurrence of a Liquidation on
and after the first anniversary of the Class B Original Issue Date, the Class A
Preferred Stock and the Class B Preferred Stock shall rank on a parity as to the
receipt of the Class A Liquidation Preference and the Class B Preference Amount.
If the assets of the Corporation available for distribution to the holders of
Convertible Preferred Stock shall not be sufficient at such time to make in full
the payment herein required, such assets shall be distributed pro-rata among the
holders of Convertible Preferred Stock based on the aggregate Class A
Liquidation Preferences of the shares of Class A Preferred Stock or the
aggregate Class B Preference Amounts of the shares of Class B Preferred Stock,
as the case may be, held by each such holder. In any event, if the assets of the
Corporation available for distribution to the holders of Convertible Preferred
Stock shall exceed the distribution required to be made to the holders of Class
A Preferred Stock and the Class B Preferred Stock as herein described, such
excess assets shall be distributed pro-rata among the holders of Common Stock.
b. Unless such event has been approved by the holders of at
least 66 2/3% of the shares of Class A Preferred Stock in accordance with
Section A(4) below, any consolidation, merger or a statutory share exchange
(other than a merger with a wholly-owned subsidiary of the Corporation or a
consolidation, merger, share exchange or other business combination in which the
outstanding voting stock of the Corporation immediately prior to such
consolidation, merger, share exchange or business combination constitutes a
majority of the voting stock of the surviving entity) in which the outstanding
shares of capital stock of the Corporation are exchanged for securities or other
consideration of or from another corporation, or a sale, lease, transfer or
other disposition of all or substantially all the assets or stock of the
Corporation shall be deemed a Liquidation; provided that the limitation in the
priority of payment of the Class B Preference Amount set forth in Section
A(3)(a) above in respect of Liquidations occurring prior to the first
anniversary of the Class B Original Issue Date shall not apply to any such
event, regardless of the date of such Liquidation.
c. Whenever the distribution provided for in this Section A(3)
shall be paid in property other than cash, the value of such distribution shall
be the fair value thereof determined in good faith by the Board of Directors of
the Corporation.
d. Payment in full to the holders of Class A Preferred Stock of
the Class A Liquidation Preference shall effect a complete cancellation and
redemption of the Class A Preferred Stock.
e. In the event that outstanding shares of Class A Preferred
Stock shall be subdivided into a greater number of shares of Class A Preferred
Stock, the Class A Liquidation Preference in effect immediately prior to each
such subdivision, simultaneously with the effectiveness of such subdivision,
shall be proportionately reduced, and, conversely, in case outstanding shares
6
<PAGE>
of Class A Preferred Stock shall be combined into a smaller number of shares of
Class A Preferred Stock, the Class A Liquidation Preference in effect
immediately prior to each such combination, simultaneously with the
effectiveness of such combination, shall be proportionately increased.
4. Actions Requiring the Consent of Holders of Class A Preferred
Stock. As long as any shares of Class A Preferred Stock are outstanding, the
consent of the holders of at least 66-2/3% of the shares of Class A Preferred
Stock at the time outstanding, voting separately as a class, given in person or
by proxy, either in writing without a meeting or by vote at a meeting called for
the purpose, shall be necessary for effecting or validating any of the following
transactions:
a. Any amendment, alteration or repeal of any of the provisions
of the Articles of Incorporation, as amended, or the By-laws of the Corporation
which (i) increases the number of authorized shares of the Class A Preferred
Stock, (ii) adversely affects the rights, preferences or powers of the Class A
Preferred Stock or of the holders thereof, (iii) decreases the required time for
the giving of any notice to which the holders of Class A Preferred Stock may be
entitled, or (iv) amends, alters or repeals Section A(4)(g) hereof;
b. The authorization or creation of, or the increase in the
number of authorized shares of any stock of any class, or any security
convertible into stock of any class, or the authorization or creation of any new
class of preferred stock (or any action which would result in another series of
preferred stock);
c. Any merger or consolidation including the Corporation, or
any sale, lease, transfer or other disposition of all or substantially all of
the assets of the Corporation;
d. Any Liquidation of the Corporation;
e. The declaration or payment of any dividends to the holders
of Common Stock of the Corporation or any other class of capital stock of the
Corporation, other than the Class A Preferred Stock or the Class B Preferred
Stock as provided herein;
f. The repurchase or redemption of any shares of capital stock
of the Corporation, other than the redemption of the Class A Preferred Stock or
the Class B Preferred Stock as herein provided; or
g. Any increase in the number of directors of the Corporation.
In furtherance and not in limitation of the foregoing, the
Corporation shall not in any manner, whether by amendment of the Articles of
Incorporation (including, without limitation, any Certificate of Designation),
merger, reorganization, recapitalization, consolidation, sale of assets, sale of
stock, tender offer, dissolution or otherwise, directly or indirectly, take any
action, or permit any action to be taken, solely or primarily for the purpose of
increasing the value of any class of
7
<PAGE>
stock of the Corporation if the effect of such action is reasonably likely to
reduce the value, security, rights or preferences of the Class A Preferred
Stock.
5. Redemption.
a. Following notice pursuant to Section A(5)(b)(ii) hereof
given to all holders of Class A Preferred Stock during the period (the "Class A
Redemption Period") commencing July 15, 1998 and continuing for so long as
shares of Class A Preferred Stock are outstanding, the Corporation may at the
option of the Board of Directors, redeem in whole or in part the shares of Class
A Preferred Stock subject to the right of the holders of Class A Preferred Stock
to convert the same into shares of the Corporation's Common Stock, as herein
described, provided, however, that all preferred dividends payable on any
outstanding shares of Class B Preferred Stock shall have been paid through the
Class B Dividend Payment Date (as hereinafter defined) immediately preceding the
Class A Redemption Date (as hereinafter defined). The Corporation shall effect
any such redemption by paying in cash for each such share to be redeemed an
amount equal to the Class A Liquidation Preference, per share, plus any
accumulated and unpaid dividends thereon (whether or not earned or declared) on
such shares to the Class A Redemption Date (such total amounts are hereinafter
referred to as the "Class A Redemption Price").
b. (i) In the event of any redemption pursuant hereto, the
Corporation shall effect such redemption as follows. The number of shares
subject to redemption shall be allocated pro rata among the holders of
outstanding shares of Class A Preferred Stock based upon the number of shares
held by each such holder.
(ii) During the Class A Redemption Period, and at least 30
but no more than 60 days prior to the date fixed for any redemption of Class A
Preferred Stock (the "Class A Redemption Date"), written notice shall be mailed
by first-class certified or registered mail, return receipt requested, postage
prepaid, to each holder of record of Class A Preferred Stock to be redeemed,
notifying such holder of the redemption to be effected, specifying the Class A
Redemption Date, the Class A Redemption Price, the place at which payment may be
obtained and the date on which such holder's rights to convert such Class A
Preferred Stock into Common Stock shall terminate and calling upon such holder
to surrender to the Corporation, in the manner and at the place designated, his
certificate or certificates representing the shares to be redeemed (the "Class A
Redemption Notice"). Except as provided in Section A(5)(b)(iii), on or after
the Class A Redemption Date, each holder of Class A Preferred Stock to be
redeemed shall surrender to the Corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the Class
A Redemption Notice, and thereupon the Class A Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled; provided, however, that the holder of any shares
of Class A Preferred Stock shall have the right, at any time prior to the close
of business on any Class A Redemption Date as may have been fixed in any Class A
Redemption Notice with respect to such shares, to convert such shares into
shares of Common
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Stock in accordance with Section A(6) below. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
(iii) From and after the close of business on the Class A
Redemption Date, unless there shall have been a default in payment of the Class
A Redemption Price, all rights of the holders of the shares of Class A Preferred
Stock designated for redemption as holders of Class A Preferred Stock (except
the right to receive the Class A Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(iv) Three days prior to the Class A Redemption Date, the
Corporation shall deposit the Class A Redemption Price of all outstanding shares
of Class A Preferred Stock designated for redemption in the Class A Redemption
Notice, and not yet redeemed or converted, with a bank or trust company having
aggregate capital and surplus in excess of $50,000,000 as a trust fund for the
benefit of the respective holders of the shares designated for redemption and
not yet redeemed. Simultaneously, the Corporation shall deposit irrevocable
instructions and authorize such bank or trust company to pay, on and after the
date fixed for redemption or prior thereto, the Class A Redemption Price of the
Class A Preferred Stock to the holders thereof upon surrender of their
certificates. Any monies deposited by the Corporation pursuant to this Section
A(5)(b)(iv) for the redemption of shares which are thereafter converted into
shares of Common Stock pursuant to Section A(6) hereof no later than the close
of business on the Class A Redemption Date shall be returned to the Corporation
forthwith upon such conversion. The balance of any monies deposited by the
Corporation pursuant to this Section A(5)(b)(iv) remaining unclaimed at the
expiration of two years following the Class A Redemption Date shall thereafter
be returned to the Corporation, provided that the shareholder to which such
monies would be payable hereunder shall be entitled, upon proof of its ownership
of the Class A Preferred Stock and payment of any bond requested by the
Corporation, to receive such monies but without interest from the Class A
Redemption Date.
c. Preferential Redemption Right. If at any time between the
Class B Original Issue Date and the first anniversary of the Class B Original
Issue Date, the Corporation shall elect to redeem all outstanding shares of the
Class B Preferred Stock, then at least thirty (30) days (but not more than
forty-five (45) days) prior to the business day immediately preceding the date
fixed for such redemption of the Class B Preferred Stock (such date preceding
the date fixed for such redemption, the "Class A Preferential Redemption Date"),
the Corporation shall mail a written notice (the "Class A Preferential
Redemption Notice"), first class postage pre-paid, to each holder of record of
the Class A Preferred Stock at the close of business on the business day
preceding the day on which the Class A Preferential Redemption Notice is given,
notifying such holder that the Board of Directors of the Corporation has
determined to redeem all outstanding shares of Class B Preferred Stock on the
business day immediately succeeding the Class A Preferential Redemption Date,
subject to the prior right of the holders of Class A Preferred Stock to have all
shares of Class A Preferred Stock redeemed. The Class A Preferential Redemption
Notice (i) shall
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specify the Class A Preferential Redemption Date, the Class A Redemption Price,
and the place at which payment may be obtained, (ii) shall advise such holder of
its right to elect to have its shares of Class A Preferred Stock redeemed on the
Class A Preferential Redemption Date before any sums shall be paid or any assets
shall be distributed in connection with the redemption of any Class B Preferred
Stock, and that if such election is made, such shares of Class A Preferred Stock
shall be redeemed as of the Class A Preferential Redemption Date and (iii) shall
advise such holder that unless the Corporation shall have received the written
election to be redeemed by the close of business on the business day immediately
preceding the Class A Preferential Redemption Date, then the shares of such
holder's Class A Preferred Stock shall not be redeemed as of the Class A
Preferential Redemption Date but shall continue to remain outstanding as Class A
Preferred Stock. On the Class A Preferential Redemption Date, the Corporation
shall set aside monies in an amount sufficient to pay the aggregate Class A
Redemption Price for all shares of Class A Preferred Stock for which the
Corporation shall have received a written notice of election to be redeemed, and
the monies payable to each such holder shall be paid upon such holder's
surrender to the Corporation in the manner and at the place designated, of its
certificate representing shares of Class A Preferred Stock to be redeemed.
d. Redemption of Class A Preferred Stock if Dividends are in
Arrears. Notwithstanding the provisions of this Section A(5), shares of the
Class A Preferred Stock may not be redeemed, other than in whole, unless, at the
Class A Redemption Date (or Class A Preferential Redemption Date), all
accumulated and unpaid dividends on the outstanding shares of the Class A
Preferred Stock for all past dividend periods shall have been or are being
contemporaneously paid or declared and set apart for payment.
e. Status of Redeemed or Purchased Shares. Any shares of the
Class A Preferred Stock at any time purchased, redeemed or otherwise acquired by
the Corporation shall not be reissued and shall be retired.
6. Conversion.
a. Right to Convert. The holder of any share or shares of
Class A Preferred Stock shall have the right at any time, at such holder's
option, to convert all or a portion of such shares of Class A Preferred Stock
held by such holder into such number of fully paid and non assessable shares of
Common Stock as is determined by dividing (i) the aggregate Class A Liquidation
Preference of the shares of Class A Preferred Stock to be converted by (ii) the
Class A Conversion Value (as hereinafter defined) then in effect for such Class
A Preferred Stock. No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of any Class A Preferred Stock. With respect
to any fraction of a share of Common Stock called for upon any conversion, the
Corporation shall pay to the holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined in good faith by
the Board of Directors of the Corporation.
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b. Mechanics of Conversion. Such right of conversion shall be
exercised by the holder of shares of Class A Preferred Stock by giving prior
written notice to the Corporation (the "Class A Conversion Notice") that such
holder elects to convert a stated number of shares of Class A Preferred Stock
(the "Conversion Shares") into shares of Common Stock on the date specified in
the Class A Conversion Notice (which date shall not be earlier than the date of
the Class A Conversion Notice), and by surrender of the certificate or
certificates representing such Conversion Shares. The Class A Conversion Notice
shall also contain a statement of the name or names (with addresses) in which
the certificate or certificates for Common Stock shall be issued. Promptly after
the receipt of the Class A Conversion Notice and surrender of the Conversion
Shares, the Corporation shall issue and deliver, or cause to be delivered, to
the holder of the Conversion Shares or his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock issuable upon the
conversion of such Conversion Shares. Such conversion shall be deemed to have
been effected as of the close of business on the date specified in the Class A
Conversion Notice, and the person or persons entitled to receive the shares of
Common Stock issuable upon conversion shall be treated for all purposes as the
holder or holders of record of such shares of Common Stock as of the close of
business on such date.
c. Common Stock Reserved. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Common Stock,
solely for issuance upon the conversion of shares of Class A Preferred Stock as
herein provided, such number of shares of Common Stock as shall from time to
time be issuable upon the conversion of all the shares of Class A Preferred
Stock at the time outstanding. All such shares of Common Stock shall have
either been listed or approved for listing subject to official notice of
issuance with the National Association of Securities Dealers Automated Quotation
System, if such shares are then listed thereon, or on such other securities
exchange as such shares may be listed on at the time in question. Such shares
shall also have been registered under the Securities Exchange Act of 1934, as
amended.
d. Conversion Value. The initial conversion value for the Class
A Preferred Stock shall be $1.50 per share of Common Stock, such value to be
subject to adjustment in accordance with the provisions of this Section A(6)(d).
Such conversion value in effect from time to time, as adjusted pursuant to this
Section A(6)(d), is referred to herein as a "Class A Conversion Value." All of
the remaining provisions of this Section A(6)(d) shall apply separately to each
Class A Conversion Value in effect from time to time with respect to Class A
Preferred Stock.
(i) In the event the Corporation shall, at any time or
from time to time, issue or sell any shares of Common Stock (including treasury
shares), other than any such sales pursuant to options or warrants that are
outstanding as of July 15, 1996, for a consideration per share less than the
Class A Conversion Value in effect for the Class A Preferred Stock immediately
prior to the time of such issue or sale, then, forthwith upon such issue or
sale, the Class A Conversion Value for the Class A Preferred Stock shall be
reduced to a price equal to the consideration per share paid for such Common
Stock. For purposes of this Section A(6)(d)(i), the following provisions shall
also be applicable:
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(1) In the event the Corporation shall, in any
manner, grant any right to subscribe for or to purchase, or any option for the
purchase of, Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such convertible or exchangeable stock or
securities being hereinafter referred to for purposes of this Section A(6)(d) as
"Convertible Securities"), whether or not such rights or options are immediately
exercisable, and the minimum price per share for which Common Stock is issuable
pursuant to such rights or options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Corporation as consideration for the granting of
such rights or options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of such rights or
options, plus, in the case of such Convertible Securities, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such rights or options or upon the conversion or exchange
of all such Convertible Securities) shall be less than the Class A Conversion
Value in effect for the Class A Preferred Stock, immediately prior to the time
of the granting of such rights or options, then for the purposes of determining
the Class A Conversion Value for the Class A Preferred Stock, the Corporation
shall be deemed to have issued shares of Common Stock at such price per share as
of the date of granting of such rights or options, and the adjustment of the
Class A Conversion Value required by this Section A(6)(d)(i) shall be made as of
the date of granting of such rights or options; provided, however, that no
further adjustment of such Class A Conversion Value shall be made upon the
actual issue of Common Stock or Convertible Securities upon the exercise of such
rights or options or upon the issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(2) In the event the Corporation shall in any
manner issue or sell any Convertible Securities, whether or not the rights to
convert or exchange thereunder are immediately exercisable, and the price per
share for which shares of Common Stock are issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation in consideration of
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon
conversion or exchange thereof by (ii) the total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Class A Conversion Value in effect for the
Class A Preferred Stock immediately prior to the time of the issue or sale of
such Convertible Securities, then for purposes of determining the Class A
Conversion Value for such Class A Preferred Stock, the Corporation shall be
deemed to have issued shares of Common Stock at such price per share as of the
date of the issue or sale of such Convertible Securities, and the adjustment of
the Class A Conversion Value required by this Section A(6)(d)(i) shall be made
as of the date of the issue or sale of such Convertible Securities; provided,
however, that no further adjustment of such Class A Conversion Value shall be
made upon the actual conversion or exchange of such Convertible Securities.
(3) In the event any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such stock or
securities shall be issued for cash, the consideration received therefor, less
any out-of-pocket expenses incurred and any
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underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith, shall be deemed to be the amount of consideration received
by the Corporation therefor. The Board of Directors of the Corporation shall
determine (irrespective of any treatment thereof on the books of account of the
Corporation) the fair value of any consideration other than money received upon
any such issue, and shall, in case any of the foregoing is issued with other
stock, securities or assets of the Corporation determine in good faith what part
of the consideration received therefor is applicable to the issue of the Common
Stock, Convertible Securities or rights or options for the purchase thereof.
(ii) Notwithstanding the provisions of Section A(6)(d)(i)
hereof, in the event the Corporation shall, at any time, issue any shares of
Common Stock (A) by stock dividend or any other distribution upon any stock of
the Corporation payable in Common Stock or in Convertible Securities or (B) in
subdivision of its outstanding Common Stock, by reclassification or otherwise,
the Class A Conversion Value then in effect shall be reduced proportionately,
and, in like manner, in the event of any combination of shares of Common Stock,
by reclassification or otherwise, the Class A Conversion Value then in effect
shall be proportionately increased.
(iii) If any capital reorganization or reclassification of
the Common Stock of the Corporation, or consolidation or merger of the
Corporation with or into another corporation, or the sale or conveyance of all
or substantially all of its assets to another corporation shall be effected,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful or adequate provision shall be made whereby the holders
of Class A Preferred Stock shall thereafter have the right to receive, in lieu
of the shares of Common Stock of the Corporation immediately theretofore
receivable upon the exercise of their conversion rights, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of outstanding shares of such Common Stock equal to the number of
shares of such Common Stock immediately theretofore receivable upon the exercise
of such rights had such reorganization, reclassification, consolidation, merger
or sale not taken place, and, in such case, appropriate provision shall be made
with respect to the rights and interests of the holders of Class A Preferred
Stock to the end that such conversion rights (including, without limitation,
provisions for adjustment of the Class A Conversion Value) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise thereof. The
Corporation shall not effect any such consolidation, merger or sale without the
consent of the holders of Class A Preferred Stock as herein described.
(iv) In the event that (A) there shall be any decrease in
the purchase price provided for in any right or option referred to in Section
A(6)(d)(i)(1) hereof or the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in Section
A(6)(d)(i)(1) hereof or Section A(6)(d)(i)(2) hereof, or (B) there shall be any
increase in the rate at which any Convertible Securities referred to in Section
A(6)(d)(i)(1) hereof or Section A(6)(d)(i)(2) hereof are convertible into or
exchangeable for shares of Common Stock, the Class A Conversion Value in effect
at the time of such decrease or increase shall forthwith be reduced to the Class
A Conversion Value which would have been in effect at such time had such
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<PAGE>
outstanding rights or options or Convertible Securities provided for such
decreased purchase price or additional consideration or increased conversion
rate, as the case may be, at the time initially granted, issued or sold.
(v) Each adjustment in each Class A Conversion Value
shall be calculated to the nearest cent.
(vi) If any event occurs as to which in the opinion of the
Board of Directors the other provisions of this Section A(6)(d) are not strictly
applicable or if strictly applicable would not fairly protect the conversion
rights of the Class A Preferred Stock in accordance with the intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such intent
and principles, so as to protect such conversion rights as aforesaid, but in no
event shall any such adjustment have the effect of increasing any Class A
Conversion Value as otherwise determined pursuant to this Section A(6)(d) except
in the event of a combination of shares of the type contemplated in Section
A(6)(d)(ii) hereof and then in no event in an amount greater than such Class A
Conversion Value as adjusted pursuant to Section A(6)(d)(ii) hereof.
e. Stock Transfer Taxes. The issue of stock certificates upon
conversion of the Class A Preferred Stock shall be made without charge to the
converting holder for any tax in respect of such issue. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares in any name other than
that of the holder of any of the Class A Preferred Stock converted, and the
Corporation shall not be required to issue or deliver any such stock certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
f. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Class A Conversion Value, the Corporation, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of Class
A Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Class A Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Class A Conversion Value at the time in effect for the Class A Preferred Stock
and (iii) the number of shares of Common Stock and the amount, if any, or other
property which at the time would be received upon the conversion of Class A
Preferred Stock owned by such holder.
g. Notices of Record Date. In the event of any fixing by the
Corporation of a record date for the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any shares of
Common Stock or other securities, or any right to subscribe for, purchase or
otherwise
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acquire, or any option for the purchase of, any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Class A Preferred Stock at least thirty (30) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
rights, and the amount and character of such dividend, distribution or right.
h. Notices. Any notice required by the provisions of this
Section A(6) to be given to the holders of shares of Class A Preferred Stock
shall be deemed given upon receipt if personally delivered with receipt
acknowledged, or upon receipt if delivered by a reputable overnight courier
service or by United States first-class certified or registered mail, return
receipt requested, postage prepaid, and addressed to each holder of record at
his address appearing on the books of the Corporation.
7. Purchase Rights. If at any time the Corporation grants, issues
or sells any options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of Common
Stock (the "Class A Purchase Rights"), then each holder of Class A Preferred
Stock will be entitled to acquire upon the terms applicable to such Class A
Purchase Rights, the aggregate Class A Purchase Rights which such holder could
have acquired if such holder had held the number of shares of Common Stock
acquirable upon conversion of such holder's Class A Preferred Stock immediately
before the date on which a record is taken for the grant, issuance or sale of
such Class A Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Class A Purchase Rights.
8. Defaults. In the event (i) the Corporation defaults in the
payment of any dividend on a Class A Dividend Payment Date, whether or not such
dividend is earned or declared, (ii) the Corporation defaults in the payment of
the Class B Preferred Dividend on six (6) consecutive Class B Dividend Payment
Dates (as hereinafter defined) or (iii) the aggregate amount of all accumulated
but unpaid Class B Preferred Dividends (as hereinafter defined) shall equal or
exceed the amount of $18 per share of Class B Preferred Stock, then each
director elected by the holders of the Class A Preferred Stock pursuant to
Section A(2)(b) hereof shall have the absolute right, immediately upon the
occurrence of any such default and continuing until such default has been cured,
to cast two votes on all matters as to which the directors are entitled to vote,
while each director elected by the holders of Common Stock shall have the right
to cast one vote with respect to such matters. Such votes, together with the
number of votes of the Class B Preferred Director (as hereinafter defined) if
there shall then be a Class B Preferred Director pursuant to Section B(3)(c),
shall collectively constitute not less than a majority of all votes which the
Board of Directors shall be entitled to cast. The Corporation shall give
immediate written notice to the holders of Class A Preferred Stock of the
occurrence of any default specified herein.
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9. Notices of Record Date. In the event of any:
a. except with respect to dividends payable to holders of Class
B Preferred Stock pursuant to Section B(1), taking by the Corporation of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase, or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right; or
b. capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger, consolidation, or share exchange of the Corporation, or any transfer
of all or substantially all the assets of the Corporation to any other
corporation, or any other entity or person; or
c. Liquidation of the Corporation;
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Class A Preferred Stock a notice specifying (i) the record date
for such dividend, distribution, or right and a description of such dividend,
distribution, or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger, share
exchange or Liquidation is expected to become effective, and (iii) the time, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, share exchange or Liquidation. Such notice shall be mailed at least ten
(10) days prior to the date specified in such notice on which such action is to
be taken.
B. Class B Preferred Stock
Each share of Class B Preferred Stock shall be subject to the
following provisions:
1. Dividends.
a. The holders of Class B Preferred Stock shall be entitled to
receive dividends on a cumulative basis from the actual date of original issue
of each share of Class B Preferred Stock (the "Class B Original Issue Date"),
whether or not declared, out of funds legally available therefor, at the annual
rate of $12.00 per share (as adjusted for any stock dividends, combinations, or
splits with respect to such shares or pursuant to the provisions of Section
B(1)(b) hereof, the "Class B Dividend Rate"), payable quarterly on the first day
of each February, May, August, and November in each year (each a "Class B
Dividend Payment Date") or otherwise upon the occurrence of an event described
in Sections B(2), (4) or (6) hereof, prorated for any partial year
(collectively, the "Class B Preferred Dividend"). Payments shall commence on
the first Class B Dividend Payment Date to occur after the Class B Original
Issue Date, to the holders of record of the Class B Preferred Stock on the
fifteenth day of the month preceding each such Class B Dividend
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Payment Date, in the initial amount of $3.00 per share on each such Class B
Dividend Payment Date, or such lesser amount as shall result from any proration
in respect of any partial quarterly period. The amount of Class B Preferred
Dividends payable upon the occurrence of any event described in Sections B(2),
(4) or (6) hereof shall be computed by multiplying the applicable Class B
Dividend Rate by a fraction, the numerator of which shall be the number of days
since the preceding Class B Dividend Payment Date to the date of payment of such
partial Class B Preferred Dividend and the denominator of which shall be 360.
b. Beginning on the fifth anniversary of the Class B Original
Issue Date and subsequently on the date occurring every six (6) months
thereafter, the Class B Dividend Rate shall be adjusted by increasing the Class
B Dividend Rate then in effect by $2.00 per share (as adjusted for any stock
dividends, combinations, or splits with respect to such shares).
c. No dividends shall be declared or paid or set apart for
payment on the shares of Common Stock or any other class or series of capital
stock of the Corporation (other than dividends on shares of the Class A
Preferred Stock and the Class B Preferred Stock, in each case as further
provided herein) for any dividend period unless full cumulative dividends have
been or contemporaneously are declared and paid on (i) the Class A Preferred
Stock through the most recent Class A Dividend Payment Date, and (ii) the Class
B Preferred Stock through the most recent Class B Dividend Payment Date. The
Corporation shall not declare or pay or set apart for payment any cash dividends
on the shares of Class B Preferred Stock for any dividend period unless (x) full
cumulative dividends (to the extent payable in cash) have been or
contemporaneously are declared and paid on the Class A Preferred Stock through
the most recent Class A Dividend Payment Date or (y) simultaneously therewith an
amount equal to the Class A Proportional Accumulated Dividend (as hereinafter
defined), calculated as of the Class B Dividend Payment Date, is set apart for
the benefit of the Class A Preferred Stock to be paid on the next Class A
Dividend Payment Date and (z) on such Class B Dividend Payment Date, no
violation shall have occurred which has not been cured of the provisions of
Section A(2)(b) or Section A(4)(a)-(g) (excluding the last paragraph of Section
A(4)), or Section A(7). The Corporation shall not declare or pay or set apart
for payment less than all of the cash dividends payable on the shares of Class B
Preferred Stock for any dividend period unless simultaneously therewith an
amount equal to the Class A Proportional Accumulated Dividend (as hereinafter
defined), calculated as of the Class B Dividend Payment Date, is set apart for
the benefit of the Class A Preferred Stock to be paid on the next Class A
Dividend Payment Date. If full cumulative dividends have not been paid or,
pursuant to the provisions of this Section B(1)(c), are not entitled to be paid
on shares of the Class B Preferred Stock, any dividends thereafter declared on
shares of the Class B Preferred Stock shall be paid pro rata to the holders of
outstanding shares of the Class B Preferred Stock. Holders of the shares of
Class B Preferred Stock shall not be entitled to any cash dividends in excess of
full cumulative dividends as set forth in this Section B(1)(c). No interest or
sum of money in lieu of interest shall be payable in respect of any dividend
payment or payments on the Class B Preferred Stock which may be in arrears.
The "Class A Proportional Accumulated Dividend" shall be an
amount equal to the result obtained by multiplying (i) the aggregate amount
available for declaration and
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payment as a cash dividend to all holders of Convertible Preferred Stock on the
Class B Dividend Payment Date times (ii) the result obtained by dividing (A) the
aggregate amount of accumulated but unpaid cash dividends on the Class A
Preferred Stock for each Class A dividend period or part thereof as of the Class
B Dividend Payment Date (computed for partial Class A dividend periods by
multiplying the Class A Dividend Rate applicable to such partial Class A
dividend period by a fraction the numerator of which shall be the number of days
in such partial Class A dividend period prior to the Class B Dividend Payment
Date (calculated by counting the first day thereof but excluding the last day
thereof) and the denominator of which shall be 360) by (B) the aggregate amount
of all accumulated but unpaid cash dividends on the Convertible Preferred Stock
as of the Class B Dividend Payment Date.
d. Waiver of Limitation on Dividends. Class B Preferred
Dividends may be paid even if, after giving effect thereto, the Corporation's
total assets would be less than the sum of its total liabilities, plus the
amount that would be needed, if the Corporation were to be dissolved at the time
of such distribution, to satisfy the preferential rights upon dissolution of
stockholders, if any, whose preferential rights are superior to those receiving
the distribution.
2. Liquidation, Dissolution, or Winding Up.
a. In the event of any Liquidation (as defined in Section
A(3)(a) above) occurring prior to the first anniversary of the Class B Original
Issue Date, before any distribution of assets of the Corporation shall be made
to or set apart for the holders of any class of capital stock of the
Corporation, including the holders of Common Stock or the holders of Class B
Preferred Stock, the holders of Class A Preferred Stock shall receive payment
out of such assets of the Corporation in an amount per share equal to the Class
A Liquidation Preference (as defined in Section A(3)(a)), plus any accumulated
and unpaid dividends thereon (whether or not earned or declared). If the assets
of the Corporation available for distribution to the holders of the Class A
Preferred Stock shall not be sufficient at such time to make in full the payment
herein required, such assets shall be distributed pro-rata among the holders of
the Class A Preferred Stock. If the assets of the Corporation available for
distribution to the holders of Class A Preferred Stock shall exceed the
distribution required to be made to the holders of Class A Preferred Stock, the
holders of Class B Preferred Stock shall receive payment out of such assets of
the Corporation in an amount per share equal to One Hundred Dollars ($100.00)
plus the accrued but unpaid Class B Preferred Dividend as set forth in Section
B(1)(a) hereof (the "Class B Preference Amount"). Upon the occurrence of a
Liquidation on and after the first anniversary of the Class B Original Issue
Date, the Class A Preferred Stock and the Class B Preferred Stock shall rank on
a parity as to the receipt of the Class A Liquidation Preference and the Class B
Preference Amount. If the assets of the Corporation available for distribution
to the holders of Convertible Preferred Stock shall not be sufficient at such
time to make in full the payment herein required, such assets shall be
distributed pro-rata among the holders of Convertible Preferred Stock based on
the aggregate Class A Liquidation Preferences of the shares of Class A Preferred
Stock or the aggregate Class B Preference Amounts of the shares of Class B
Preferred Stock, as the case may be, held by each such holder. In any event, if
the assets of the Corporation available for distribution to the holders of
Convertible Preferred Stock shall
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exceed the distribution required to be made to the holders of Class A Preferred
Stock and the Class B Preferred Stock as herein described, such excess assets
shall be distributed pro-rata among the holders of Common Stock.
b. Any consolidation, merger or a statutory share exchange
(other than a merger with a wholly-owned subsidiary of the Corporation or a
consolidation, merger, share exchange or other business combination in which the
outstanding voting stock of the Corporation immediately prior to such
consolidation, merger, share exchange or business combination constitutes a
majority of the voting stock of the surviving entity) in which the outstanding
shares of capital stock of the Corporation are exchanged for securities or other
consideration of or from another corporation, or a sale, lease, transfer or
other disposition of all or substantially all the assets or stock of the
Corporation shall be deemed a Liquidation; provided, however, that any such
event shall not be so regarded as a Liquidation, with respect to the Class B
Preferred Stock if the holders of two-thirds (2/3) of the outstanding shares of
the outstanding Class B Preferred Stock approve such event or elect not to have
any such event deemed to be a Liquidation, by giving written notice thereof to
the Corporation at least ten (10) days prior to the effective date of such
event; and further provided that the limitation in the priority of payment of
the Class B Preference Amount set forth in Sections A(3)(a) and B(2)(a) above in
respect of Liquidations occurring prior to the first anniversary of the Class B
Original Issue Date shall not apply to any such event, regardless of the date of
such Liquidation.
c. Whenever the distribution provided for in this Section B(2)
shall be paid in property other than cash, the value of such distribution shall
be the fair value thereof determined in good faith by the Board of Directors of
the Corporation.
d. Payment in full to the holders of Class B Preferred Stock of
the Class B Preference Amount shall effect a complete cancellation and
redemption of the Class B Preferred Stock.
e. In the event that outstanding shares of Class B Preferred
Stock shall be subdivided into a greater number of shares of Class B Preferred
Stock, the Class B Preference Amount in effect immediately prior to each such
subdivision, simultaneously with the effectiveness of such subdivision, shall be
proportionately reduced, and, conversely, in case outstanding shares of Class B
Preferred Stock shall be combined into a smaller number of shares of Class B
Preferred Stock, the Class B Preference Amount in effect immediately prior to
each such combination, simultaneously with the effectiveness of such
combination, shall be proportionately increased.
3. Voting Rights.
a. Except as otherwise required by law, or as specifically
provided herein, the holders of shares of Class B Preferred Stock shall vote in
a single class together with the holders of shares of Class A Preferred Stock
and Common Stock on all matters submitted to a vote of the stockholders of the
Corporation; provided, however, with respect to the election and removal
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of directors, the holders of the Class B Preferred Stock shall vote with the
holders of Common Stock as a single class. In any vote pursuant to the preceding
sentence, each holder of Class B Preferred Stock shall be entitled to that
number of votes as is equal to the number of shares of Common Stock which would
be issuable upon conversion of such shares of Class B Preferred Stock, as
provided in Section B(4)(a) hereof (the "As Converted Number of Shares") of such
holder (with fractional shares rounded to the nearest whole number, with
one-half being rounded upward) at the record date for the determination of
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited. The holders of the Class B Preferred Stock shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation.
b. In lieu of the right to vote with the holders of Common
Stock pursuant to Section B(3)(a) in the election or removal of directors, upon
the affirmative vote or written consent of the holders of two-thirds (2/3) of
the shares of Class B Preferred Stock or as provided in Section B(3)(c), the
holders of the Class B Preferred Stock, voting separately as one class, shall
have the exclusive and special right to elect one (1) member of the Board of
Directors ("Class B Preferred Director"). The Class B Preferred Director shall
have one vote, except as provided in Section B(3)(c) below. The right of the
holders of the Class B Preferred Stock, voting separately as one class, to elect
the Class B Preferred Director pursuant to this Section B(3)(b) shall terminate
at such time as fewer than one third (1/3) of the number of shares of Class B
Preferred Stock issued on the Class B Original Issue Date (as adjusted for stock
splits, combinations and other recapitalizations) shall continue to remain
outstanding; provided, however, that the holders of Class B Preferred Stock,
voting separately as one class, shall in every event be entitled to elect the
Class B Preferred Director when such Class B Preferred Director, if elected,
would be entitled to more than one vote in accordance with the provisions of
Section B(3)(c).
The Class B Preferred Director shall be elected by the vote of the holders of a
majority, and removed by the vote of the holders of two-thirds (2/3), of the
shares of Class B Preferred Stock then outstanding. The right of holders of the
Class B Preferred Stock contained in this Section B(3)(b) to elect a Class B
Preferred Director may be exercised either at a special meeting of the holders
of Class B Preferred Stock, or at any annual or special meeting of the
stockholders of the Corporation, or by written consent of such holders in lieu
of a meeting. Upon the written request of the holders of record of at least
33-1/3% of the Class B Preferred Stock then outstanding, the Secretary of the
Corporation shall call a special meeting of the holders of Class B Preferred
Stock for the purpose of (i) removing a Class B Preferred Director and/or (ii)
electing a Class B Preferred Director to fill a vacancy in the directorship
authorized to be filled by the holders of Class B Preferred Stock pursuant to
this Section B(3)(b). Such meeting shall be held at the earliest practicable
date.
At any meeting held for the purpose of electing or removing a Class B Preferred
Director, the presence, in person or by proxy, of the holders of record of
two-thirds of the Class B Preferred Stock then outstanding shall be required to
constitute a quorum of the Class B Preferred Stock for such election.
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A vacancy in the directorship to be elected by the holders of Class B Preferred
Stock pursuant to this Section B(3)(b) may be filled only by vote or written
consent in lieu of a meeting of the holders of a majority of the shares of Class
B Preferred Stock then outstanding and may not be filled by the remaining
directors.
c. So long as, and only so long as, either (i) the Corporation
fails to pay the Class B Preferred Dividend on six (6) consecutive Class B
Dividend Payment Dates, or (ii) the aggregate amount of all accumulated but
unpaid Class B Preferred Dividends shall equal or exceed the amount of $18.00
per share of Class B Preferred Stock, or (iii) a default exists which, pursuant
to Section A(8) above, entitles each Class A Preferred Director to cast two (2)
votes on all matters as to which the directors of the Corporation are entitled
to vote, then the holders of Class B Preferred Stock shall be deemed to have
exercised their right under Section B(3)(b) to elect a Class B Preferred
Director (if they have not previously done so), whereupon the size of the Board
of Directors of the Corporation shall be increased by one (1) director, the
holders of the Class B Preferred Stock shall have the right to elect a Class B
Preferred Director as provided in Section B(3)(b) and the Class B Preferred
Director shall have the same number of votes which the Class A Preferred
Directors collectively shall be entitled to cast, as such number may vary from
time to time, or, if there are no Class A Preferred Directors, such number of
votes as shall constitute a majority of all votes which the Board of Directors
shall be entitled to cast. The right of the Class B Preferred Director to have
more than one vote pursuant to this Section B(3)(c) shall terminate at such time
as both (x) no shares of Class A Preferred Stock remain outstanding and (y) the
Corporation shall have consummated a public offering pursuant to a firm
commitment underwriting at a price to the public of at least $5.00 per share of
Common Stock of the Corporation (as adjusted proportionately for any stock
dividends, combinations or stock splits after the Class B Original Issue Date)
registered in compliance with the Securities Act of 1933, as amended (the
"Securities Act") and applicable rules and regulations thereunder and
registered, qualified or exempt from registration or qualification under or in
compliance with any applicable state securities laws which shall have resulted
in the receipt by the Corporation of net proceeds of at least $10,000,000 (after
the payment of expenses, including underwriting discounts and commissions, but
before any proceeds from the exercise of any underwriter's over-allotment
option) for the Common Stock of the Corporation offered thereunder.
4. Conversion Rights. The holders of the Class B Preferred Stock
shall have the following conversion rights:
a. Right to Convert. Each share of Class B Preferred Stock
shall be convertible at any time, and from time to time, at the option of the
holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing One Hundred Dollars ($100.00) (the
"Numerator") by the Class B Conversion Price (as defined below) in effect at the
time of conversion. The conversion price at which shares of Common Stock shall
be deliverable upon conversion of Class B Preferred Stock without the payment of
additional consideration by the holder thereof (the "Class B Conversion Price")
initially shall be three dollars ($3.00). Such initial Class B Conversion
Price, and the rate at which shares of Class B Preferred Stock may be converted
into shares of Common Stock, shall be subject to adjustment as provided
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below. In the event of a Liquidation of the Corporation, the conversion rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Class B Preferred Stock; provided, however, that such termination
shall not be effective if such liquidation, dissolution or winding up of the
Corporation is not consummated.
b. Adjustment to Conversion Price Upon Occurrence of
Extraordinary Common Stock Event. Upon the happening of an Extraordinary Common
Stock Event (as hereinafter defined), the Class B Conversion Price for the Class
B Preferred Stock, simultaneously with the happening of such Extraordinary
Common Stock Event, shall be adjusted by multiplying the then-effective Class B
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained thereafter shall be the Class B Conversion
Price for the Class B Preferred Stock. The Class B Conversion Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Event(s). "Extraordinary Common Stock
Event" shall mean (i) the issuance of additional shares of Common Stock as a
dividend or other distribution on outstanding Common Stock, (ii) a stock split
or subdivision of outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (iii) a reverse stock split or combination of
outstanding shares of Common Stock into a smaller number of shares of Common
Stock.
c. Recapitalization or Reclassification. If the Common Stock
issuable upon the conversion of the Class B Preferred Stock shall be changed
into the same or a different number of shares of any class or classes of stock
of the Corporation, whether by recapitalization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for in Section B(4)(b) hereof, or a reorganization, merger, share exchange,
consolidation, or sale of assets provided for in Section B(4)(d) hereof), then
and in each such event the holder of each share of Class B Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
recapitalization, reclassification, or other change by holders of the number of
shares of Common Stock into which such share of Class B Preferred Stock might
have been converted immediately prior to such recapitalization,
reclassification, or change, all subject to further adjustment as provided
herein.
d. Merger, Share Exchange, Consolidation, or Sale of Assets.
If at any time or from time to time there shall be a capital reorganization of
the Corporation, including a merger, share exchange, consolidation, or sale of
all or substantially all of assets of the Corporation (other than a subdivision
or combination of shares or stock dividend provided for in Section B(4)(b)
hereof), then, as a part of such reorganization, provision shall be made so that
the holders of the Class B Preferred Stock thereafter shall be entitled to
receive, upon conversion of each share of the Class B Preferred Stock, the
number of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock into which such shares of Class B
Preferred Stock
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might have been converted immediately prior to such capital reorganization would
have been entitled to receive. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section B(4) with respect to
the rights of the holders of the Class B Preferred Stock after the
reorganization to the end that the provisions of this Section B(4) (including
adjustment of the Class B Conversion Price then in effect and the number of
shares acquired upon conversion of the Class B Preferred Stock) shall be
applicable after that event in as nearly equivalent a manner as may be
practicable. Notwithstanding the foregoing, in the case of a consolidation,
merger, share exchange, or sale of all or substantially all the assets of the
Corporation, the provisions of Section B(2)(b) shall apply to the Class B
Preferred Stock, and this Section B(4)(d) shall not apply unless, as provided in
Section B(2)(b), the holders of two-thirds (2/3) of the outstanding shares of
Class B Preferred Stock elect that such event shall not be deemed to be a
Liquidation of the Corporation.
e. Certain Dilutive Issues.
(i) Special Definitions. For purposes of this Section
B(4)(e), the following definitions apply:
(1) "Options" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (as defined below), except for (A) rights or options
to acquire up to 2,000,000 shares of Common Stock which may be granted to
employees, directors or consultants to the Corporation pursuant to the
Corporation's 1995 Employee and Consultant Stock Option Plan (the "Option
Plan") or any similar plan or arrangement hereafter adopted, and approved
by the stockholders of the Corporation, for the benefit of the
Corporation's employees, consultants and directors, (B) warrants and sales
agent warrants to purchase an aggregate of 758,720 shares of Common Stock
outstanding or reserved for issuance on the Class B Original Issue Date
(the "Outstanding Warrants") and (C) an outstanding contractual option to
issue 50,000 shares of Common Stock to Randolph Haag (the "Contractual
Option").
(2) "Convertible Securities" shall mean any evidences of
indebtedness, shares of stock (other than Common Stock, Class A Preferred
Stock and Class B Preferred Stock) or other securities convertible into or
exchangeable for Common Stock.
(3) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or deemed to be issued pursuant to Section
B(4)(e)(iii)) by the Corporation after the Class B Original Issue Date,
other than shares of Common Stock issued or issuable upon (i) conversion of
shares of Class A Preferred Stock or Class B Preferred Stock or as a
dividend or distribution on Class A Preferred Stock or Class B Preferred
Stock, (ii) the exercise of options granted under the Option Plan, (iii)
the exercise of the Outstanding Warrants, or (iv) the exercise of the
Contractual Option.
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(ii) No Adjustment of Conversion Price. Any provision
herein to the contrary notwithstanding, no adjustment in the number of shares of
Common Stock into which shares of Class B Preferred Stock is convertible shall
be made, by adjustment in the Class B Conversion Price, unless the consideration
per share (determined pursuant to Section B(4)(e)(v) hereof) for an Additional
Share of Common Stock issued or deemed to be issued by the Corporation is less
than the Class B Conversion Price in effect on the date of, and immediately
prior to, the issue of such Additional Shares of Common Stock.
(iii) Issue of Options and Convertible Securities. In the
event the Corporation at any time or from time to time after the Class B
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
then entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
B(4)(e)(v) hereof) of such Additional Shares of Common Stock would be less than
the Class B Conversion Price in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in the Class B Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable upon the exercise,
conversion or exchange thereof, the Class B Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities, provided, however, that no such
adjustment of the Class B Conversion Price shall affect Common Stock previously
issued upon conversion of shares of Class A Preferred Stock or Class B Preferred
Stock;
(3) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities that shall
not have been exercised, the Class B Conversion Price computed upon the original
issue thereof (or upon the occurrence of a
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record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(a) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities that were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Corporation upon such conversion or exchange, and
(b) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section B(4)(e)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(4) no readjustment pursuant to Section
B(4)(e)(iii)(2) or (3) above shall have the effect of increasing the Class B
Conversion Price to an amount which exceeds the lower of (a) the Class B
Conversion Price prior to the initial adjustment to which the readjustment
applies, or (b) the Class B Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the date of the initial
adjustment date and such readjustment date; and
(5) in the event of any change in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange of any
Option or Convertible Security, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Class B Conversion Price
then in effect shall forthwith be readjusted to such Class B Conversion Price as
would have been obtained had the adjustment which was initially made upon the
issuance of such unexercised Option or unconverted Convertible Security, been
made upon the basis of such subsequent change, but no further adjustment shall
be made for the actual issuance of Common Stock upon the exercise or conversion
of any such Option or Convertible Security.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation at any time
after the Class B Original Issue Date shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section B(4)(e)(iii), but excluding any shares of Class A Preferred Stock
issued to the holders of Class A Preferred Stock on or before July 15, 1999, in
payment of dividends on such Class A Preferred Stock pursuant to the provisions
of Section A(1)(c) above)
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without consideration or for a consideration per share less than the Class B
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event:
(1) until such time as the aggregate amount of such
consideration received or deemed to have been received by the Corporation upon
the issuance of Additional Shares of Common Stock shall equal $1,500,000 and
provided that the per share price for each such issuance of Additional Shares of
Common Stock shall be no less than the Fair Market Value (as hereinafter
defined), the Class B Conversion Price shall be reduced to a price (calculated
to the nearest cent) determined by multiplying the then current Class B
Conversion Price by a fraction the numerator of which shall be the sum of
(a) the number of shares of Common Stock
outstanding immediately prior to such issue, plus
(b) the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at the Class B
Conversion Price in effect immediately prior to such issuance
and the denominator of which shall be the sum of
(x) the number of shares of Common Stock
outstanding immediately prior to such issue, plus
(y) the number of such Additional Shares of Common
Stock so issued.
For the purpose of the above calculation, the number of shares of Common Stock
outstanding shall be calculated on a fully diluted basis, as if all shares of
Convertible Preferred Stock and all other Convertible Securities had been fully
converted into shares of Common Stock immediately prior to such issuance, and
any outstanding warrants, options or other rights for the purchase of shares of
stock or Convertible Securities had been fully exercised immediately prior to
such issuance, and the resulting securities fully converted into shares of
Common Stock, if so convertible as of such date. This calculation shall not
include, however, any Additional Shares of Common Stock issuable with respect to
shares of Convertible Preferred Stock, Convertible Securities or outstanding
options, warrants or other rights for the purchase of shares or Convertible
Securities, solely as a result of adjustment of the Class B Conversion Price
resulting from the issuance of Additional Shares of Common Stock causing such
adjustment.
(2) On and after the date that the aggregate amount
of consideration received or deemed to have been received by the Corporation
upon the issuance of Additional Shares of Common Stock equals or exceeds
$1,500,000, and subject to the provisions of Section B(6)(c) below, the Class B
Conversion Price shall be reduced, concurrently with such issue,
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to a price equal to the consideration received or deemed received by the
Corporation, on a per share basis, for the issue of such Additional Shares of
Common Stock.
The provisions of this Section B(4)(e)(iv) do not apply if the provisions
of any of Section B(4)(b), (c) or (d) apply.
(v) Determination of Consideration. The consideration
received by the Corporation for the issue of any Additional Shares of Common
Stock shall be computed as follows:
(1) Cash, Property, and Other Consideration. Such
consideration shall:
(a) insofar as it consists of cash, be computed
as the aggregate amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(b) insofar as it consists of property, services,
or other consideration other than cash, be computed at the fair value thereof at
the time of such issue, as determined in good faith by the Board of Directors;
and
(c) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation, be the proportion of the consideration so received, computed as
provided in Sections B(4)(e)(v)(1)(a) and (b) above, as is determined in good
faith by the Board of Directors.
(2) Options and Convertible Securities. The
Consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Options and Convertible
Securities, shall be deemed to be the sum of the consideration paid for such
Option or Convertible Security, if any, plus the lowest consideration per share
then payable upon the exercise of Options, as set forth in the instruments
relating to such Options or Convertible Securities, without regard to any
provision contained therein designed to protect against dilution. If Options or
Convertible Securities are issued together with other securities or instruments
of the Corporation, the Board of Directors shall determine in good faith the
amount of consideration paid for such Option or Convertible Securities.
f. Adjustment Upon Failure to Complete Target Secondary
Offering. In the event that a Target Secondary Offering (as defined below) shall
not have occurred, the Class B Conversion Price shall be adjusted on January 1,
1999 to equal two dollars and seventy-five cents ($2.75) or such other amount as
shall result from a proportional adjustment to the Class B Conversion Price
pursuant to Sections B(4)(b), (c) or (d) above. The term "Target Secondary
Offering" shall mean the public offering pursuant to a firm commitment
underwriting at a price to the public of at least $5.00 per share of Common
Stock of the Corporation (as adjusted
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proportionally for any stock dividends, combinations or splits) registered in
compliance with the Securities Act and applicable rules and regulations
thereunder and registered, qualified or exempt from registration or
qualification under or in compliance with any applicable state securities laws
which (i) shall have been closed on or before December 31, 1998 and (ii) shall
have resulted in the receipt by the Corporation on or before such date of net
proceeds of at least $10,000,000 (after the payment of expenses, including
underwriting discounts and commissions but before any proceeds from the exercise
of any underwriter's over-allotment option) for the Common Stock of the
Corporation offered thereunder.
g. Certificate as to Adjustments. In each case of an adjustment
or readjustment of the Class B Conversion Price of the Class B Preferred Stock,
the Corporation will furnish each holder of the Class B Preferred Stock with a
certificate prepared by the Chief Financial Officer of the Corporation showing
such adjustment or readjustment and stating in detail the facts upon which such
adjustment or readjustment is based.
h. Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Class B Preferred Stock shall surrender the
certificate(s) representing the shares being converted to the Corporation at its
principal office, accompanied by written notice to the Corporation at that
office that such stockholder elects to convert such shares (a "Conversion
Notice"). The Conversion Notice also shall state the name(s) and address(es) in
which the certificate(s) for shares of Common Stock issuable upon such
conversion shall be issued. The certificate(s) for shares of Class B Preferred
Stock surrendered for conversion shall be accompanied by proper assignment
thereof to the Corporation or in blank. The date when the Conversion Notice is
received by the Corporation together with the certificate(s) representing the
shares of Class B Preferred Stock being converted shall be the "Conversion
Date." As promptly as practicable after the Conversion Date, the Corporation
shall issue and deliver to the holder of the shares of Class B Preferred Stock
being converted, or on its written order, such certificate(s) as it may request
of the number of whole shares of Common Stock issuable upon the conversion of
such shares of Class B Preferred Stock in accordance with the provisions of this
Section B(4) and cash, as provided in Section B(4)(i), in respect of any
fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
a holder of the converted shares of Class B Preferred Stock shall cease and the
person(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder(s) of
record of the shares of Common Stock represented thereby.
i. Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Class B Preferred Stock. Instead of any fractional
shares of Common Stock that otherwise would be issuable upon conversion of
shares of Class B Preferred Stock, the Corporation shall pay to the holder of
the shares of Class B Preferred Stock that were converted a cash adjustment in
respect of such fractional shares in an amount equal to the same fraction of the
Fair Market Value (as hereinafter defined) price per share of the Common Stock
at the close of business on the Conversion
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Date. The term "Fair Market Value" shall mean (i) in the case of a security
listed or admitted to trading on any securities exchange, the last reported sale
price, regular way (as determined in accordance with the practices of such
exchange), on such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day (and in the case of a security
traded on more than one national securities exchange, at such price or such
average, upon the exchange on which the volume of trading during the last
calendar year was the greatest), (ii) in the case of a security not then listed
or admitted to trading on any securities exchange, the last reported sale price
on such day, or if no sale takes place on such day, the average of the closing
bid and asked prices on such day, as reported by a reputable quotation service
designated by the Corporation, (iii) in the case of a security not then listed
or admitted to trading on any securities exchange and as to which no such
reported sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or the Wall Street Journal, or if there are no bids and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported, and (iv) in the case of a
security determined by the Corporation's Board of Directors as not having an
active quoted market or in the case of other property, such value as shall be
determined by the Board of Directors. The determination as to whether any
fractional shares are issuable shall be based upon the total number of shares of
Class B Preferred Stock being converted at any one time by any holder thereof,
not upon each share of Class B Preferred Stock being converted.
j. Reservation of Common Stock. The Corporation at all times
shall reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Class B Preferred Stock, such number of its shares of Common Stock as
from time to time shall be sufficient to effect the conversion of all
outstanding shares of the Class B Preferred Stock.
5. Restrictions and Limitations. So long as any shares of Class B
Preferred Stock remain outstanding, the Corporation will not take any of the
following actions without the affirmative vote or consent (with each share of
Class B Preferred Stock being entitled to one vote) of the holders of at least a
majority of the outstanding shares of the Class B Preferred Stock, given in
writing or by resolution adopted at a meeting called for such purpose:
a. amend the Articles of Incorporation or the Bylaws of the
Corporation if such amendment would:
(i) reduce the Class B Dividend Rate on the Class B
Preferred Stock provided for herein, make such dividends noncumulative, defer
the date from which dividends will accrue, cancel accrued and unpaid dividends,
or change the relative seniority rights of the holders of the Class B Preferred
Stock as to the payment of dividends in relation to the holders of any other
class or series of capital stock of the Corporation;
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(ii) reduce the amount payable to the holders of the Class
B Preferred Stock upon a Liquidation of the Corporation, or change the relative
seniority of the liquidation preferences of the holders of the Class B Preferred
Stock;
(iii) reduce the Class B Redemption Price specified in
Section B(6) hereof with respect to the Class B Preferred Stock;
(iv) cancel or modify the conversion rights of the Class B
Preferred Stock provided for in Section B(4) hereof; or
(v) adversely affect any of the rights, preferences or
privileges provided for herein for the benefit of any shares of Class B
Preferred Stock;
b. redeem, purchase or otherwise acquire for value (or pay into
or set aside for a sinking fund for such purpose) any shares of capital stock,
other than by redemption of Class A Preferred Stock in accordance with the
provisions of Section A(5) above or the Class B Preferred Stock in accordance
with Section B(6) hereof;
c. authorize or create any stock of any class or series of a
class of capital stock, or any security convertible into or exchangeable for
stock of any class;
d. recapitalize or reclassify or cancel all or any part of the
outstanding capital stock of the Corporation, or otherwise reorganize the
affairs of the Corporation in any manner which adversely affects the Class B
Preferred Stock or the rights of the holders thereof, relative to any other
class or series of the Corporation's capital stock or the rights of the holders
thereof; or
e. increase or decrease (other than by redemption or as a
result of the conversion thereof) the total number of authorized shares of any
class or series of capital stock.
6. Redemption.
a. Redemption at Corporation's Option. At the option of the
Corporation, the Corporation may fix a date (the "Class B Redemption Date") on
which it shall redeem all (but not less than all) of the then outstanding shares
of Class B Preferred Stock by paying in cash to the holders thereof and in
respect of each such share of Class B Preferred Stock, the Class B Redemption
Price (as defined below), (i) at any time prior to the fifth anniversary of the
Class B Original Issue Date but only in the event that the average bid price of
the Common Stock of the Corporation exceeds $6.00 per share with respect to each
of the twenty (20) consecutive Trading Days (as defined below) immediately
preceding the date of the Class B Redemption Notice (as defined in Section
B(6)(b) hereof), or (ii) at any time after the fifth anniversary of the Class B
Original Issue Date. A holder of Class B Preferred Stock may elect, by written
notice delivered to the Corporation not less than twenty-one (21) days prior to
the Class B Redemption Date, to waive its right to have redeemed all (but not
less than all) of the shares of Class B Preferred Stock held by
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such holder which are eligible to be redeemed on such Class B Redemption Date,
provided that on such Class B Redemption Date each such share of Class B
Preferred Stock which is not redeemed shall be converted automatically into
shares of Common Stock at the Class B Conversion Price then in effect on such
Class B Redemption Date. The term "Trading Day" shall mean any day other than
Saturday or Sunday on which national securities exchanges are open for trading
and trades in Corporation Common Stock occur. The term "Class B Redemption
Price" shall mean (i) in the event the Class B Redemption Date occurs prior to
the second anniversary of the Class B Original Issue Date, an amount per share
equal to (A) One Hundred Dollars ($100.00) plus (B) the difference, if any,
obtained by subtracting all amounts actually paid as Class B Preferred Dividends
in respect of such share from $24.00 (as adjusted for any stock dividends,
combinations, or splits with respect to such share) or (ii) in the event the
Class B Redemption Date occurs on or after the second anniversary of the Class B
Original Issue Date, an amount per share equal to the Class B Preference Amount
(determined as provided in Section B(2)(a) hereof).
b. Procedures for Redemption of Class B Preferred Stock. At
least thirty (30) days but not more than forty-five (45) days prior to the Class
B Redemption Date the Corporation shall mail a written notice, first class
postage prepaid, to each holder of record at the close of business on the
business day preceding the day on which notice is given, of the Class B
Preferred Stock to be redeemed, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the redemption to be
effected, specifying (i) the number of shares to be redeemed from such holder,
(ii) the Class B Redemption Date, (iii) the Class B Redemption Price, (iv) the
place at which payment may be obtained, (v) advising such holder of its right to
elect to waive its right to have all (but not less than all) such shares
redeemed and that, if such election is made, such shares of Class B Preferred
Stock which are not redeemed shall be converted automatically into shares of
Common Stock at the Class B Conversion Price then in effect (setting forth such
Class B Conversion Price), and (vi) calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, its certificate or
certificates representing the shares to be redeemed (the "Class B Redemption
Notice"). On or after the Class B Redemption Date, each holder of Class B
Preferred Stock to be redeemed shall surrender to the Corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Class B Redemption Notice, and thereupon the Class B
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be canceled. From and after each Class B
Redemption Date, unless there shall have been a default in payment of the Class
B Redemption Price, any shares of Class B Preferred Stock redeemed on such Class
B Redemption Date shall not be entitled to any further rights as Class B
Preferred Stock and shall not be deemed outstanding for any purpose.
c. Redemption upon Issuance of Additional Shares of Common
Stock. In the event that, at any time after the Class B Original Issue Date, the
Corporation proposes to issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
B(4)(e)(iii) hereof) without consideration or for a consideration per share less
than the Class B Conversion Price in effect immediately prior to such issue, and
such issuance
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would cause adjustment of the Class B Conversion Price pursuant to the
provisions of Section B(4)(e)(iv)(2) above, the Corporation may on the date of
issuance, or the date of deemed issuance, as the case may be, of such Additional
Shares of Common Stock (the "Dilutive Issue Redemption Date"), redeem all (but
not less than all) of the then outstanding shares of Class B Preferred Stock by
paying in cash to the holders thereof and in respect of each share of Class B
Preferred Stock, the Dilutive Issue Redemption Price (as defined below). The
term "Dilutive Issue Redemption Price" shall mean an amount per share equal to
(A) One Hundred Dollars ($100.00) plus (B) the greater of (x) the amount which
equals a twenty percent (20%) compound annual rate of return on $100.00 for the
period from the Class B Original Issue Date to and including the Dilutive Issue
Redemption Date or (y) $24.00 per share minus, in each case, all amounts
actually paid as Class B Preferred Dividends. In the event the Corporation
elects to redeem the Class B Preferred Stock pursuant to the provisions of this
Section B(6)(c), the Corporation shall give prompt written notice (but not more
than forty-five (45) days prior to the anticipated Dilutive Issue Redemption
Date), to each holder of record of the Class B Preferred Stock, of the
anticipated Dilutive Issue Redemption Date, which notice shall be mailed, first
class postage prepaid, to the address last shown on the records of the
Corporation for such holder, notifying such holder of the redemption to be
effected and specifying (i) the anticipated Dilutive Issue Redemption Date, (ii)
the anticipated Dilutive Issue Redemption Price, and (iii) advising the holder
that payment of the Dilutive Issue Redemption Price shall be made on the actual
Dilutive Issue Redemption Date by official bank check mailed to the holder of
record at the address last shown on the records of the Corporation for such
holder, unless such holder shall instruct the Corporation in writing received at
least two (2) business days prior to the anticipated Dilutive Issue Redemption
Date that such payment is to be made by federal reserve wire transfer in
immediately available funds to the account of the holder specified in such
written instructions. Upon payment by the Corporation of the Dilutive Issue
Redemption Price, the shares of Class B Preferred Stock redeemed on such
Dilutive Issue Redemption Date shall not be entitled to any further rights as
Class B Preferred Stock and shall not be deemed outstanding for any purpose,
irrespective of whether certificates representing such redeemed shares shall
remain in the possession of the former holder of record thereof.
d. Subordination of Right of Redemption. At any time during
the period between the Class B Original Issue Date and the first anniversary of
the Class B Original Issue Date, the Corporation may not exercise its right to
redeem shares of Class B Preferred Stock pursuant to this Section B(6) unless
the Corporation shall first have offered to redeem all outstanding shares of
Class A Preferred Stock and either (i) each holder of Class A Preferred Stock
shall have elected (or be deemed to have elected) not to have its shares
redeemed or (ii) the shares of each holder of Class A Preferred Stock not so
electing shall have been redeemed pursuant to the provisions of Section A(5)(c).
The Corporation's right to redeem shares of Class B Preferred Stock pursuant to
this Section B(6) is further subject to the requirement that all preferred
dividends on the Class A Preferred Stock shall have been paid through the Class
A Dividend Payment Date immediately preceding the Class B Redemption Date or
Dilutive Issue Redemption Date, as applicable.
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7. No Reissuance of Class B Preferred Stock. No share(s) of Class
B Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion, or otherwise shall be reissued.
8. No Dilution or Impairment. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, share exchange, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Class B Preferred Stock set
forth herein, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Class B
Preferred Stock set forth herein.
9. Notices of Record Date. In the event of any:
a. except with respect to dividends payable to holders of Class
A Preferred Stock pursuant to Section A(1), taking by the Corporation of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase, or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right; or
b. capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger, consolidation, or share exchange of the Corporation, or any transfer
of all or substantially all the assets of the Corporation to any other
corporation, or any other entity or person; or
c. Liquidation of the Corporation;
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Class B Preferred Stock a notice specifying (i) the record date
for such dividend, distribution, or right and a description of such dividend,
distribution, or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger, share
exchange or Liquidation is expected to become effective, and (iii) the time, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, share exchange or Liquidation. Such notice shall be mailed at least ten
(10) days prior to the date specified in such notice on which such action is to
be taken."
3. The amendment effected herein was authorized by resolutions adopted at
a meeting on October 10, 1997 of the Board of Directors pursuant to Section
78.315 of the Nevada Revised Statutes, declaring the advisability thereof and
calling a meeting of the shareholders for the purpose of considering and voting
on the proposed amendment.
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4. The number of shares of the Corporation outstanding and entitled to
vote on the amendment to the articles of incorporation at the time of adoption
was 4,086,400 shares of Common Stock with one (1) vote per share and 3,776
shares of Convertible Preferred Stock with six hundred sixty-six and two-thirds
(666-2/3) votes per share. The foregoing amendment was adopted by the
shareholders of the corporation on November 24, 1997.
5. The number of shares of each class voted for and against such
amendment, respectively was:
NUMBER OF SHARES VOTED
----------------------
CLASS FOR AGAINST
----- --- -------
Common Stock 2,756,992 300
Convertible Preferred Stock 3,776 0
IN WITNESS WHEREOF, we have executed this Certificate on this 24th day of
November, 1997.
CLINICOR, INC.
By: /s/ ROBERT S. SAMMIS
--------------------------------------------
Robert S. Sammis, President
/s/ LORI MELTON
--------------------------------
Lori Melton, Assistant Secretary
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<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was acknowledged before me on the 24th day of November,
1997, by Robert S. Sammis as President of Clinicor, Inc.
/s/ ELIZABETH KAY HAYS
------------------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
[NOTARY SEAL APPEARS HERE]
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EXHIBIT 4(h)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of November 25,
1997, between Clinicor, Inc., a Nevada corporation (the "Company") and Sirrom
Capital Corporation d/b/a Tandem Capital, a Tennessee corporation ("Tandem").
Capitalized terms used herein not defined shall have the meanings ascribed to
them in the Stock Purchase Agreement (as hereafter defined).
WHEREAS, the Company and Tandem have entered into a Preferred Stock
Purchase Agreement, dated November 7, 1997 (the "Stock Purchase Agreement"),
pursuant to which the Company has agreed to (i) issue and sell to Tandem, and
its designated assigns (the "Holder") and, subject to the conditions set forth
in the Stock Purchase Agreement, the Holder has agreed to purchase, 50,000
shares of the Company's Class B Convertible Preferred Stock, no par value (the
"Class B Preferred Stock"), which shares of Class B Preferred Stock are
convertible into shares of the Company's Common Stock par value $.001 per share
(the "Common Stock") (such shares of Common Stock issuable upon conversion of
the Class B Preferred Stock, together with any shares of Common Stock issued as
a dividend or other distribution with respect to, or in exchange for, or in
replacement of such shares of Common Stock, the "Registrable Securities"), and
(ii) grant certain registration rights to the Holder as more fully set forth
below.
NOW, THEREFORE, the parties hereto, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, hereby agree as
follows:
Section 1. Covenant to Register. At any time on or after the
date one (1) year after the date hereof, upon the request in writing by the
Holder, or if more than one Holder, by the Holders holding at least a majority
of the Registrable Securities, the Company shall file a registration statement
with the Securities and Exchange Commission (the "Commission") to register all
Registrable Securities of the Holder(s) requesting such registration for an
offering to be made on a continuous or delayed basis pursuant to Rule 415 under
the Securities Act of 1933, as amended (the "Securities Act"), covering all of
such Registrable Securities. Such registration statement shall be on Form S-3
under the Securities Act, if such Form is then available for use by the Company,
or another appropriate form that is available to the Company permitting
registration of such Registrable Securities for resale by the Holder(s) in the
manner or manners reasonably designated by the Holder(s) (including, without
limitation, one or more underwritten offerings). The Company shall use its best
efforts to prosecute the registration (the "Registration") of such Registrable
Securities pursuant to the Securities Act. The Company shall use its best
efforts to cause such Registrable Securities to be registered as soon as
practicable after the filing of the registration statement relating to such
Registrable Securities, but in no event later than 180 days after the filing of
such registration statement. The Holder(s) shall cooperate with the Company to
provide all such necessary information as shall be required by the Company to
file the registration statement relating to the Registration. In addition, the
Company shall use its best efforts to list, the Registrable Securities on NASDAQ
or on such other securities exchange as the shares of Registrable Securities may
then be listed. The Company shall maintain the prospectus relating to such
Registrable Securities effective for so long as the Holder(s) desires to dispose
of such Registrable Securities, not to exceed a period of five years from the
date that the registration statement was declared effective by the Commission.
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Section 2. Demand and "Piggyback" Registration Rights.
(a) Beginning on the date one (1) year from the date hereof, if at
any time during which there is no effective registration statement relating to
the Registrable Securities, the Company shall be requested in writing by the
Holder, or if more than one Holder, by the Holders holding at least a majority
of the Registrable Securities (the "Initiating Holders"), to effect the
registration under the Securities Act of Registrable Securities, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration, on a form of general use under the Securities Act, of all
Registrable Securities which the Company has been requested to register;
provided, however, that the Company shall not be obligated to effect such
registration if (i) such Registrable Securities are to be registered on Form S-
1, Form SB-1 or Form SB-2 for use under the Securities Act and (ii) the
Initiating Holders cannot reasonable expect the sale of such Registrable
Securities to result in gross aggregate proceeds of at least $4,000,000. The
Company shall not be obligated to cause to become effective more than three (3)
registration statements pursuant to which Registrable Securities are registered
under this Section 2(a), provided that in the event the Company effects a
Registration pursuant to Section 1 above, such number of registration statements
under this Section 2(a) shall not exceed two (2) and further provided that in
the event the Holder(s) elects to join a demand registration pursuant to Section
2(c) of that certain Amended and Restated Registration Rights Agreement (the
"Class A Amended and Restated Registration Rights Agreement"), dated as of the
date hereof, by and among the Company, Oracle Partners, L.P. and certain
affiliates thereof (together with their designated assigns, the "Class A
Holders"), and the Registrable Securities requested to be included in such
registration statement are sold pursuant to such registration statement (a
"Joined Registration"), then each such Joined Registration shall constitute one
(1) registration statement required to be effected by the Company under this
Section 2(a). Notwithstanding the foregoing, if the Company shall furnish to the
Initiating Holder(s) in response to a request for registration under this
Section 2(a) a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the Company
it would be detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
taking action with respect to such filing for a period of not more than 90 days
after receipt of the request by the Initiating Holder(s); provided, however,
that the Company may not utilize this right more than once in any 12-month
period. In addition, the Company shall not be obligated to effect, or to take
any action to effect, any registration pursuant to this Section 2(a):
(i) During the period starting with the date 30 days prior to
the Company's good faith estimate of the date of filing of, and ending on a date
120 days after the effective date of, a registration subject to Section 2(b)
hereto; provided that the Company is actively employing in good faith its best
efforts to cause such registration statement to be filed and thereafter to
become effective; or
(ii) With respect to Registrable Securities in a Registration
that may be immediately registered or that are registered on Form S-3 pursuant
to a request made pursuant to Section 1 above.
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(b) At any time after the date hereof, the Company shall, at least
thirty (30) days prior to the filing of any registration statement under the
Securities Act (other than a registration statement on Form S-8 or Form S-4 or
any successor forms) relating to the public offering of its Common Stock by the
Company or any of its security holders, give written notice of such proposed
filing and of the proposed date thereof to each Holder, and if, on or before the
twentieth (20th) day following the date on which such notice is given, the
Company shall receive a written request from a Holder requesting that the
Company include among the securities covered by such registration statement some
or all of the Registrable Securities held by or to be held after conversion of
the shares of Class B Preferred Stock by such Holder, the Company shall include
such Registrable Securities in such registration statement, if filed, so as to
permit such Registrable Securities to be sold or disposed of in the manner and
on the terms of the offering thereof set forth in such request. Notwithstanding
anything in this Section 2(b) to the contrary, the Holders of Registrable
Securities shall not be permitted to include any Registrable Securities among
the securities covered by any registration statement filed by the Company
pursuant to Section 1 of the Class A Amended and Restated Registration Rights
Agreement.
(c) Upon receipt by the Company of a request for registration under
Section 2(a), the Company promptly shall give written notice of such request to
the Class A Holders. If, on or before the fifteenth (15/th/) day following the
date on which such notice is given, the Company shall receive a written request
from the Class A Holders to join in the registration pursuant to Section 2(a),
then the Company shall deliver a copy of such request to the Initiating
Holder(s), in which event such joining holder(s) shall be deemed to be
"Initiating Holders" for the purposes of this Agreement, provided however, that
if the Common Stock requested to be included by such joining holder(s) in the
Initiating Holder's registration under Section 2(a) hereof are sold thereunder,
then such joined registration shall constitute one (1) of the permitted
registration statements under Section 2(a) of the Class A Amended and Restated
Registration Rights Agreement, and further provided that the number of shares of
Common Stock requested by the joining holder(s) to be included in such
registration shall not exceed the result obtained by multiplying the aggregate
number of shares of Common Stock with unexercised registration rights granted by
the Company pursuant to the Class A Amended and Restated Registration Rights
Agreement then owned by all Class A Holders times a fraction, the numerator of
which is the number of shares of Common Stock for which the actual Initiating
Holder(s) are then requesting registration under Section 2(a) hereof and the
denominator of which is the aggregate number of Registrable Securities with
unexercised registration rights granted by the Company pursuant to this
Agreement then owned by all Holders.
Section 3. Terms and Conditions of Registration. Except as
otherwise provided herein, in connection with any registration statement filed
pursuant to Sections 1 or 2 herein, the following provisions shall apply:
(a) If such registration statement shall be filed pursuant to
Section 2(b) hereof and if the managing underwriter advises the Company in
writing that the inclusion in such registration of some or all of the
Registrable Securities sought to be registered by the Holder creates a
substantial risk that the proceeds or price per share that will be derived from
such registration will be reduced or that the number of shares of Registrable
Securities to be registered at the insistence of the Holder, plus the number of
shares of Common Stock sought to be registered by the Company and any other
shareholders of the Company is too large a number to be reasonably sold, then,
in such
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event, the number of Registrable Securities to be included in the registration
and underwriting (but, in any registration initiated by the Company, not the
number of securities to be sold by the Company unless the Company has otherwise
agreed) may be limited by the managing underwriter, on a pro rata basis based on
the total number of securities (including, without limitation, Registrable
Securities) proposed to be included in the registration by participating Holders
or any other shareholders having "piggyback" registration rights granted by the
Company to such other shareholder not later than the date hereof; provided, that
the number of securities proposed to be included in the registration by any
other shareholder having "piggyback" registration rights granted by the Company
to such other shareholder after the date hereof shall be limited or to the
extent necessary excluded from such registration before any securities
(including, without limitation, Registrable Securities) proposed to be included
in the registration by participating Holders or other shareholders having
"piggyback" registration rights granted by the Company to any such other
shareholder not later than the date hereof shall be limited, unless the
Holder(s) and the Class A Holders shall have consented to the granting of more
favorable "piggyback" rights after the date hereof as provided in Section 8. The
number of securities includable by any Holder or other person may, in the
discretion of the managing underwriter, be rounded to the nearest one hundred
(100) shares. No securities excluded from the underwriting by reason of the
managing underwriter's marketing limitation shall be included in such
registration. Notwithstanding anything in this Agreement to the contrary, prior
to the date one (1) year from the date hereof, in the event that the number of
shares of Common Stock owned by any Class A Holder and included in any
registration and underwriting pursuant to Section 2(b) of the Class A Amended
and Restated Registration Rights Agreement is less than the number of shares
sought to be registered thereby by operation of the provisions of Section 3(a)
thereof, the number of Registrable Securities to be included in such
registration and underwriting pursuant to Section 2(b) and Section 3(a) hereof
shall not exceed two-thirds (2/3) of the aggregate number of shares of Common
Stock included in such registration and underwriting by the Class A Holders.
(b) If requested by the Holder in connection with a registration
statement filed pursuant to Section 1 or Section 2(a), the Company will enter
into an underwriting agreement with the underwriters for such offering, such
agreement to be reasonably satisfactory in form and substance to the Company,
the Holder and the underwriters, and to contain such representations, warranties
and covenants by the Company and such other terms as are customarily contained
in such agreements used by the managing underwriter, including, without
limitation, restrictions of sales of Registrable Securities or other securities
by the Company as may be reasonably agreed to between the Company and such
underwriters, and indemnities and rights to contributions to the effect and to
the extent provided in Sections 4 and 5 hereof. The Holder shall be a party to
any underwriting agreement relating to an underwritten sale of its Common Stock
and may, at its option, require that any or all of the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters, shall also be made to and for the benefit of the Holder. All
representations and warranties of the Holder shall be made to or for the benefit
of the Company.
(c) The Company shall provide a transfer agent and registrar (which
may be the same entity) for the Common Stock, not later than the effective date
of such registration.
(d) All expenses in connection with the preparation and filing of a
registration statement filed pursuant to Sections 1, 2(a) or 2(b) shall be borne
solely by the Company, except for
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any transfer taxes payable with respect to the disposition of such Registrable
Securities, and any underwriting discounts and selling commissions applicable
solely to such sales of Registrable Securities, which shall be paid by the
Holder of the Registrable Securities being registered.
(e) The Company shall use its best efforts to cause all of the
shares covered by such registration statement to be listed on NASDAQ or on such
other securities exchange as such shares may then be listed, on which similar
shares are listed for trading, if the listing of such registered shares is
permitted by such exchange.
(f) Following the effective date of such registration statement,
the Company shall, upon the request of the Holder, forthwith supply such number
of prospectuses (including exhibits thereto and preliminary prospectuses and
amendments and supplements thereto) meeting the requirements of the Securities
Act and such other documents as are referred to in the prospectus as shall be
reasonably requested by the Holder to permit the Holder to make a public
distribution of its Registrable Securities.
(g) (i) Each Holder agrees that it will not effect any sales of
Registrable Securities pursuant to a Registration described in Section 1 after
such Holder has received notice from the Company to suspend sales as a result of
the occurrence or existence of any Suspension Event (as defined in Section
3(g)(ii) below) until the Company provides notice to such Holder that all
Suspension Events have ceased to exist. In addition, each Holder agrees that it
will not effect any sales of Registrable Securities pursuant to the Registration
described in Section 1 after such Holder has received notice from the Company to
suspend sales because the registration statement pursuant to which such sale is
to be effected, and the related prospectus or any supplement thereto contains an
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, until the Company notifies such Holder
that the misstatement or omission has been corrected. The Company hereby
covenants and agrees that it will use its best efforts to promptly correct any
such misstatement or omission, or to cure any Suspension Event, and that it will
give immediate notice to the Holder of such correction or cure.
(ii) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation to file a registration statement pursuant to
Section 1 hereof and make any filings with any state securities authority, to
use its best efforts to cause a registration statement or any state securities
filings to become effective, or to amend or supplement such a registration
statement or any state securities filings shall be temporarily suspended in the
event of and during a Suspension Event. A "Suspension Event" shall exist at such
times that (A) the Company is not eligible to use Form S-3 for the registration
contemplated by Section 1 hereof, or (B) the Company is conducting an
underwritten primary offering and is advised by the underwriters therein that
sale of Registrable Securities under the registration statement filed pursuant
to Section 1 hereof would have a material adverse effect on the Company's
offering, or (C) negotiations and/or consummation are pending relating to a
transaction or the occurrence of some other event (x) where any of the foregoing
would require disclosure under applicable securities laws of material
information in a registration statement (or any other document incorporated into
a registration statement by reference) or such state securities filings and (y)
as to which the Company has a bona fide business purpose, as determined in good
faith by its Board of Directors, for preserving confidentiality or
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which renders the Company unable to comply with the Commission's requirements.
Suspension of the Company's obligations pursuant to this Section 3(g)(ii) shall
continue only for so long as a Suspension Event is continuing. The Company shall
notify each Holder immediately after any Suspension Event occurs or ceases to
exist.
(h) The Holder may select the managing underwriter or underwriters,
if any, who are to undertake any offering and distribution of the Registrable
Securities to be included in a registration statement filed under the provisions
of Section 1 or 2(a) hereof, subject to the Company's prior approval of the
managing underwriter, which approval shall not be unreasonably withheld;
provided, however, that in the event there is a Joined Registration, the
Initiating Holders shall mutually select the managing underwriter(s), except
that in the event the Initiating Holders are unable to mutually agree on a
managing underwriter(s), the actual Initiating Holder shall have the right to
select the managing underwriter(s) which shall be reasonably acceptable to the
joining Initiating Holder, and further provided that in the event there is a
subsequent Joined Registration for which Initiating Holders are unable to
mutually agree on the selection of a managing underwriter(s), the other
Initiating Holder shall have the right to select the managing underwriter(s),
which managing underwriter(s), irrespective of who was the actual Initiating
Holder in such subsequent Joined Registration, shall be reasonably acceptable to
the Initiating Holder.
(i) The Company shall use its best efforts to register the
Registrable Securities covered by any such registration statements filed
pursuant to Section 1 or 2 under such securities or Blue Sky laws in addition to
those in which the Company would otherwise sell shares, as the Holder shall
request, except that neither the Company nor the Holder shall for any such
purpose be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction where it is
not so qualified. The fees and expenses incurred in connection with such
registration shall be borne by the Company.
(j) The Holder shall cooperate fully with the Company and provide
the Company with all information reasonably requested by the Company for
inclusion in the registration statement or as necessary to comply with the
Securities Act. The Company shall cooperate fully with any underwriters selected
by the Holder and counsel to such underwriters, and shall provide reasonable and
customary access to the Company's books and records (upon receipt from such
underwriters of customary confidentiality agreements) in order to facilitate
such underwriters' review and examination of the Company in connection with such
underwriting.
(k) The Company shall notify the Holder, at any time after
effectiveness when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of circumstances then existing (and upon receipt of such
notice and until a supplemented or amended prospectus as set forth below is
available, the Holder shall not offer or sell any securities covered by such
registration statement and shall return all copies of such prospectus to the
Company if requested to do so by it), and at the request of the Holder prepare
and furnish the Holder as promptly as practicable, but in any event within 90
days, a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such
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<PAGE>
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(l) The Company shall furnish to the Holder at the time of the
disposition of the Registrable Securities, a signed copy of an opinion of the
Company's regular in-house or outside general counsel, or other counsel of the
Company's selection reasonably acceptable to, and which opinion shall be
reasonably satisfactory in form and substance to, the Holder to the effect that:
(i) a registration statement covering such Registrable Securities has been filed
with the Commission under the Securities Act and has been declared effective by
order of the Commission, (ii) said registration statement and prospectus
contained therein comply as to form in all material respects with the
requirements of the Securities Act, and nothing has come to such counsel's
attention (after due inquiry) which would cause such counsel to believe that
either said registration statement or such prospectus (other than the financial
statements contained therein, as to which such counsel need not express any
opinion) contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of such prospectus, in light of the circumstances under
which they were made) not misleading, (iii) after due inquiry such counsel knows
of no legal or governmental proceedings required to be described in such
registration statement or prospectus which are not described as required, or of
any contracts or documents of a character required to be described in such
registration statement or such prospectus to be filed as an exhibit to such
registration statement or to be incorporated by reference therein which are not
described and filed as required and (iv) to such counsel's knowledge, no stop
order has been issued by the Commission suspending the effectiveness of such
registration statement; it being understood that such opinion may contain such
qualifications and assumptions as are customary in the rendering of similar
opinions, and that such counsel may rely, as to all factual matters treated
therein, on certificates of the Company (copies of which shall be delivered to
the Holder).
(m) The Company will use its best efforts to comply with the
reporting requirements of Sections 13 and 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), to the extent it shall be required to
do so pursuant to such sections, and at all times while so required shall use
its best efforts to comply with all other public information reporting
requirements of the Commission (including reporting requirements which serve as
a condition to utilization of Rule 144 promulgated by the Commission under the
Securities Act) from time to time in effect and relating to the availability of
an exemption from the Securities Act for the sale of any of the Registrable
Securities held by the Holder. The Company will also cooperate with the Holder
in supplying such information and documentation as may be necessary for the
Holder to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of an
exemption from the Securities Act for the sale of any of the Registrable
Securities held by the Holder.
(n) If the managing underwriter of a Joined Registration advises
the Initiating Holders in writing that, after the exclusion of all shares sought
to be registered in such registration by the Company and other shareholders with
"piggyback" rights, that the inclusion in such registration of some or all of
the securities sought to be registered by the Initiating Holders creates a
substantial risk that the proceeds or price per share that will be derived from
such registration will be reduced or that the number of shares of Common Stock
sought to be registered by the Initiating
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Holders is too large a number to be reasonably sold, then, in such event, the
number of shares to be included in the Joined Registration and underwriting may
be limited by the managing underwriter, on a pro rata basis based on the total
number of securities (including, without limitation, Registrable Securities)
proposed to be included in the Joined Registration by the actual Initiating
Holders and the deemed Initiating Holders.
Section 4. Indemnification.
(a) In the event of the registration of any Registrable Securities
by the Company under the Securities Act pursuant to the provisions of Sections 1
or 2, the Company agrees to indemnify and hold harmless the Holder of such
Registrable Securities, each underwriter, broker or dealer, if any, and their
respective directors, officers and employees, and each other person, if any, who
controls the holders of the Registrable Securities (or a permitted assignee
thereof), such underwriter, broker or dealer within the meaning of the
Securities Act, from and against any and all losses, claims, damages or
liabilities (or actions in respect thereof), joint or several, to which the
Holder (and as applicable) its directors, officers or employees, or such
underwriter, broker or dealer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus relating to such Registrable Securities, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of any rule or regulation under the Securities Act applicable to the
Company or relating to any action or inaction required by the Company in
connection with any such registration and will reimburse the Holder, each such
underwriter, broker or dealer and controlling person, and their respective
directors, officers or employees, for any legal or other expenses reasonably
incurred by the Holder or such underwriter, broker or dealer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
such preliminary prospectus, such final prospectus or such amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by the Holder and as applicable, such Holder'
directors, officers or employees, or such underwriter, broker, dealer or
controlling person designated in writing for use in the preparation thereof.
Such indemnity shall remain in full effect irrespective of any investigation by
any person indemnified above.
(b) In the event of the registration of any Registrable Securities
of the Holder under the Securities Act for sale pursuant to the provisions of
this Agreement, the Holder agrees to indemnify and hold harmless the Company,
its directors, officers and employees, from and against any losses, claims,
damages or liabilities, joint or several, to which the Company, its directors,
officers or employees, may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Registrable Securities were registered under the Securities Act, any
8
<PAGE>
preliminary prospectus or final prospectus relating to such Registrable
Securities, or any amendment or supplement thereto, or arise out of or are based
upon omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
which untrue statement or alleged untrue statement or omission or alleged
omission was made therein in reliance upon and in conformity with written
information furnished to the Company by the Holder and designated in writing for
use in the preparation thereof. Such indemnity shall remain in full effect
irrespective of any investigation by any person indemnified above.
(c) Promptly after receipt by a person entitled to indemnification
under this Section 4 (an "Indemnified Party") of notice of the commencement of
any action or claim relating to any registration statement filed under Sections
1 or 2 or as to which indemnity may be sought hereunder, such Indemnified Party
will, if a claim for indemnification hereunder in respect thereof is to be made
against any other party hereto (an "Indemnifying Party"), give written notice to
such Indemnifying Party of the commencement of such action or claim, but the
failure to so notify the Indemnifying Party will not relieve it from any
liability which it may have to any Indemnified Party otherwise than pursuant to
the provisions of this Section 4 and shall also not relieve the Indemnifying
Party of its obligations under this Section 4, except to the extent that the
Indemnifying Party is damaged solely as a result of the failure to give timely
notice. In case any such action is brought against an Indemnified Party, and it
notifies an Indemnifying Party of the commencement thereof, the Indemnifying
Party will be entitled (at its own expense) to participate in and, to the extent
that it may wish, jointly with any other Indemnifying Party similarly notified,
to assume the defense with counsel satisfactory to such Indemnified Party, of
such action and/or to settle such action and, after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume the defense
thereof, the Indemnifying Party will not be liable to such Indemnified Party for
any legal or other expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof, other than the reasonable cost of
investigation; provided, however, that no Indemnifying Party and no Indemnified
Party shall enter into any settlement agreement which would impose any liability
on such other party or parties without the prior written consent of such other
party or parties.
Section 5. Contribution. If the indemnification provided for in
Section 4 hereof is unavailable to the Indemnified Party in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
the Holder on the one hand and the underwriters on the other, in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Holder on the one hand and the underwriters on the other from the offering
of the Registrable Securities, or if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Holder on
the one hand and of the underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations and (ii) as
between the Company on the one hand and each Holder on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
each Holder in connection with such statements or omissions, as well as any
other relevant equitable considerations.
9
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In no event shall the obligation of any Indemnifying Party to
contribute under this Section 5 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 4 hereof had been available under the
circumstances.
The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages and liabilities referred to in the next preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5, no Holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of a Holder, the net proceeds received by such Holder from the sale of
Registrable Securities or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any damages
that such Holder or underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Section 6. Survival. The indemnity and contribution agreements
contained herein shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by or on behalf
of the Company and (iii) the consummation of the sale or successive resales of
the Registrable Securities.
Section 7. Remedies. Each Holder of Registrable Securities, in
addition to being entitled to exercise all rights hereto and all other rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
Section 8. Future Registration Rights. Until such time as the
Registration has been declared effective by the Commission, the Company shall
not grant to any third party any registration rights equal to or more favorable
than those contained herein; provided, however, that the foregoing prohibition
shall not prevent the Company from granting to a third party specific
registration rights that are equal to certain of those contained herein, as long
as all of the registration rights granted to such third party, taken as a whole,
are less favorable to the third party that those granted to the Holder herein.
In the event that the Registration shall fail to remain effective (or a stop
order shall be entered with respect thereto) while any of the Registrable
Securities remain unsold, the provisions of this Section 8 shall become
applicable once again. Notwithstanding anything in this Section 8 to the
contrary, after the date hereof the Company shall not, without the prior written
consent of the Holder(s) and the Class A Holders, grant "piggyback" registration
rights to the holder of any securities which shall entitle such holder in the
event of an underwriter's cutback to the preferred right of inclusion as
described in Section 3(a) of (i) the Holder(s) and (ii) other shareholders
having "piggyback" registration rights granted not later than the date hereof.
10
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Section 9. Modification and Waiver. No modification or waiver of
any provision of this Agreement and no consent by the Holder to any departure
therefrom by the Company shall be effective unless such modification or waiver
shall be in writing and signed by a duly authorized officer of the Holder, and
the same shall then be effective only for the period and on the conditions and
for the specific instances and purposes specified in such writing. No notice to
or demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
Section 10. Governing Law. This Agreement and the transactions
contemplated hereby shall be deemed to be consummated in the State of Texas and
shall be governed by and interpreted in accordance with the local laws of the
State of Texas without regard to the provisions thereof relating to conflict of
laws.
Section 11. Notices. All notices, requests, demands or other
communications provided for herein shall be in writing and shall be deemed to
have been given three days after being sent by registered or certified mail,
return receipt requested, or when personally delivered, or successfully sent by
facsimile transmission as evidenced by a fax machine generated confirmation
report thereof, addressed as the case may be, to the Holder at Sirrom Capital
Corporation, 500 Church Street, Suite 200, Nashville, Tennessee 37219
Attention: Craig Macnab; with a copy to Donald I.N. McKenzie, Sherrard & Roe,
PLC, 424 Church Street, Suite 2000, Nashville, Tennessee 37219; or the Company
at Clinicor, Inc., 1717 West Sixth Street, Suite 400, Austin, Texas 78703,
Attention: Robert Sammis, Facsimile No. (512) 477-0027; with a copy to Graves,
Dougherty, Hearon & Moody, 515 Congress Avenue, Suite 2300, Austin, Texas,
Attention: Karen Bartoletti, Esq., Facsimile No. (512) 478-1976, or to such
other person or address as either party shall designate to the other from time
to time in writing forwarded in like manner.
Section 12. Stamp or Other Tax. Should any stamp or excise tax
become payable in respect of this Agreement, or any modification hereof, the
Company shall pay the same (including interest and penalties, if any) and shall
hold the Holder harmless with respect thereto.
Section 13. Waiver of Jury Trial and Setoff. The Company hereby
waives trial by jury in any litigation in any court with respect to, in
connection with, or arising out of this Agreement, or any instrument or document
delivered pursuant to this Agreement; and the Company hereby waives the right to
interpose any setoff or noncompulsory counterclaim or cross-claim in connection
with any such litigation, irrespective of the nature of such setoff,
counterclaim or cross-claim.
Section 14. Service of Process. The Company hereby irrevocably
consents to the jurisdiction of the United States District Court located in
Nashville, Tennessee in connection with any action or proceeding arising out of
or relating to this Agreement. In any such litigation the Company waives
personal service of any summons, complaint or other process and agrees that the
service thereof may be made certified or registered mail directed to the Company
at its address set forth in Section 11. Within 30 days after such mailing, the
Company so served shall appear or answer to such summons, complaint or other
process. Should the Company so served fail to appear or answer within said 30-
day period, the Company shall be deemed in default and judgment may be
11
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entered by the Holder against the Company for the amount as demanded in any
summons, complaint or other process so served.
Section 15. Benefit of Agreement. This Agreement shall be binding
upon and inure to the benefit of the Company and Tandem and their respective
successors and assigns.
Section 16. Counterparts. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be an original
and all of which shall together constitute one and the same agreement.
Section 17. Severability. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be modified to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the Company and the Holder have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
CLINICOR, INC.
By: /s/ JAMES W. CLARK, JR.
-------------------------------------
Name: James W. Clark, Jr.
-------------------------------------
Title: VP Finance, Treasurer & CFO
------------------------------------
SIRROM CAPITAL CORPORATION
d/b/a Tandem Capital, Inc.
By: /s/ CRAIG MACNAB
-------------------------------------
Craig Macnab
Vice President
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EXHIBIT 4(i)
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated
as of November 25, 1997, between Clinicor, Inc., a Nevada corporation (the
"Company"), Oracle Partners, L.P. a Delaware limited partnership, Quasar
International Partners, C.V., Oracle Institutional Partners, L.P. and GSAM
Oracle Fund, Inc. (collectively, the "Oracle Entities").
WHEREAS, the Company and the Oracle Entities have entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement"), dated July 15, 1996,
pursuant to which the Company (i) issued to the Oracle Entities and their
designated assigns shares of the Company's Convertible Preferred Stock
(redesignated as the Class A Convertible Preferred Stock (the "Class A Preferred
Stock")), and (ii) granted certain registration rights to the holders of shares
of the Class A Preferred Stock as more fully set forth in Section 2.5 thereof.
WHEREAS, the Company and Oracle Partners, L.P. have entered into a Loan
Agreement (the "Loan Agreement"), dated July 1, 1997, pursuant to which the
Company (i) issued to Oracle Partners, L.P. and its designated assigns a Warrant
(the "Warrant") to purchase certain shares of Common Stock of the Company, and
(ii) granted certain registration rights to the holder thereof as more fully set
forth in that certain Registration Rights Agreement (the "Registration Rights
Agreement"), dated July 1, 1997, by and between the Company and Oracle Partners,
L.P.
WHEREAS, the Company and the Oracle Entities deem it desirable in
connection with issuance and sale of the Company's Class B Preferred Stock to
amend and restate the registration rights of the holders of (i) the Company's
Class A Preferred Stock by deleting the registration rights contained in the
Stock Purchase Agreement and substituting therefor the registration rights
contained in this Amended and Restated Registration Rights Agreement and (ii)
the Warrant by substituting the registration rights contained in the
Registration Rights Agreement with the registration rights contained in this
Amended and Restated Registration Rights Agreement (the holders of shares of
Class A Preferred Stock, shares of Common Stock issued upon conversion of shares
of Class A Preferred Stock, the Warrant and shares of Common Stock issued upon
exercise of the Warrant, collectively referred to herein as the "Holders;"
shares of Common Stock issued or issuable upon conversion of shares of Class A
Preferred Stock and shares of Common Stock issued or issuable upon exercise of
the Warrant, collectively referred to herein as "Registrable Securities").
NOW, THEREFORE, the parties hereto, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, hereby agree as
follows:
Section 1. Covenant to Register. At any time on or after August
--------------------
13, 1998, upon the request in writing by the Holder, or if more than one Holder,
by the Holders holding at least a majority of the Registrable Securities, the
Company shall file a registration statement with the Securities and Exchange
Commission (the "Commission") to register all Registrable Securities of the
Holder(s) requesting such registration for an offering to be made on a
continuous or delayed basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), covering
<PAGE>
all of such Registrable Securities. Such registration statement shall be on Form
S-3 under the Securities Act, if such Form is then available for use by the
Company, or another appropriate form that is available to the Company permitting
registration of such Registrable Securities for resale by the Holder(s) in the
manner or manners reasonably designated by the Holder(s) (including, without
limitation, one or more underwritten offerings). The Company shall use its best
efforts to prosecute the registration (the "Registration") of such Registrable
Securities pursuant to the Securities Act. The Company shall use its best
efforts to cause such Registrable Securities to be registered as soon as
practicable after the filing of the registration statement relating to such
Registrable Securities, but in no event later than 180 days after the filing of
such registration statement. The Holder(s) shall cooperate with the Company to
provide all such necessary information as shall be required by the Company to
file the registration statement relating to the Registration. In addition, the
Company shall use its best efforts to list such Registrable Securities on NASDAQ
or on such other securities exchange as such Registrable Securities may then be
listed. The Company shall maintain the prospectus relating to such Registrable
Securities effective for so long as the Holder(s) desires to dispose of such
Registrable Securities, not to exceed a period of five years from the date that
the registration statement was declared effective by the Commission.
Section 2. Demand and "Piggyback" Registration Rights.
------------------------------------------
(a) If at any time after the date hereof during which there is no
effective registration statement relating to the Registrable Securities, the
Company shall be requested in writing by the Holder, or if more than one Holder,
by the Holders holding at least a majority of the Registrable Securities (the
"Initiating Holders") to effect the registration under the Securities Act of the
Registrable Securities, the Company shall, as expeditiously as possible, use its
best efforts to effect the registration, on a form of general use under the
Securities Act, of all Registrable Securities which the Company has been
requested to register; provided, however, that the Company shall not be
obligated to effect such registration if (i) such Registrable Securities are to
be registered on Form S-1, Form SB-1 or Form SB-2 for use under the Securities
Act and (ii) the Initiating Holders cannot reasonably expect the sale of such
Registrable Securities to result in gross aggregate proceeds of at least
$4,000,000. The Company shall not be obligated to cause to become effective more
than three (3) registration statements pursuant to which Registrable Securities
are registered under this Section 2(a), provided that in the event the Company
effects a Registration pursuant to Section 1 above, such number of registration
statements under this Section 2(a) shall not exceed two (2) and further provided
that in the event the Holder(s) elects to join a demand registration pursuant to
Section 2(c) of that certain Registration Rights Agreement (the "Class B
Registration Rights Agreement"), dated as of the date hereof, by and between the
Company and Sirrom Capital Corporation, d/b/a Tandem Capital (together with its
designated assigns, "the Class B Holders"), and the Registrable Securities
requested to be included in such registration statement are sold pursuant to
such registration statement (a "Joined Registration"), then each such Joined
Registration shall constitute one (1) registration statement required to be
effected by the Company under this Section 2(a). Notwithstanding the foregoing,
if the Company shall furnish to the Initiating Holder(s) in response to a
request for registration under this Section 2(a) a certificate signed by the
Chief Executive Officer of the Company stating that in the good faith judgment
of the Board of Directors of the Company it would be detrimental to the Company
and its shareholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer taking action with respect to such filing
for a period of not more than 90 days after
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receipt of the request by the Initiating Holder(s); provided, however, that the
Company may not utilize this right more than once in any 12-month period. In
addition, the Company shall not be obligated to effect, or to take any action to
effect, any registration pursuant to this Section 2(a):
(i) During the period starting with the date 30 days prior to
the Company's good faith estimate of the date of filing of, and ending on a date
120 days after the effective date of, a registration subject to Section 2(b)
hereto; provided that the Company is actively employing in good faith its best
efforts to cause such registration statement to be filed and thereafter to
become effective; or
(ii) With respect to Registrable Securities in a Registration
that may be immediately registered or that are registered on Form S-3 pursuant
to a request made pursuant to Section 1 above.
(b) At any time after the date hereof, the Company shall, at least
thirty (30) days prior to the filing of any registration statement under the
Securities Act (other than a registration statement on Form S-8 or Form S-4 or
any successor forms) relating to the public offering of its Common Stock by the
Company or any of its security holders, give written notice of such proposed
filing and of the proposed date thereof to each Holder, and if, on or before the
twentieth (20th) day following the date on which such notice is given, the
Company shall receive a written request from a Holder requesting that the
Company include among the securities covered by such registration statement some
or all of the Registrable Securities held by or to be held after conversion of
the shares of Class A Preferred Stock or exercise of the Warrant by such Holder,
the Company shall include such Registrable Securities in such registration
statement, if filed, so as to permit such Registrable Securities to be sold or
disposed of in the manner and on the terms of the offering thereof set forth in
such request.
(c) Upon receipt by the Company of a request for registration under
Section 2(a), the Company promptly shall give written notice of such request to
the Class B Holders. If, on or before the fifteenth (15/th/) day following the
date on which such notice is given, the Company shall receive a written request
from any of the Class B Holders to join in the registration pursuant to Section
2(a), then the Company shall deliver a copy of such request to the Initiating
Holder(s), in which event such joining holder(s) shall be deemed to be an
"Initiating Holder" for the purposes of this Agreement, provided however, that
if the Common Stock requested to be included by such joining holder(s) in the
Initiating Holder's registration under Section 2(a) hereof are sold thereunder,
then such joined registration shall constitute one (1) of the permitted
registration statements under Section 2(a) of the Class B Registration Rights
Agreement, and further provided that the number of shares of Common Stock
requested by the joining holder(s) to be included in such registration shall not
exceed the result obtained by multiplying the aggregate number of shares of
Common Stock with unexercised registration rights granted by the Company
pursuant to the Class B Registration Rights Agreement then owned by all Class B
Holders times a fraction, the numerator of which is the number of shares of
Common Stock for which the actual Initiating Holder(s) are then requesting
registration under Section 2(a) hereof and the denominator of which is the
aggregate number of Registrable Securities with unexercised registration rights
granted by the Company pursuant to this Agreement then owned by all Holders.
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Section 3. Terms and Conditions of Registration. Except as
------------------------------------
otherwise provided herein, in connection with any registration statement filed
pursuant to Sections 1 or 2 herein, the following provisions shall apply:
(a) If such registration statement shall be filed pursuant to
Section 2(b) hereof and if the managing underwriter advises the Company in
writing that the inclusion in such registration of some or all of the
Registrable Securities sought to be registered by the Holder(s) creates a
substantial risk that the proceeds or price per share that will be derived from
such registration will be reduced or that the number of shares to be registered
at the insistence of the Holder(s), plus the number of shares of Common Stock
sought to be registered by the Company and any other shareholders of the Company
is too large a number to be reasonably sold, then, in such event, the number of
Registrable Securities to be included in the registration and underwriting (but,
in any registration initiated by the Company, not the number of securities to be
registered by the Company unless the Company has otherwise agreed) may be
limited by the managing underwriter, on a pro rata basis based on the total
number of securities (including, without limitation, Registrable Securities)
proposed to be included in registration by participating Holders or any other
shareholders having "piggyback" registration rights granted by the Company to
such other shareholder not later than the date hereof; provided, that the number
of securities proposed to be included in the registration by any other
shareholder having "piggyback" registration rights granted by the Company to
such other shareholder after the date hereof shall be limited or to the extent
necessary excluded from such registration before any securities (including,
without limitation, Registrable Securities) proposed to be included in the
registration by participating Holders or other shareholders having "piggyback"
registration rights granted by the Company to such other shareholder not later
than the date hereof shall be limited, unless the Holder(s) and the Class B
Holders shall have consented to the granting of more favorable "piggyback"
rights after the date hereof as provided in Section 8. The number of securities
includable by any Holder or other person may, in the discretion of the managing
underwriter, be rounded to the nearest one hundred (100) shares. No securities
excluded from the underwriting by reason of the managing underwriter's marketing
limitation shall be included in such registration. Notwithstanding anything in
this Agreement to the contrary, prior to the date one (1) year from the date
hereof, in the event that the number of Registrable Securities owned by the
Holder(s) and included in any registration and underwriting pursuant to Section
2(b) hereof is less than the number of Registrable Securities sought to be
registered thereby by operation of the provisions of this Section 3(a), the
number of shares of Common Stock owned by the Class B Holders to be included in
the registration and underwriting pursuant to Section 2(b) and Section 3(a) of
the Class B Registration Rights Agreement shall not exceed two-thirds (2/3) of
the aggregate number of Registrable Securities included in such registration and
underwriting by the Holder(s).
(b) If requested by the Holder(s) in connection with a registration
statement filed pursuant to Section 1 or Section 2(a), the Company will enter
into an underwriting agreement with the underwriters for such offering, such
agreement to be reasonably satisfactory in form and substance to the Company,
the Holder(s) and the underwriters, and to contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in such agreements used by the managing underwriter, including,
without limitation, restrictions of sales of Registrable Securities or other
securities by the Company as may be reasonably agreed to between the Company and
such underwriters, and indemnities and rights to contributions to the effect and
to the extent provided in Sections 4 and 5 hereof. The Holder(s) shall be a
party to any underwriting
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agreement relating to an underwritten sale of its Common Stock and may, at its
option, require that any or all of the representations, warranties and covenants
of the Company to or for the benefit of such underwriters, shall also be made to
and for the benefit of the Holder. All representations and warranties of the
Holder(s) shall be made to or for the benefit of the Company.
(c) The Company shall provide a transfer agent and registrar (which
may be the same entity) for the Common Stock, not later than the effective date
of such registration.
(d) All expenses in connection with the preparation and filing of a
registration statement filed pursuant to Sections 1, 2(a) or 2(b) shall be borne
solely by the Company, except for any transfer taxes payable with respect to
the disposition of such Registrable Securities, and any underwriting discounts
and selling commissions applicable solely to such sales of Registrable
Securities, which shall be paid by the Holder(s) of the Registrable Securities
being registered.
(e) The Company shall use its best efforts to cause all of the
shares covered by such registration statement to be listed on NASDAQ or on such
other securities exchange as such shares may then be listed, on which similar
shares are listed for trading, if the listing of such registered shares is
permitted by such exchange.
(f) Following the effective date of such registration statement,
the Company shall, upon the request of any Holder, forthwith supply such number
of prospectuses (including exhibits thereto and preliminary prospectuses and
amendments and supplements thereto) meeting the requirements of the Securities
Act and such other documents as are referred to in the prospectus as shall be
reasonably requested by the Holder to permit the Holder to make a public
distribution of its Registrable Securities.
(g) (i) Each Holder agrees that it will not effect any sales of
Registrable Securities pursuant to a Registration described in Section 1 after
such Holder has received notice from the Company to suspend sales as a result of
the occurrence or existence of any Suspension Event (as defined in Section
3(g)(ii) below) until the Company provides notice to such Holder that all
Suspension Events have ceased to exist. In addition, each Holder agrees that it
will not effect any sales of Registrable Securities pursuant to the Registration
described in Section 1 after such Holder has received notice from the Company to
suspend sales because the registration statement pursuant to which such sale is
to be effected, and the related prospectus or any supplement thereto contains an
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, until the Company notifies such Holder
that the misstatement or omission has been corrected. The Company hereby
covenants and agrees that it will use its best efforts to promptly correct any
such misstatement or omission, or to cure any Suspension Event, and that it will
give immediate notice to the Holder of such correction or cure.
(ii) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation to file a registration statement pursuant to
Section 1 hereof and make any filings with any state securities authority, to
use its best efforts to cause a registration statement or any state securities
filings to become effective, or to amend or supplement such a registration
statement or any state securities filings shall be temporarily suspended in the
event of and during a
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<PAGE>
Suspension Event. A "Suspension Event" shall exist at such times that (A) the
Company is not eligible to use Form S-3 for the registration contemplated by
Section 1 hereof, or (B) the Company is conducting an underwritten primary
offering and is advised by the underwriters therein that sale of Registrable
Securities under the registration statement filed pursuant to Section 1 hereof
would have a material adverse effect on the Company's offering, or (C)
negotiations and/or consummation are pending relating to a transaction or the
occurrence of some other event (x) where any of the foregoing would require
disclosure under applicable securities laws of material information in a
registration statement (or any other document incorporated into a registration
statement by reference) or such state securities filings and (y) as to which the
Company has a bona fide business purpose, as determined in good faith by its
Board of Directors, for preserving confidentiality or which renders the Company
unable to comply with the Commission's requirements. Suspension of the Company's
obligations pursuant to this Section 3(g)(ii) shall continue only for so long as
a Suspension Event is continuing. The Company shall notify each Holder
immediately after any Suspension Event occurs or ceases to exist.
(h) The Holder(s) may select the underwriter or underwriters, if
any, who are to undertake any offering and distribution of the Registrable
Securities to be included in a registration statement filed under the provisions
of Section 1 or 2(a) hereof, subject to the Company's prior approval of the
underwriter, which approval shall not be unreasonably withheld; provided,
however, that in the event there is a Joined Registration, the Initiating
Holders shall mutually select the managing underwriter(s), except that in the
event the Initiating Holders are unable to mutually agree on a managing
underwriter(s), the actual Initiating Holder shall have the right to select the
managing underwriter(s) which shall be reasonably acceptable to the joining
Initiating Holder, and further provided that in the event there is a subsequent
Joined Registration for which Initiating Holders are unable to mutually agree on
the selection of a managing underwriter(s), the other Initiating Holder shall
have the right to select the managing underwriter(s), which managing
underwriter(s), irrespective of who was the actual Initiating Holder in such
subsequent Joined Registration, shall be reasonably acceptable to the Initiating
Holder.
(i) The Company shall use its best efforts to register the
Registrable Securities covered by any such registration statements filed
pursuant to Section 1 or 2 under such securities or Blue Sky laws in addition to
those in which the Company would otherwise sell shares, as the Holder(s) shall
request, except that neither the Company nor any of the Holders shall for any
such purpose be required to execute a general consent to service of process or
to qualify to do business as a foreign corporation in any jurisdiction where it
is not so qualified. The fees and expenses incurred in connection with such
registration shall be borne by the Company.
(j) The Holder(s) shall cooperate fully with the Company and
provide the Company with all information reasonably requested by the Company for
inclusion in the registration statement or as necessary to comply with the
Securities Act. The Company shall cooperate fully with any underwriters selected
by the Holder(s) and counsel to such underwriters, and shall provide reasonable
and customary access to the Company's books and records (upon receipt from such
underwriters of customary confidentiality agreements) in order to facilitate
such underwriters' review and examination of the Company in connection with such
underwriting.
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(k) The Company shall notify the Holder(s), at any time after
effectiveness when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of circumstances then existing (and upon receipt of such
notice and until a supplemented or amended prospectus as set forth below is
available, the Holder(s) shall not offer or sell any securities covered by such
registration statement and shall return all copies of such prospectus to the
Company if requested to do so by it), and at the request of any Holder prepare
and furnish such Holder as promptly as practicable, but in any event within 90
days, a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.
(l) The Company shall furnish to the Holder(s) at the time of the
disposition of the Registrable Securities, a signed copy of an opinion of the
Company's regular in-house or outside general counsel, or other counsel of the
Company's selection reasonably acceptable to, and which opinion shall be
reasonably satisfactory in form and substance to, the Holder(s) to the effect
that: (i) a registration statement covering such Registrable Securities has been
filed with the Commission under the Securities Act and has been declared
effective by order of the Commission, (ii) said registration statement and
prospectus contained therein comply as to form in all material respects with the
requirements of the Securities Act, and nothing has come to such counsel's
attention (after due inquiry) which would cause such counsel to believe that
either said registration statement or such prospectus (other than the financial
statements contained therein, as to which such counsel need not express any
opinion) contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of such prospectus, in light of the circumstances under
which they were made) not misleading, (iii) after due inquiry such counsel knows
of no legal or governmental proceedings required to be described in such
registration statement or prospectus which are not described as required, or of
any contracts or documents of a character required to be described in such
registration statement or such prospectus to be filed as an exhibit to such
registration statement or to be incorporated by reference therein which are not
described and filed as required and (iv) to such counsel's knowledge, no stop
order has been issued by the Commission suspending the effectiveness of such
registration statement; it being understood that such opinion may contain such
qualifications and assumptions as are customary in the rendering of similar
opinions, and that such counsel may rely, as to all factual matters treated
therein, on certificates of the Company (copies of which shall be delivered to
the Holder(s)).
(m) The Company will use its best efforts to comply with the
reporting requirements of Sections 13 and 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), to the extent it shall be required to
do so pursuant to such sections, and at all times while so required shall use
its best efforts to comply with all other public information reporting
requirements of the Commission (including reporting requirements which serve as
a condition to utilization of Rule 144 promulgated by the Commission under the
Securities Act) from time to time in effect and relating to the availability of
an exemption from the Securities Act for the sale of any of the Company's
Registrable Securities held by the Holder(s). The Company will also cooperate
with
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<PAGE>
the Holder(s) in supplying such information and documentation as may be
necessary for any Holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any of the
Company's Registrable Securities held by such Holder.
(n) If the managing underwriter of a Joined Registration advises
the Initiating Holders in writing that, after the exclusion of all shares sought
to be registered in such registration by the Company and other shareholders with
"piggyback" rights, that the inclusion in such registration of some or all of
the securities sought to be registered by the Initiating Holders creates a
substantial risk that the proceeds or price per share that will be derived from
such registration will be reduced or that the number of shares of Common Stock
sought to be registered by the Initiating Holders is too large a number to be
reasonably sold, then, in such event, the number of shares to be included in the
Joined Registration and underwriting may be limited by the managing underwriter,
on a pro rata basis based on the total number of securities (including, without
limitation, Registrable Securities) proposed to be included in the Joined
Registration by the actual Initiating Holders and the deemed Initiating Holders.
Section 4. Indemnification.
---------------
(a) In the event of the registration of any Registrable Securities
by the Company under the Securities Act pursuant to the provisions of Sections 1
or 2, the Company agrees to indemnify and hold harmless each Holder of such
Registrable Securities, each underwriter, broker or dealer, if any, and their
respective directors, officers and employees, and each other person, if any, who
controls the holders of the Registrable Securities (or a permitted assignee
thereof), such underwriter, broker or dealer within the meaning of the
Securities Act, from and against any and all losses, claims, damages or
liabilities (or actions in respect thereof), joint or several, to which the
Holder (and as applicable) its directors, officers or employees, or such
underwriter, broker or dealer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus relating to such Registrable Securities, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of any rule or regulation under the Securities Act applicable to the
Company or relating to any action or inaction required by the Company in
connection with any such registration and will reimburse the Holder, each such
underwriter, broker or dealer and controlling person, and their respective
directors, officers or employees, for any legal or other expenses reasonably
incurred by the Holder or such underwriter, broker or dealer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
such preliminary prospectus, such final prospectus or such amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by the Holder and as applicable, such Holder'
directors, officers or employees, or such underwriter, broker,
8
<PAGE>
dealer or controlling person designated in writing for use in the preparation
thereof. Such indemnity shall remain in full effect irrespective of any
investigation by any person indemnified above.
(b) In the event of the registration of any Registrable Securities
of the Holder(s) under the Securities Act for sale pursuant to the provisions of
this Agreement, each Holder agrees to indemnify and hold harmless the Company,
its directors, officers and employees, from and against any losses, claims,
damages or liabilities, joint or several, to which the Company, its directors,
officers or employees, may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Registrable Securities were registered under the Securities Act, any
preliminary prospectus or final prospectus relating to such Registrable
Securities, or any amendment or supplement thereto, or arise out of or are based
upon omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
which untrue statement or alleged untrue statement or omission or alleged
omission was made therein in reliance upon and in conformity with written
information furnished to the Company by such Holder and designated in writing
for use in the preparation thereof. Such indemnity shall remain in full effect
irrespective of any investigation by any person indemnified above.
(c) Promptly after receipt by a person entitled to indemnification
under this Section 4 (an "Indemnified Party") of notice of the commencement of
any action or claim relating to any registration statement filed under Sections
1 or 2 or as to which indemnity may be sought hereunder, such Indemnified Party
will, if a claim for indemnification hereunder in respect thereof is to be made
against any other party hereto (an "Indemnifying Party"), give written notice to
such Indemnifying Party of the commencement of such action or claim, but the
failure to so notify the Indemnifying Party will not relieve it from any
liability which it may have to any Indemnified Party otherwise than pursuant to
the provisions of this Section 4 and shall also not relieve the Indemnifying
Party of its obligations under this Section 4, except to the extent that the
Indemnifying Party is damaged solely as a result of the failure to give timely
notice. In case any such action is brought against an Indemnified Party, and it
notifies an Indemnifying Party of the commencement thereof, the Indemnifying
Party will be entitled (at its own expense) to participate in and, to the extent
that it may wish, jointly with any other Indemnifying Party similarly notified,
to assume the defense with counsel satisfactory to such Indemnified Party, of
such action and/or to settle such action and, after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume the defense
thereof, the Indemnifying Party will not be liable to such Indemnified Party for
any legal or other expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof, other than the reasonable cost of
investigation; provided, however, that no Indemnifying Party and no Indemnified
Party shall enter into any settlement agreement which would impose any liability
on such other party or parties without the prior written consent of such other
party or parties.
Section 5. Contribution. If the indemnification provided for in
------------
Section 4 hereof is unavailable to the Indemnified Party in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
any Holder on the one hand
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and the underwriters on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company and such Holder on the one
hand and the underwriters on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and such Holder on the one hand and of the
underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Company on the one
hand and any Holder on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of such Holder in connection with
such statements or omissions, as well as any other relevant equitable
considerations.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 5 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 4 hereof had been available under the
circumstances.
The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages and liabilities referred to in the next preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5, no Holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of a Holder, the net proceeds received by such Holder from the sale of
Registrable Securities or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any damages
that such Holder or underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Section 6. Survival. The indemnity and contribution agreements
--------
contained herein shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by or on behalf
of the Company and (iii) the consummation of the sale or successive resales of
the Registrable Securities.
Section 7. Remedies. Each Holder of Registrable Securities,
--------
in addition to being entitled to exercise all rights hereto and all other rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
Section 8. Future Registration Rights. Until such time as the
--------------------------
Registration has been declared effective by the Commission, the Company shall
not grant to any third party any registration rights equal to or more favorable
than those contained herein; provided, however, that
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the foregoing prohibition shall not prevent the Company from granting to a third
party specific registration rights that are equal to certain of those contained
herein, as long as all of the registration rights granted to such third party,
taken as a whole, are less favorable to the third party that those granted to
the Holder(s) herein. In the event that the Registration shall fail to remain
effective (or a stop order shall be entered with respect thereto) while any of
the Registrable Securities remain unsold, the provisions of this Section 8 shall
become applicable once again. Notwithstanding anything in this Section 8 to the
contrary, after the date hereof the Company shall not, without the prior written
consent of the Holder(s) and the Class B Holders, grant "piggyback" registration
rights to the holder of any securities which shall entitle such holder in the
event of an underwriter's cutback to the preferred right of inclusion as
described in Section 3(a) of (i) the Holder(s) and (ii) other shareholders
having "piggyback" registration rights granted not later than the date hereof.
Section 9. Modification and Waiver. No modification or waiver of
-----------------------
any provision of this Agreement and no consent by the Holder(s) to any departure
therefrom by the Company shall be effective unless such modification or waiver
shall be in writing and signed by a duly authorized officer of each Holder, and
the same shall then be effective only for the period and on the conditions and
for the specific instances and purposes specified in such writing. No notice to
or demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
Section 10. Entire Agreement. This Agreement constitutes the
----------------
entire agreement between the Company and the Oracle Entities (and each of them)
regarding the registration rights of the Oracle Entities (and each of them) with
respect to the Company's securities. This Agreement entirely supersedes and
replaces (i) Section 2.5 of the Stock Purchase Agreement and (ii) the
Registration Rights Agreement. Section 2.5 of the Stock Purchase Agreement and
the Registration Rights Agreement shall, upon execution of this Agreement by all
the parties hereto, be completely terminated and of no further effect whatsoever
effective as of the date hereof.
Section 11. Governing Law. This Agreement and the transactions
-------------
contemplated hereby shall be deemed to be consummated in the State of Texas and
shall be governed by and interpreted in accordance with the local laws of the
State of Texas without regard to the provisions thereof relating to conflict of
laws.
Section 12. Notices. All notices, requests, demands or other
-------
communications provided for herein shall be in writing and shall be deemed to
have been given three days after being sent by registered or certified mail,
return receipt requested, or when personally delivered, or successfully sent by
facsimile transmission as evidenced by a fax machine generated confirmation
report thereof, addressed as the case may be, to the Holders, or any of them, at
Oracle Partners, L.P., 712 Fifth Avenue, 45th Floor, New York, New York 10019,
Attention: Larry Feinberg, Facsimile No. (212) 459-0863; with a copy to Kane
Kessler, P.C., 1350 Avenue of the Americas, New York, New York 10019; Attention
Robert L. Lawrence, Esq., Facsimile No. (212) 245-3009; or the Company at
Clinicor, Inc., 1717 West Sixth Street, Suite 400, Austin, Texas 78703,
Attention: Robert Sammis, Facsimile No. (512) 477-0027; with a copy to Graves,
Dougherty, Hearon & Moody, 515 Congress Avenue, Suite 2300, Austin, Texas,
Attention: Karen Bartoletti, Esq., Facsimile No. (512) 478-1976, or to such
other person or address as either party shall designate to the other from time
to time in writing forwarded in like manner.
11
<PAGE>
Section 13. Stamp or Other Tax. Should any stamp or excise tax
------------------
become payable in respect of this Agreement, or any modification hereof, the
Company shall pay the same (including interest and penalties, if any) and shall
hold each Holder harmless with respect thereto.
Section 14. Waiver of Jury Trial and Setoff. The Company hereby
-------------------------------
waives trial by jury in any litigation in any court with respect to, in
connection with, or arising out of this Agreement, or any instrument or document
delivered pursuant to this Agreement; and the Company hereby waives the right to
interpose any setoff or noncompulsory counterclaim or cross-claim in connection
with any such litigation, irrespective of the nature of such setoff,
counterclaim or cross-claim.
Section 15. Service of Process. The Company hereby irrevocably
------------------
consents to the jurisdiction of the United States District Court located in New
York City, New York in connection with any action or proceeding arising out of
or relating to this Agreement. In any such litigation the Company waives
personal service of any summons, complaint or other process and agrees that the
service thereof may be made certified or registered mail directed to the Company
at its address set forth in Section 12. Within 30 days after such mailing, the
Company so served shall appear or answer to such summons, complaint or other
process. Should the Company so served fail to appear or answer within said 30-
day period, the Company shall be deemed in default and judgment may be entered
by any Holder against the Company for the amount as demanded in any summons,
complaint or other process so served.
Section 16. Benefit of Agreement. This Agreement shall be
--------------------
binding upon and inure to the benefit of the Company and the Holder(s) and their
respective successors and assigns.
Section 17. Counterparts. This Agreement may be executed by the
------------
parties hereto in one or more counterparts, each of which shall be an original
and all of which shall together constitute one and the same agreement.
Section 18. Severability. Wherever possible, each provision of
------------
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be modified to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the Company and the Holders have caused this
Amended and Restated Registration Rights Agreement to be duly executed by their
respective officers thereunto duly authorized as of the day and year first above
written.
CLINICOR, INC.
By: /s/ JAMES W. CLARK, JR.
-------------------------------------------
Name: James W. Clark, Jr.
-------------------------------------------
Title: VP Finance, Treasurer & CFO
-------------------------------------------
ORACLE PARTNERS, L.P.
By: /s/ LARRY N. FEINBERG
-------------------------------------------
Name: Larry Feinberg
-------------------------------------------
Title: Managing General Partner
-------------------------------------------
QUASAR INTERNATIONAL PARTNERS, C.V.
By: /s/ LARRY N. FEINBERG
-------------------------------------------
Name: Larry Feinberg, as President of
-------------------------------------------
Title: Oracle Management, Inc., Investment Advisor
-------------------------------------------
ORACLE INSTITUTIONAL PARTNERS, L.P.
By: /s/ LARRY N. FEINBERG
-------------------------------------------
Name: Larry Feinberg
-------------------------------------------
Title: Managing General Partner
-------------------------------------------
GSAM ORACLE FUND, INC.
By: /s/ LARRY N. FEINBERG
-------------------------------------------
Name: Larry Feinberg, as President of
-------------------------------------------
Title: Oracle Management, Inc., Investment Advisor
-------------------------------------------
13
<PAGE>
EXHIBIT 4(j)
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT (the "Agreement"), dated as of November 25, 1997, by
and among Clinicor, Inc., a Nevada corporation (the "Company"), O'Donnell Family
Limited Partnership, a limited partnership (the "Partnership"), Messrs. Robert
S. Sammis ("Sammis") and Thomas P. O'Donnell ("O'Donnell"), each an individual
resident of the State of Texas (Sammis and O'Donnell, together with the
Partnership, the "Selling Shareholders"), Oracle Partners, L.P., a Delaware
limited partnership ("Oracle") and Sirrom Capital Corporation d/b/a Tandem
Capital, a Tennessee corporation ("Tandem").
WITNESSETH:
WHEREAS, the Company and Tandem have entered into a Preferred Stock
Purchase Agreement, dated November 7, 1997 (the "Stock Purchase Agreement"),
pursuant to which the Company has agreed to issue and sell to Tandem, and its
designated assigns and, subject to the conditions set forth in the Stock
Purchase Agreement, Tandem has agreed to purchase, 50,000 shares of the
Company's Class B Convertible Preferred Stock, without par value (the "Class B
Preferred Stock"), which shares of Class B Preferred Stock are convertible into
shares of the Company's Common Stock par value $.001 per share (the "Common
Stock");
WHEREAS, Oracle and certain persons associated with Oracle are the holders
of shares of the Company's Class A Convertible Preferred Stock, without par
value (the "Class A Preferred Stock"), the terms of which will be modified and
amended as a result of the issuance and sale of the Class B Preferred Stock to
Tandem;
WHEREAS, in order to induce Tandem to enter into the Stock Purchase
Agreement and to induce Oracle and the holders of the Class A Preferred Stock to
agree to the modification of the terms thereof, each of the Selling Shareholders
agrees to restrict the transfer of the shares of capital stock of the Company
registered in the name thereof or beneficially owned thereby;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and in consideration of the
premises and of the mutual covenants herein contained, the parties hereto agree
to be legally bound as follows:
Section 1. Ownership of Shares. Each of the Selling Shareholders
represents and warrants that all shares of capital stock of the Company owned
thereby, and all options, rights, warrants or other securities convertible into,
exchangeable or exercisable for or evidencing any right to purchase or subscribe
for shares of capital stock of the Company (whether owned of record or
beneficially), or any beneficial interest therein, are set forth and described
beside such Selling Shareholder's name on Exhibit A attached hereto (together
with any such shares of capital stock, options, rights, warrant or other
securities subsequently acquired by any of the Selling Shareholders, the
"Covered Securities"). The Company represents and warrants that each such
Selling Shareholder is the owner of record of all Covered Securities set forth
and described beside such Selling Shareholder's name.
Section 2. Lock-Up. Each of the Selling Shareholders hereby acknowledges
and agrees that during the period beginning on the date hereof and ending on the
Termination Date, as hereinafter defined (the "Lock-up Period"), such Selling
Shareholder, without the prior written
<PAGE>
consent of Oracle (so long as any shares of the Company's Class A Preferred
Stock or any shares of Common Stock issued upon conversion thereof remain
outstanding and are owned of record or beneficially by Oracle or any affiliate
thereof) and Tandem (so long as any shares of the Company's Class B Preferred
Stock or any shares of Common Stock issued upon conversion thereof remain
outstanding and are owned of record or beneficially by Tandem or any affiliate
thereof), will not (A) directly or indirectly, agree or offer to sell, sell,
contract to sell, grant an option for the purchase or sale of, assign, transfer,
pledge, hypothecate, distribute or otherwise encumber or dispose of (each, a
"Disposition") any Covered Securities owned thereby, except for (i) transfers to
members of his "immediate family" (as defined in Rule 16a-1 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) provided each such
transferee agrees in writing to comply with the provisions of this Agreement as
to the transfer of such securities, (ii) in the case of the Partnership, sales
of shares of Common Stock which realize gross proceeds in the aggregate of not
more than $400,000, provided that Oracle shall have received written notice at
least ninety (90) days prior to any such sale stating the number of shares of
Common Stock to be sold and shall have had the opportunity during such ninety
(90) day period to arrange a private sale to one or more buyers at a price
mutually agreed upon by the Partnership and Oracle and (iii) in the case of
Sammis, sales of shares of Common Stock which realize gross proceeds in the
aggregate of not more than $200,000, provided that Oracle shall have received
written notice at least ninety (90) days prior to any such sale stating the
number of shares of Common Stock to be sold and shall have had the opportunity
during such ninety (90) day period to arrange a private sale to one or more
buyers at a price mutually agreed upon by Sammis and Oracle or (B) engage in any
activities such as short sales, "sales against the box," or any other derivative
activities which create a "put equivalent position" under regulations adopted
under Section 16 of the Exchange Act, or in any other hedging transactions
designed or reasonably likely to result in a Disposition of any Covered
Securities.
Section 3. Termination Date. This Agreement shall terminate on the
earlier to occur of (A) the date on which all issued and outstanding shares of
the Company's Class A Preferred Stock and Class B Preferred Stock are converted
into shares of Common Stock or redeemed or otherwise retired by the Company, (B)
the effective date of any consolidation, merger or statutory share exchange
(other than a merger with a wholly-owned subsidiary of the Company or a
consolidation, merger, share exchange or other business combination in which the
outstanding voting stock of the Company immediately prior to such consolidation,
merger, share exchange or business combination constitutes a majority of the
voting stock of the surviving entity) in which the outstanding shares of capital
stock of the Company are exchanged for securities or other consideration of or
from another corporation, or a sale of all or substantially all the assets or
stock of the Company, provided that the holders of the Company's Class A
Preferred Stock and the Company's Class B Preferred Stock shall receive on the
effective date of such event an amount equal to or greater than the Class A
Liquidation Preference and the Class B Preference Amount, respectively (as such
terms are defined in the Company's Amended and Restated Articles of
Incorporation, as amended (the "Articles of Incorporation")), in cash, readily
marketable securities or other property, (C) the public offering pursuant to a
firm commitment underwriting at a price to the public of at least $5.00 per
share of Common Stock of the Company (as adjusted proportionally for any stock
dividends, combinations or splits) registered in compliance with the Securities
Act of 1933, as amended and applicable rules and regulations thereunder and
registered, qualified or exempt from registration or qualification under or in
compliance with any applicable state securities laws which shall have resulted
in the receipt by the Company of net proceeds of at least $10,000,000 (after the
payment of expenses, including underwriting discounts and commissions but before
any proceeds from the exercise of any underwriter's over-allotment option) for
the Common Stock of the Company offered thereunder or (D) the date which is
twenty-four (24) months from the date hereof (the "Termination Date").
2
<PAGE>
Section 4. Stop-transfer Order; Securities Legend. Each of the Selling
Shareholders hereby consents to the placing of a stop-transfer order on the
books of the Company or with the transfer agent of the Company's capital stock
with respect to any of the Covered Securities or instruments convertible into or
exchangeable for Covered Securities registered in the name of such Selling
Shareholder or beneficially owned thereby. The Company hereby covenants to
cause all such stop-transfer orders to be placed. Each of the Selling
Shareholders hereby consents to the placing of a legend substantially in the
following form, and covenants to submit (simultaneously with the execution of
this Agreement or promptly upon receipt of any certificate representing Covered
Securities in the future) any such certificates to the Company for the placing
of such legend, on all certificates owned thereby representing shares of Covered
Securities or instruments convertible into or exchangeable for Covered
Securities:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN RESTRICTED IN THE
MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN LOCK-UP AGREEMENT, DATED
NOVEMBER 25, 1997 (AS SUCH AGREEMENT MAY FROM TIME TO TIME BE AMENDED, THE
"LOCK-UP AGREEMENT"), AMONG CLINICOR, INC., O'DONNELL FAMILY LIMITED
PARTNERSHIP, MESSRS. ROBERT S. SAMMIS AND THOMAS P. O'DONNELL, ORACLE PARTNERS,
L.P. AND SIRROM CAPITAL CORPORATION D/B/A TANDEM CAPITAL, AND SUCH SECURITIES
MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS OF SUCH LOCK-UP
AGREEMENT.
The foregoing legend and any stop-transfer order described in this Section 4
shall only be removed with respect to any of the Covered Securities or
instruments convertible into or exchangeable for Covered Securities, or the
shares represented thereby, upon the advice of counsel to the Company.
Section 5. Governing Law; Amendments. This Agreement shall in all
respects be construed in accordance with and governed by the laws of the State
of Texas applicable to contracts to be wholly performed in such state. This
Agreement may not be amended or modified, nor may any Covered Securities be
released for the operation of this Agreement except in a writing signed by the
party or parties to be charged therewith.
Section 6. Jurisdiction and Venue. Pledgors hereby consent to the
jurisdiction of the courts of the States of Tennessee and New York and the
United States District Court for each of the Middle District of Tennessee and
the Southern District of New York, as well as to the jurisdiction of all courts
from which an appeal may be taken from such courts, for the purpose of any suit,
action or other proceeding arising out of any of its obligations arising under
this Agreement or with respect to the transactions contemplated hereby, and
expressly waives any and all objections it may have as to venue in any of such
courts.
Section 7. Waiver of Trial by Jury. EACH OF THE PARTIES HERETO HEREBY
WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS,
WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY
RELATING TO THIS AGREEMENT.
Section 8. Notices. All communications provided for hereunder shall be
in writing and shall be delivered personally, or mailed by registered mail, or
by prepaid overnight air courier, or by facsimile communication, in each case
addressed:
If to the Company: Clinicor, Inc.
3
<PAGE>
1717 West Sixth Street, Suite 400
Austin, TX 78703
Fax: (512) 477-0027
Attention: Robert S. Sammis
with a copy to: Graves, Dougherty, Hearon & Moody
515 Congress Avenue
Suite 2300
Austin, TX 78701
Fax: (512) 478-1976
Attention: Karen Bartoletti, Esq.
If to Sammis: Robert S. Sammis
3709 Gilbert Street
Austin, Texas 78703-2006
If to Partnership
or O'Donnell: Thomas P. O'Donnell
5208 Cuesta Verde
Austin, Texas 78746
with a copy to: Akin, Gump, Strauss, Hauer and Feld, L.L.P.
1900 Frost Bank Plaza
816 Congress Avenue
Austin, Texas
Fax: (512) 499-6200
Attention: Brandon C. Janes
If to Oracle: Oracle Partners, L.P.
712 Fifth Avenue, 45th Floor
New York, New York 10019
Fax: (212) 459-0863
Attention: Larry Feinberg
with a copy to: Kane Kessler, P.C.
1350 Avenue of the Americas
New York, New York 10019
Fax: (212) 245-3009
Attention: Steven E. Cohen, Esq.
If to Tandem: Tandem Capital, Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Fax: (615) 726-1208
Attention: Craig Macnab
with a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Fax: (615) 742-4539
4
<PAGE>
Attention: Donald I.N. McKenzie, Esq.
or such other address as any party may designate to the other parties hereto in
writing, provided, however, that a notice sent by overnight air courier shall
only be effective if delivered at a street address designated for such purpose
by such person and a notice sent by facsimile communication shall only be
effective if made by confirmed transmission at a telephone number designated for
such purpose by such person.
Section 9. Headings. Section numbers and headings used herein are for
convenience only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
[Remainder of page intentionally left blank.]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be duly executed by a duly authorized officer,
all as of the day first above written.
CLINICOR:
CLINICOR, INC.,
a Nevada corporation
By: /s/ JAMES W. CLARK, JR.
TREASURER & CFO
-----------------------------------
Name: James W. Clark, Jr.
-----------------------------------
Its: TREASURER AND CFO
-----------------------------------
WITNESS: SELLING SHAREHOLDERS:
/s/ ROBERT M. DAY /s/ ROBERT S. SAMMIS
------------------------------ ----------------------------------------
Robert S. Sammis
/s/ LISA CHILDERS /s/ THOMAS P. O'DONNELL
-------------------------------- ----------------------------------------
Thomas P. O'Donnell
O'DONNELL FAMILY LIMITED PARTNERSHIP
By Its General Partner:
O'DONNELL PARTNERSHIP
MANAGEMENT CORP.
By: /s/ KRISTINA BREEN O'DONNELL
-----------------------------
Name: Kristina Breen O'Donnell
---------------------------
Its: President
----------------------------
<PAGE>
ORACLE:
ORACLE PARTNERS, L.P.,
a Delaware limited partnership
By: /s/ LARRY N. FEINBERG
-------------------------------------
Name: Larry Feinberg
-----------------------------------
Title: Managing General Partner
----------------------------------
QUASAR INTERNATIONAL PARTNERS, C.V.
By: /s/ LARRY N. FEINBERG
-------------------------------------
Name: Larry Feinberg, as President of
-----------------------------------
Title: Oracle Management, Inc.,
Investment Advisor
----------------------------------
ORACLE INSTITUTIONAL PARTNERS, L.P.
By: /s/ LARRY N. FEINBERG
-------------------------------------
Name: Larry Feinberg
-----------------------------------
Title: Managing General Partner
----------------------------------
GSAM ORACLE FUND, INC.
By: /s/ LARRY N. FEINBERG
-------------------------------------
Name: Larry Feinberg, as President of
-----------------------------------
Title: Oracle Management,Inc.,
Investment Advisor
----------------------------------
TANDEM:
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
d/b/a Tandem Capital, Inc.
By: /s/ CRAIG MACNAB
-------------------------------------
Craig Macnab
Vice President
<PAGE>
SCHEDULE A
O'Donnell Family Limited 787,536 common shares owned
Partnership
Robert S. Sammis 700,000 common shares owned
33,334 exercisable options
116,666 unexercisable options
Thomas P. O'Donnell 33,334 exercisable options
116,666 unexercisable options
<PAGE>
EXHIBIT 4(k)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE WARRANT UNDER SUCH ACT AND APPLICABLE LAWS OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS.
Warrant No. 1 Warrant to Purchase 100,000 Shares
Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
CLINICOR, INC.
VOID AFTER NOVEMBER 25, 2002
This certifies that, for value received, The Robinson-Humphrey Company,
LLC, or registered assigns ("Holder") is entitled, subject to the terms set
forth below, to purchase from CLINICOR, INC. (the "Company"), a Nevada
corporation, 100,000 shares of the Common Stock of the Company, as constituted
on the date hereof (the "Warrant Issue Date"), upon surrender hereof, at the
principal office of the Company referred to below, with the subscription form
attached hereto duly executed, and simultaneous payment therefor in lawful money
of the United States or otherwise as hereinafter provided, at the Exercise Price
as set forth in Section 2 below. The number, character and Exercise Price of
such shares of Common Stock are subject to adjustment as provided below.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending at 5:00 p.m. Central standard
time, on November 25, 2002, and shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $5.50 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof.
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are exercisable by
Holder in whole or in part, at any time, or from time to time, during the term
hereof as described in Section 1 above, by the surrender of this Warrant and the
Notice of Exercise annexed hereto duly completed and executed on behalf of
Holder, at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to Holder),
<PAGE>
together with payment, by certified or official bank check, of the Exercise
Price multiplied by the number of shares being purchased upon exercise.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the payment of all taxes, if any, required to be paid by
Holder prior to the issuance of shares upon exercise, and the person entitled to
receive the shares of Common Stock issuable upon such exercise shall be treated
for all purposes as the holder of record of such shares as of the close of
business on such date. As promptly as practicable on or after such date and in
any event within ten (10) days thereafter, the Company at its expense shall
issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of full shares issuable upon such
exercise. In the event that this Warrant is exercised in part, the Company at
its expense will execute and deliver a new Warrant of like tenor exercisable for
the number of shares for which this Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction, unless a different cash payment is required to be
made pursuant to Section 78.205 of the Nevada Revised Statutes.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
6. Rights of Shareholders. This Warrant does not confer upon Holder any
right to vote or to consent or to receive notice as a shareholder, as such, in
respect of any matters whatsoever, nor shall anything contained herein be
construed to confer upon Holder, as such, any other rights or liabilities of a
shareholder of the Company until the Warrant shall have been exercised as
provided herein.
2
<PAGE>
7. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the
"Warrant Register") for the registration and registration of transfer of the
Warrant at its principal office or at such other office as it may designate in
writing or agency as it may designate pursuant to Section 7(b) below. Until
this Warrant is transferred on the Warrant Register of the Company, the Company
may treat the holder as shown on the Warrant Register as the absolute owner of
this Warrant for all purposes, notwithstanding any notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
(c) Transferability and Nonnegotiability of Warrant. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). Subject to the provisions of this Warrant with respect to
compliance with the Securities Act of 1933, as amended (the "Act"), title to
this Warrant may be transferred by endorsement (by Holder executing the
Assignment Form annexed hereto) and delivery in the same manner as a negotiable
instrument transferable by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Act and with the
limitations on assignments and transfers contained in this Section 7, the
Company at its expense shall issue to or on the order of Holder a new warrant or
warrants of like tenor, in the name of Holder or as the Holder (on payment by
Holder of any applicable transfer taxes) may direct, for the number of shares
issuable upon exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired solely
3
<PAGE>
for Holder's own account and not as a nominee for any other party, and for
investment, and that Holder will not offer, sell or otherwise dispose of this
Warrant or any shares of Common Stock to be issued upon exercise hereof except
under circumstances that will not result in a violation of the Act or any state
securities law. Upon exercise of this Warrant, Holder shall, if requested by
the Company, confirm in writing, in a form satisfactory to the Company, that the
shares of Common Stock so purchased are being acquired solely for Holder's own
account and not as a nominee for any other party, for investment, and not with a
view toward distribution or resale.
(ii) Each Warrant shall bear a legend substantially in the
form set forth on the face hereof and all shares of Common Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in substantially the
following form (in addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. SAID SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND APPLICABLE LAWS.
8. Reservation of Stock. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant. The Company further
covenants that all shares that may be issued upon the exercise of rights
represented by this Warrant and payment of the Exercise Price, all as set forth
herein, will be duly and validly issued and fully paid and non-assessable, and
not subject to preemptive rights.
9. Notices.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be delivered to
Holder.
4
<PAGE>
(b) In case:
(i) The Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon
the exercise of this Warrant) for the purpose of entitling them to
receive any dividend or other distribution, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each such case, the Company will mail or cause to be mailed to
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend or distribution, and
stating the amount and character of such dividend or distribution, or (B) the
date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record of Common Stock
(or such stock or securities at the time receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
fifteen (15) days prior to the date therein specified.
(c) Each such written notice shall be sufficiently given if addressed
to Holder at the last address of Holder appearing on the books of the Company
and delivered in accordance with Section 13.
10. Amendments.
(a) Any term of this Warrant may be amended or the provisions of this
Warrant waived with the written consent of the Company and Holder.
(b) No waivers of, or exceptions to, any term, condition or provision
of this Warrant, in any one or more instances, shall
5
<PAGE>
be deemed to be, or construed as, a further or continuing waiver of any such
term, condition or provision.
11. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
(a) Merger, Sale of Assets, etc. If at any time while this Warrant,
or any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11(a) shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant with respect to the rights and interests of
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
6
<PAGE>
(b) Reclassification, etc. If the Company, at any time while this
Warrant, or any portion hereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 11.
(c) Split, Subdivision or Combination of Shares. If the Company at
any time while this Warrant, or any portion hereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
(d) Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired, the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 11.
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to
7
<PAGE>
each Holder of this Warrant the certificate described in Section 9(a) above,
(f) No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 11 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Warrant against impairment.
12. Registration Rights. Upon exercise of this Warrant, the Holder shall
have and be entitled to exercise certain piggyback registration rights as set
forth below.
(a) Grant of Piggyback Registration Rights. If at any time or from
time to time, the Company shall determine to register any securities, either for
its own account or the account of one or more of the Company's security holders
(other than a registration statement on Form S-8 or Form S-4 or any successor
forms, or a registration on Form S-3 or any successor form for the account of
securities holders, or any registration that does not involve an underwriting)
the Company shall (i) promptly give written notice of such proposed filing and
of the proposed date thereof to the Holder, and (ii) if, on or before the
twentieth (20th) day following the date on which such notice is given, the
Company shall receive a written request from Holder requesting that the Company
include among the securities covered such registration statement some or all of
the shares of Common Stock held or to be held after exercise of the Warrant by
such Holder (the "Warrant Stock"), except as set forth in Section 12(b)(i)
below, the Company shall use its best efforts to include such Warrant Stock in
such registration statement, if filed.
(b) Terms and Conditions of Registration. Except as otherwise
provided herein, in connection with any such registration statement, the
following provisions shall apply:
(i) The right of Holder to registration pursuant to this
Section 12 shall be conditioned upon Holder's participation in the underwriting
associated with such registration and the inclusion of Holder's Warrant Stock in
the underwriting to the extent provided herein. Holder shall (together with the
Company and any other participating holders) enter into an underwriting
agreement in customary form with the managing underwriter selected by the
Company. If the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing underwriter
may limit the amount of
8
<PAGE>
Warrant Stock to be included in the registration and underwriting (but not the
number of securities to be sold by the Company unless the Company has otherwise
agreed) on a pro rata basis based on the total number of shares (including
Warrant Stock) proposed to be included in the registration by Holder or other
stockholders having piggyback registration rights, subject to any rights of the
holders of convertible preferred stock of the Company to have the common stock
issued upon conversion of such preferred stock included in such underwriting on
other than a pro rata basis.
If Holder disapproves of the terms of any such underwriting, Holder may
elect to withdraw therefrom by written notice to the Company and the managing
underwriters. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
(ii) All expenses in connection with the preparation and filing
of a registration statement shall be borne solely by the Company, except for any
transfer taxes payable with respect to the disposition of such Warrant Stock,
and any underwriting discounts and selling commissions applicable solely to such
sales of and any fees and disbursements of counsel for Holder, which shall be
paid by the Holder of the Warrant Stock being registered.
(iii) Holder shall cooperate fully with the Company and provide
the Company with all information reasonably requested by the Company for
inclusion in the registration statement or as necessary to comply with the
Securities Act.
(iv) The piggyback registration rights granted by this Agreement
are incidental only and nothing shall be deemed to require the Company to take
any action, including without limitation, any registration of securities, that
may give rise to such incidental rights.
(c) Standstill Agreement. Holder, if required by the Company or any
underwriter, shall agree not to sell or otherwise to transfer or dispose of, or
contract to sell or otherwise transfer or dispose of, any Warrant Stock (or
other securities) of the Company held by Holder during the period not to exceed
one hundred and eighty (180) days as requested by the managing underwriter
following the effective date of the first registration statement of the Company
filed under the Securities Act (other than any such securities included in such
registration statement), without prior written consent of the Company or such
underwriter, provided that all officers, and directors of the Company enter into
similar agreements. Such agreement shall be in writing in a form satisfactory to
the Company and such underwriter. The Company may
9
<PAGE>
impose a stop-transfer instruction with respect to the shares (or other
securities) subject to the foregoing restriction until the end of such period.
(d) Modification and Waiver. No modification or waiver of any
provision of these registration rights provisions and no consent by Holder to
any departure therefrom by the Company shall be effective unless such
modification or waiver shall be in writing and signed by Holder or by a duly
authorized officer of Holder if Holder is an entity, and the same shall then be
effective only for the period and on the conditions and for the specific
instances and purposes specified in such writing. No notice to or demand on the
Company in any case shall entitle the Company to any other or future notice or
demand in similar or other circumstances.
(e) Stamp or Other Tax. Should any stamp or excise tax become payable
in respect of this Agreement, or any modification hereof, the Company shall pay
the same (including interest and penalties, if any) and shall hold Holder
harmless with respect thereto.
(f) Termination of Registration Rights. The registration rights
granted hereunder will expire as to each Holder the earlier of (i) November 25,
2002 or (ii) upon such date as such Holder may sell all shares of Warrant Stock
owned by such Holder within a three (3) month period pursuant to Rule 144
promulgated under the Securities Act.
13. Miscellaneous.
(a) Notice Generally. All notices, requests, demands or other
communications provided for herein shall be in writing and shall be deemed to
have been given three (3) days after being sent by registered or certified mail,
return receipt requested, or when personally delivered, or successfully sent by
facsimile transmission as evidenced by a fax machine confirmation report
thereof, addressed, as the case may be, to the Holder at The Robinson-Humphrey
Company, LLC, Atlanta Financial Center, 3333 Peachtree Rd., N.E., Atlanta,
Georgia 30326, Facsimile No. 404-266-5938 with a copy to _____________________
Facsimile No. _____________, or as may otherwise be reflected for the Holder on
the books of the Company; or to the Company at Clinicor, Inc., 1717 West Sixth
Street, Suite 400, Austin, Texas 78703 Attention: Robert Sammis, Facsimile No.
(512) 477-0027; with a copy to Graves, Dougherty, Hearon & Moody, 515 Congress
Avenue, Suite 2300, Austin, Texas, Attention: Karen Bartoletti, Esq., Facsimile
No. (512) 478-1976, or to such other person or address as either party shall
designate to the other from time to time in writing forwarded in like manner.
10
<PAGE>
(b) Successors and Assigns. Subject to compliance with the provisions
of Section 7, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
(c) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be modified to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
(d) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
(e) Governing Law. This Warrant and the transactions contemplate
hereby shall be deemed to be consummated in the State of Nevada and shall be
governed by and interpreted in accordance with the local laws of the State of
Nevada without regard to the provisions thereof relating to conflict of laws.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: November 25, 1997
CLINICOR, INC.
By /s/ JAMES W. CLARK, JR.
---------------------------
Its VP Finance, Treasurer & CFO
---------------------------
ACCEPTED AND AGREED:
THE ROBINSON-HUMPHREY COMPANY, LLC
By /s/ WILLIAM J. SHERMAN
---------------------------------
Its Managing Director
--------------------------------
11
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of shares of Common Stock of Clinicor, Inc., and
herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other-property
issuable upon such exercise) be issued in the name of and delivered to the
undersigned and, if such shares of Common Stock shall not include all of the
shares of Common Stock issuable as provided in this Warrant, that a new Warrant
of like tenor and date for the balance of the shares of Common Stock issuable
hereunder be delivered to the undersigned.
-----------------------------------
(Name of Registered Owner)
-----------------------------------
(Signature of Registered Owner)
-----------------------------------
(Street Address)
-----------------------------------
(State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
Name and Address of Assignee: _________________________
_________________________
_________________________
_________________________
No. of Shares of Common Stock: _________________________
and does hereby irrevocably constitute and appoint _____________
attorney-in-fact to register such transfer on the books of CLINICOR, INC.,
maintained for the purpose, with full power of substitution in the premises.
Dated: ______________________________
Print Name: ______________________________
Signature: ______________________________
Witness: ______________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the Warrant in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
EXHIBIT 10(o)
NATIONSCREDIT COMMERCIAL FUNDING
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as it may be amended, this "AGREEMENT")
is entered into on December 19, 1997 between NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("LENDER"),
having an address at 1177 Avenue of the Americas, 36th Floor, New York, New York
10036 and CLINICOR, INC. ("BORROWER"), whose chief executive office is located
at 1717 West Sixth Street, Suite 400, Austin, Texas 78703 ("BORROWER'S
ADDRESS"). The Schedules to this Agreement are an integral part of this
Agreement and are incorporated herein by reference. Terms used, but not defined
elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 AMOUNT. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) REVOLVING LOANS AND CREDIT ACCOMMODATIONS. From time to time
during the Term at Borrower's request, make revolving loans to Borrower
("REVOLVING LOANS"), and make letters of credit, bankers acceptances and other
credit accommodations ("CREDIT ACCOMMODATIONS") available to Borrower, in each
case to the extent that there is sufficient Availability at the time of such
request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation; PROVIDED, that after giving effect to such Revolving Loan or
Credit Accommodation, (x) the outstanding balance of all monetary Obligations
(INCLUDING the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Facility Amount set forth in Section 1(a) of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "AVAILABILITY" means:
(i) the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances) and the
aggregate of Eligible Accrued Unbilled Accounts (less maximum existing or
asserted taxes, discounts, credits and allowances) each respectively
multiplied by the Accounts Advance Rate set forth in Section 1(b)(i) of
Schedule A but not to exceed the respective Accounts Sublimit set forth in
Section 1(c) of Schedule A;
PLUS
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section 1(b)(ii)
of Schedule A, but not to exceed the Inventory Sublimit(s) set forth in
Section 1(d) of Schedule A;
1
<PAGE>
NATIONS CREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
MINUS
(iii) all Reserves which Lender has established pursuant to
Section 1.2 (including those to be established in connection with the
requested Revolving Loan or Credit Accommodation);
MINUS
(iv) the outstanding balance of all of the monetary Obligations
(EXCLUDING the Credit Accommodation Balance and the principal balance of
the Term Loan); and
PLUS
(v) the Overadvance Amount, if any, set forth in Section 1(g) of
Schedule A.
(b) TERM LOAN. On the date of this Agreement, make (i) an advance to
Borrower computed with respect to the value of Borrower's Eligible Equipment
(the ("EQUIPMENT ADVANCE") in the principal amount, if any, set forth in Section
2(a)(i) of Schedule A, and (ii) an advance to Borrower computed with respect to
the value of Borrower's Eligible Real Property (the ("REAL PROPERTY ADVANCE") in
the principal amount, if any, set forth in Section 2(a)(ii) of Schedule A. The
Equipment Advance and the Real Property Advance are collectively referred to as
the "TERM LOAN."
1.2 RESERVES. Upon written notice to Borrower, Lender may from time to
time establish and revise such reserves as Lender deems appropriate in its sole
discretion ("RESERVES") to reflect (i) events, conditions, contingencies or
risks which affect or may affect (A) the Collateral or its value, or the
security interests and other rights of Lender in the Collateral or (B) the
assets, business or prospects of Borrower or any Obligor, (ii) Lender's good
faith concern that any Collateral report or financial information furnished by
or on behalf of Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect, (iii) any fact or
circumstance which Lender determines in good faith constitutes, or could
constitute, a Default or Event of Default or (iv) any other events or
circumstances which Lender determines in good faith make the establishment or
revision of a Reserve prudent. Without limiting the foregoing, Lender shall (x)
in the case of each Credit Accommodation issued for the purchase of Inventory
(a) which meets the criteria for Eligible Inventory set forth in clauses (i),
(ii), (iii), (v) and (vi) of the definition of Eligible Inventory, (b) which is
or will be in transit to one of the locations set forth in Section 9(d) of
Schedule A, (c) which is fully insured in a manner satisfactory to Lender and
(d) with respect to which Lender is in possession of all bills of lading and all
other documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to the
cost of such Inventory (plus all duties, freight, taxes, insurance, costs and
other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to
2
<PAGE>
NATIONS CREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
100% minus the Inventory Advance Rate applicable to Eligible Inventory and (y)
in the case of any other Credit Accommodation issued for any purpose, establish
a Reserve equal to the full amount of such Credit Accommodation plus all costs
and other charges and expenses relating to such Credit Accommodation. In
addition, (x) Lender shall establish a permanent Reserve in the amount set forth
in Section 1(f) of Schedule A, and (y) if the outstanding principal balance of
the Term Loan advance with respect to Eligible Equipment exceeds the percentage
set forth in Section 2(a)(i) of Schedule A of the appraised value of such
Eligible Equipment, Lender may establish an additional Reserve in the amount of
such excess (and, for this purpose, if payments of principal on the Term Loan
advances against Eligible Equipment and Real Property are not calculated
separately, payments of principal of the Term Loan made by Borrower shall be
deemed to apply to the Term Loan advance with respect to Eligible Equipment and
Real Property, respectively, in proportion to the original principal amounts of
such advances). Lender may, in its discretion, establish and revise Reserves by
deducting them in determining Availability or by reclassifying Eligible Accounts
or Eligible Accrued Unbilled Accounts or Eligible Inventory as ineligible. In no
event shall the establishment of a Reserve in respect of a particular actual or
contingent liability obligate Lender to make advances hereunder to pay such
liability or otherwise obligate Lender with respect thereto.
1.3 OTHER PROVISIONS APPLICABLE TO CREDIT ACCOMMODATIONS. Lender may, in
its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; PROVIDED, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid
by Lender in respect of a Credit Accommodation will be treated for all purposes
as a Revolving Loan which shall be secured by the Collateral and bear interest,
and be payable, in the same manner as a Revolving Loan. Borrower agrees to
execute all documentation required by Lender or the issuer of any Credit
Accommodation in connection with any such Credit Accommodation.
1.4 REPAYMENT. Accrued interest on all monetary Obligations shall be
payable on the first day of each month. Principal of the Term Loan shall be
repaid as set forth in Section 2(b) of Schedule A. If at any time any of the
Loan Limits are exceeded, Borrower will immediately pay to Lender such amounts
(or provide cash collateral to Lender with respect to the Credit Accommodation
Balance in the manner set forth in Section 7.3), as shall cause Borrower to be
in full compliance with all of the Loan Limits. Notwithstanding the foregoing,
Lender may, in its sole discretion, make or permit Revolving Loans, the Term
Loan, any Credit Accommodations or any other monetary Obligations to be in
excess of any of the Loan Limits; PROVIDED, that Borrower shall, upon Lender's
demand, pay to Lender such amounts as shall cause Borrower to be in full
compliance with all of the Loan Limits. All unpaid monetary Obligations shall
be payable in full on the Maturity Date (as defined in Section 7.1) or, if
earlier, the date of any early termination pursuant to Section 7.2.
1.5 MINIMUM BORROWING. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of
3
<PAGE>
NATIONS CREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
the Loans to equal or exceed, at all times prior to the Maturity Date, the
Minimum Loan Amount set forth in Section 4 of Schedule A and (ii) maintain
Availability sufficient to enable Borrower to do so. However, Lender shall not
be obligated to loan Borrower the Minimum Loan Amount other than in accordance
with all of the terms and conditions of this Agreement.
2. INTEREST AND FEES.
2.1 INTEREST. All Loans and other monetary Obligations shall bear
interest at the Interest Rate(s) set forth in Section 3 of Schedule A, except
where expressly set forth to the contrary in this Agreement or another Loan
Document; PROVIDED, that after the occurrence of an Event of Default, all Loans
and other monetary Obligations shall, at Lender's option, bear interest at a
rate per annum equal to two percent (2%) in excess of the rate otherwise
applicable thereto (the "DEFAULT RATE") until paid in full (notwithstanding the
entry of any judgment against Borrower or the exercise of any other right or
remedy by Lender), and all such interest shall be payable on demand. Changes in
the Interest Rate shall be effective as of the date of any change in the Prime
Rate. No agreements, conditions, provisions or stipulations contained in this
Agreement or any other instrument, document or agreement between Borrower and
Lender or default of Borrower, or the exercise by Lender of the right to
accelerate the payment of the maturity of principal and interest, or to exercise
any option whatsoever contained in this Agreement or any other Loan Documents,
or the arising of any contingency whatsoever, shall entitle Lender to contract
for, charge, or receive, in any event, interest exceeding the maximum rate of
interest permitted by applicable state or federal law in effect from time to
time (hereinafter "MAXIMUM LEGAL RATE"). In no event shall Borrower be
obligated to pay interest exceeding such Maximum Legal Rate and all agreements,
conditions or stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate or compel Borrower to pay a rate of
interest exceeding the Maximum Legal Rate, shall be without binding force or
effect, at law or in equity, to the extent only of the excess of interest over
such Maximum Legal Rate. In the event any interest is contracted for, charged
or received in excess of the Maximum Legal Rate ("EXCESS"), Borrower
acknowledges and stipulates that any such contract, charge, or receipt shall be
the result of an accident and bona fide error, and that any Excess received by
---- ----
Lender shall be applied, first, to reduce the principal then unpaid hereunder;
second, to reduce the other Obligations; and third, returned to Borrower, it
being the intention of the parties hereto not to enter at any time into a
usurious or otherwise illegal relationship. Borrower recognizes that, with
fluctuations in the Prime Rate and the Maximum Legal Rate, such a result could
inadvertently occur. By the execution of this Agreement, Borrower covenants
that (i) the credit or return of any Excess shall constitute the acceptance by
Borrower of such Excess, and (ii) Borrower shall not seek or pursue any other
remedy, legal or equitable, against Lender, based in whole or in part upon
contracting for, charging or receiving of any interest in excess of the maximum
authorized or receiving of any interest in excess of the maximum authorized by
applicable law. For the purpose of determining whether or not any Excess has
been contracted for, charged or received by Lender, all interest at any time
contracted for, charged or received by Lender in connection with this Agreement
shall be amortized, prorated, allocated and spread in equal parts during the
entire term of this Agreement.
4
<PAGE>
NATIONS CREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
2.2 FEES AND WARRANTS. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) CLOSING FEE. A closing fee in the amount set forth in Section
6(a) of Schedule A, which shall be deemed to be fully earned as of, and payable
on, the date hereof.
(b) FACILITY FEES. A facility fee for each year of the Initial Term
in the amount set forth in Section 6(b) of Schedule A (which shall be fully
earned and payable as of the date of this Agreement and on each anniversary
thereof during the Initial Term).
(c) SERVICING FEE. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of, and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
(d) UNUSED LINE FEE. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which the Maximum Facility Amount exceeds the average daily outstanding
principal balance of the Loans and the Credit Accommodation Balance during the
immediately preceding twelve month period (or part thereof), which fee shall be
payable, in arrears, on each anniversary of the date of this Agreement so long
as any of the Obligations are outstanding and on the Maturity Date.
(e) MINIMUM BORROWING FEE. A minimum borrowing fee equal to (i) the
amount that the Minimum Loan Amount set forth in Section 4 of Schedule A exceeds
the actual average Loan balance in respect of each period set forth in Section
6(e)(i) of Schedule A multiplied by (ii) the average annual Interest Rate as set
forth in Section 3 of Schedule A, which fee shall be fully earned as of the last
day of such period and payable on the date set forth in Section 6(e)(ii) of
Schedule A and on the Maturity Date, commencing with the immediately following
period.
(f) SUCCESS FEE. A success fee in the amount set forth in Section
6(f) of Schedule A, which shall be fully earned as of the date of this Agreement
and payable as set forth in Section 6(f) of Schedule A.
(g) WARRANTS. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) CREDIT ACCOMMODATION FEES. All of the fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A.
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2.3 COMPUTATION OF INTEREST AND FEES. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 LOAN ACCOUNT; MONTHLY ACCOUNTINGS. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "LOAN ACCOUNT"), and shall provide Borrower
with a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the Obligations
when due, Borrower hereby grants to Lender a continuing security interest in all
of Borrower's property and interests in property, whether tangible or
intangible, now owned or in existence or hereafter acquired or arising, wherever
located, including Borrower's interest in all of the following, whether or not
eligible for lending purposes: (i) all Accounts, Chattel Paper, Instruments,
Documents, Goods (including Inventory, Equipment, farm products and consumer
goods), Investment Property, General Intangibles, Deposit Accounts and money,
(ii) all proceeds and products of all of the foregoing (including proceeds of
any insurance policies, proceeds of proceeds and claims against third parties
for loss or any destruction of any of the foregoing) and (iii) all books and
records relating to any of the foregoing.
4. ADMINISTRATION.
4.1 LOCK BOXES AND BLOCKED ACCOUNTS. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("ACCOUNT PROCEEDS"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or, at Lender's option,
in the name of Lender (a "LOCK BOX") or (ii) depositing all Account Proceeds
received by Borrower into one or more bank accounts maintained in Lender's name
(each, a "BLOCKED ACCOUNT"), under an arrangement acceptable to Lender with a
depository bank acceptable to Lender, pursuant to which all funds deposited into
each Blocked Account are to be transferred to Lender in such manner, and with
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such frequency, as Lender shall specify or (iii) a combination of the foregoing.
Borrower agrees to execute, and to cause its depository banks to execute, such
Lock Box and Blocked Account agreements and other documentation as Lender shall
require from time to time in connection with the foregoing. The Borrower and
Lender agree that as of the date of execution of this Agreement, no Lock Box
arrangement is presently being required by Lender. However, Lender shall have
the right at any time after the date of this Agreement to require that there be
a Lock Box arrangement, provided that Lender has given Borrower prior written
notice of the requirement of such a Lock Box arrangement.
4.2 REMITTANCE OF PROCEEDS. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall be
delivered, in kind, by Borrower to Lender in the original form in which received
by Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 APPLICATION OF PAYMENTS. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due, and whether
before or after the occurrence of a Default or an Event of Default. For
purposes of determining Availability, such amounts will be credited to the Loan
Account and the Collateral balances to which they relate upon Lender's receipt
of advice from Lender's Bank (set forth in Section 11 of Schedule A) that such
items have been credited to Lender's account at Lender's Bank (or upon Lender's
deposit thereof at Lender's Bank in the case of payments received by Lender in
kind), in each case subject to final payment and collection. However, for
purposes of computing interest on the Obligations, such items shall be deemed
applied by Lender three Business Days after Lender's receipt of advice of
deposit thereof at Lender's Bank.
4.4 NOTIFICATION; VERIFICATION. Upon written notice to Borrower, Lender
or its designee may, from time to time, whether or not a Default or Event of
Default has occurred: (i) verify directly with the Account Debtors the validity,
amount and other matters relating to the Accounts and Chattel Paper, by means of
mail, telephone or otherwise, either in the name of Borrower or Lender or such
other name as Lender may choose; (ii) notify Account Debtors that Lender has a
security interest in the Accounts and that payment thereof is to be made
directly to Lender; and (iii) demand, collect or enforce payment of any Accounts
and Chattel Paper (but without any duty to do so).
4.5 POWER OF ATTORNEY. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without prior notice to Borrower, provided written notice is
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subsequently given to Borrower, and at Borrower's expense, to do any or all of
the following, in Borrower's name or otherwise: (i) execute on behalf of
Borrower any documents that Lender may, in its good faith credit judgment, deem
advisable in order to perfect and maintain Lender's security interests in the
Collateral, to exercise a right of Borrower or Lender, or to fully consummate
all the transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) upon the occurrence and during continuation of any
Event of Default or in connection with the Lender's exercise of its rights under
the UCC, execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or lease (as
lessor or lessee) any real or personal property which is part of the Collateral
or in which Lender has an interest; (iii) after the occurrence and during the
continuation of any Event of Default, execute on behalf of Borrower any invoices
relating to any Accounts, any draft against any Account Debtor, any proof of
claim in bankruptcy, any notice of Lien or claim, and any assignment or
satisfaction of mechanic's, materialman's or other Lien; (iv) execute on behalf
of Borrower any notice to any Account Debtor; (v) receive and otherwise take
control in any manner of any cash or non-cash items of payment or proceeds of
Collateral; (vi) endorse Borrower's name on all checks and other forms of
remittances received by Lender; (vii) upon the occurrence and during the
continuation of any Event of Default, pay, contest or settle any Lien, charge,
encumbrance, security interest and adverse claim in or to any of the Collateral,
or any judgment based thereon, or otherwise take any action to terminate or
discharge the same; (viii) after the occurrence and during the continuation of
an Event of Default, grant extensions of time to pay, compromise claims relating
to, and settle Accounts, Chattel Paper and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(ix) after the occurrence and during the continuation of any Event of Default,
pay any sums required on account of Borrower's taxes or to secure the release of
any Liens therefor; (x) after the occurrence and during the continuation of any
Event of Default, pay any amounts necessary to obtain, or maintain in effect,
any of the insurance described in Section 5.12; (xi) settle and adjust, and give
releases of, any insurance claim that relates to any of the Collateral and
obtain payment therefor; (xii) instruct any third party having custody or
control of any Collateral or books or records belonging to, or relating to,
Borrower to give Lender the same rights of access and other rights with respect
thereto as Lender has under this Agreement; and (xiii) after the occurrence and
during the continuation of an Event of Default or in connection with the
notification given by Lender to Account Debtors of Accounts that exceed certain
limits provided for herein, change the address for delivery of Borrower's mail
and receive and open all mail addressed to Borrower. Any and all sums paid, and
any and all costs, expenses, liabilities, obligations and reasonable attorneys'
fees incurred, by Lender with respect to the foregoing shall be added to and
become part of the Obligations, shall be payable on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Borrower agrees that Lender's rights under the foregoing power of
attorney or any of Lender's other rights under this Agreement or the other Loan
Documents shall not be construed to indicate that Lender is in control of the
business, management or properties of Borrower.
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4.6 DISPUTES. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that provided that no Event of Default has occurred, and is continuing, Borrower
may take any of such actions in the ordinary course of its business, PROVIDED
that Borrower promptly reports the same to Lender.
4.7 INVOICES. At Lender's request after the occurrence and during the
continuation of any Event of Default, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8 INVENTORY.
(a) RETURNS. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without Lender's prior written
consent. Regardless of whether an Event of Default has occurred, Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of Borrower's other property; (iii) conspicuously label the
returned Inventory as Lender's property; and (iv) immediately notify Lender of
the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
(b) OTHER COVENANTS. Borrower will not, without Lender's prior
written consent, (i) store any Inventory with any warehouseman or other third
party other than as set forth in Section 9(d) of Schedule A or (ii) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis. All of the Inventory has been produced only in accordance with the Fair
Labor Standards Act of 1938 and all rules, regulations and orders promulgated
thereunder.
4.9 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all
information obtained in any such inspection or examination, but Lender shall
have the right to disclose any such information to its auditors, regulatory
agencies, attorneys and participants, and pursuant to any subpoena or other
legal process. Borrower agrees to give Lender access to any
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or all of Borrower's premises to enable Lender to conduct such inspections and
examinations. Such inspections and examinations shall be at Borrower's expense
and the charge therefor shall be $650 per person per day (or such higher amount
as shall represent Lender's then current standard charge), plus reasonable out-
of-pocket expenses. Lender may, at Borrower's expense, use Borrower's personnel,
computer and other equipment, programs, printed output and computer readable
media, supplies and premises for the collection, sale or other disposition of
Collateral to the extent Lender, in its sole discretion, deems appropriate.
Borrower hereby irrevocably authorizes all accountants and third parties to
disclose and deliver to Lender, at Borrower's expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding Borrower. Borrower will not enter into
any agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address
without first obtaining Lender's written consent (which consent may be
conditioned upon such accounting firm, service bureau or other third party
agreeing to give Lender the same rights with respect to access to books and
records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
5.1 EXISTENCE AND AUTHORITY. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A set forth the ownership
of Borrower and the names and ownership of Borrower's Subsidiaries as of the
date of this Agreement.
5.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name as of the date
hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior
names of Borrower and all of Borrower's present and prior trade names. Borrower
shall give Lender at least 30 days' prior written notice
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before changing its name or doing business under any other name. Borrower has
complied with all laws relating to the conduct of business under a fictitious
business name. Borrower represents and warrants that (i) each trade name does
not refer to another corporation or other legal entity; (ii) all Accounts
invoiced under any such trade names are owned exclusively by Borrower and are
subject to the security interest of Lender and the other terms of this Agreement
and (iii) all schedules of Accounts, including any sales made or services
rendered using any trade name shall show Borrower's name as assignor.
5.3 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower has good and
marketable title to the Collateral. The Collateral now is and will remain free
and clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens. Lender now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Lender and the Collateral against all claims of others. None of
the Collateral which is Equipment is or will be affixed to any real property in
such a manner, or with such intent, as to become a fixture. Except for leases
or subleases as to which Borrower has delivered to Lender a landlord's waiver in
form and substance satisfactory to Lender, Borrower is not a lessee or sublessee
under any real property lease or sublease pursuant to which the lessor or
sublessor may obtain any rights in any of the Collateral, and no such lease or
sublease now prohibits, restrains, impairs or conditions, or will prohibit,
restrain, impair or condition, Borrower's right to remove any Collateral from
the premises. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise), Borrower shall, whenever requested by Lender,
cause each such third party to execute and deliver to Lender, in form acceptable
to Lender, such waivers and subordinations as Lender shall specify, so as to
ensure that Lender's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full
force and effect, and will comply with all the terms of, any lease of real
property where any of the Collateral now or in the future may be located.
5.4 ACCOUNTS AND CHATTEL PAPER. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts and
Eligible Accrued Unbilled Accounts comply in all respects with the criteria for
eligibility established by Lender and in effect at such time. All Accounts and
Chattel Paper are genuine and in all respects what they purport to be, arise out
of a completed, bona fide and unconditional and non-contingent sale and delivery
of goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase orders,
contracts or other documents relating thereto, each Account Debtor thereunder
had the capacity to contract at the time any contract or other document giving
rise to such Accounts and Chattel Paper were executed, and the transactions
giving rise to such Accounts and Chattel Paper comply with all applicable laws
and governmental rules and regulations.
5.5 [THIS SECTION IS INTENTIONALLY OMITTED.]
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5.6 PLACE OF BUSINESS; LOCATION OF COLLATERAL. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
5.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such financial statement provided to Lender and the date hereof (or, with
respect to the remaking of this representation in connection with the making of
any Loan or the providing of any Credit Accommodation, the date such Loan is
made or such Credit Accommodation is provided), there has been no material
adverse change in the financial condition or business of Borrower. Borrower is
solvent and able to pay its debts as they come due, and has sufficient capital
to carry on its business as now conducted and as proposed to be conducted. All
schedules, reports and other information and documentation delivered by Borrower
to Lender with respect to the Collateral are, or will be, when delivered, true,
correct and complete as of the date delivered or the date specified therein.
5.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed all tax returns and reports required by applicable law, has timely paid
all applicable taxes, assessments, deposits and contributions owing by Borrower
and will timely pay all such items in the future as they became due and payable.
Borrower may, however, defer payment of any contested taxes; PROVIDED, that
Borrower (i) in good faith contests Borrower's obligation to pay such taxes by
appropriate proceedings promptly and diligently instituted and conducted; (ii)
notifies Lender in writing of the commencement of, and any material development
in, the proceedings; (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary
to fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency.
5.9 COMPLIANCE WITH LAWS. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the
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payment and withholding of taxes, ERISA and other employee matters, safety and
environmental matters.
5.10 LITIGATION. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
5.11 USE OF PROCEEDS. All proceeds of all Loans will be used solely for
lawful business purposes.
5.12 INSURANCE. Borrower will at all times carry property, liability and
other insurance, with insurers acceptable to Lender, in such form and amounts,
and with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full force and effect. Each
property insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender, each liability
insurance policy shall name Lender as an additional insured, and each business
interruption insurance policy shall be collaterally assigned to Lender, all in
form and substance satisfactory to Lender. All policies of insurance shall
provide that they may not be canceled or changed without at least thirty days'
prior written notice to Lender, shall contain breach of warranty coverage, and
shall otherwise be in form and substance satisfactory to Lender. Upon receipt
of the proceeds of any such insurance, Lender shall apply such proceeds in
reduction of the Obligations as Lender shall determine in its sole discretion.
Borrower will promptly deliver to Lender copies of all reports made to insurance
companies.
5.13 FINANCIAL AND COLLATERAL REPORTS. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender):
(a) COLLATERAL REPORTS. On or before the fifteenth day of each month,
an aging of Borrower's Accounts, Chattel Paper and notes receivable, and weekly
Inventory reports, all in such form, and together with such additional
certificates, schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; PROVIDED, that
Borrower's failure to execute and deliver the same shall not affect or limit
Lender's
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security interests and other rights in any of the Accounts, nor shall Lender's
failure to advance or lend against a specific Account affect or limit Lender's
security interest and other rights therein. Together with each such schedule,
Borrower shall furnish Lender with copies, upon Lender's request, (or, at
Lender's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Accounts, and Borrower warrants the
genuineness of all of the foregoing. In addition, Borrower shall deliver to
Lender the originals of all Instruments, Chattel Paper, security agreements,
guaranties and other documents and property evidencing or securing any Accounts,
immediately upon receipt thereof and in the same form as received, with all
necessary endorsements. Lender may destroy or otherwise dispose of all
documents, schedules and other papers delivered to Lender pursuant to this
Agreement (other than originals of Instruments, Chattel Paper, security
agreements, guaranties and other documents and property evidencing or securing
any Accounts) six months after Lender receives them, unless Borrower requests
their return in writing in advance and arranges for their return to Borrower at
Borrower's expense.
(b) ANNUAL STATEMENTS. Not later than 90 days after the close of each
fiscal year of Borrower, unqualified (except for a qualification for a change in
accounting principles with which the accountant concurs) audited financial
statements of Borrower and its Subsidiaries as of the end of such year, on a
consolidated and consolidating basis, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower but
acceptable to Lender, together with a copy of any management letter issued in
connection therewith;
(c) INTERIM STATEMENTS. Not later than forty-five days after the end
of each December, March, June and September hereafter, unaudited interim
financial statements of Borrower and its Subsidiaries as of the end of such
fiscal quarter and of the portion of Borrower's fiscal year then elapsed, on a
consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and results of operations of Borrower and
its Subsidiaries for such fiscal quarter and period subject only to changes from
audit and year-end adjustments and except that such statements need not contain
notes;
(d) PROJECTIONS, ETC. Such business projections, Availability
projections, business plans, budgets and cash flow statements for Borrower and
its Subsidiaries as Lender shall request from time to time;
(e) SHAREHOLDER REPORTS, ETC. Promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
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(f) ERISA REPORTS. Upon request by Lender, copies of any annual
report to be filed pursuant to the requirements of ERISA in connection with each
plan subject thereto; and
(g) OTHER INFORMATION. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiary's financial
condition or results of operations.
5.14 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15 MAINTENANCE OF COLLATERAL, ETC. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16 NOTIFICATION OF CHANGES. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 FURTHER ASSURANCES. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
5.18 NEGATIVE COVENANTS. Except as set forth in Section 13 of Schedule A,
Borrower will not, without Lender's prior written consent, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral or other assets, except that Borrower may sell finished
goods Inventory in the ordinary course of its business; (v) make any loans to,
or investments in, any Affiliate or other Person in the form of money or other
assets; (vi) incur any debt outside the ordinary course of business; (vii)
guaranty or otherwise become liable with respect to the obligations of another
party or entity; (viii) pay or declare any dividends or other distributions
on Borrower's stock, if Borrower is a corporation (except for dividends payable
solely in capital stock of Borrower) or
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with respect to any equity interests, if Borrower is not a corporation;
provided, however, Borrower may pay to the holders of the Class A Preferred
- -------- -------
Stock originally issued to Oracle Partners, Ltd., and certain affiliates and the
Class B Preferred Stock originally issued to Sirrom Capital Corporation d/b/a
Tandem Capital dividends in the amount and pursuant to the terms set forth in
Section A(1) and Section B(1) of Section 2 of Article VI of Borrower's Articles
of Incorporation, as currently in effect provided that at the date of payment of
such cash dividends, after payment of such cash dividends on such date, the
aggregate amount of the sum of Borrower's available cash (including cash
equivalents) and unused Availability less any past-due taxes and accounts
----
payable more than 60 days past due of the Borrower shall be equal to at least
$250,000; (ix) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's capital stock or other equity interests; provided,
--------
however, Borrower may redeem or retire existing classes of Borrower's preferred
- -------
stock in accordance with the provisions of Borrower's currently existing
Articles of Incorporation provided that (x) at the date of such redemption or
retirement Borrower has no accounts payable more than sixty days past due and
has no past-due taxes, and (y) after such redemption or retirement on such date,
the aggregate amount of the sum of Borrower's available cash (including cash
equivalents) and unused Availability shall be equal to at least $250,000; (x)
amend Borrower's Articles of Incorporation to make any change in Borrower's
capital structure; (xi) dissolve or elect to dissolve; (xii) pay any principal
or interest on any indebtedness owing to an Affiliate, (xiii) enter into any
transaction with an Affiliate other than on arms-length terms; or (xiv) agree to
do any of the foregoing.
5.19 FINANCIAL COVENANTS.
(a) CAPITAL EXPENDITURES. Borrower will not expend or commit to
expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.
(b) NET WORTH. Borrower will at all times maintain a net worth of at
least the amount set forth in Section 8(b) of Schedule A.
(c) TANGIBLE NET WORTH. Borrower will at all times maintain a minimum
tangible net worth of at least the amount set forth in Section 8(c) of Schedule
A.
(d) WORKING CAPITAL. Borrower will at all times maintain working
capital of at least the amount set forth in Section 8(d) of Schedule A.
(e) NET LOSSES. Borrower will not permit its cumulative net loss to
exceed the amount set forth in Section 8(e) of Schedule A.
(f) NET INCOME. Borrower will not permit its cumulative net income to
be less than the amount set forth in Section 8(f) of Schedule A.
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(g) LEVERAGE. Borrower will not permit the ratio of its total
liabilities to its net worth to exceed, at any time, the ratio set forth in
Section 8(g) of Schedule A.
(h) OTHER FINANCIAL COVENANTS. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
6. RELEASE AND INDEMNITY.
6.1 RELEASE. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "RELEASED PARTIES") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from willful misconduct. However, in no circumstance will any
of the Released Parties be liable for lost profits or other special or
consequential damages. Such release is made on the date hereof and remade upon
each request for a Loan or Credit Accommodation by Borrower. Without limiting
the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy in,
damage to, or loss or destruction of, any goods, the sale or other disposition
of which gave rise to an Account; (ii) any error, act, omission, or delay of any
kind occurring in the settlement, failure to settle, collection or failure to
collect any Account; (iii) settling any Account in good faith for less than the
full amount thereof; or (iv) any of Borrower's obligations under any contract or
agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any instructions as to acceptance or rejection of any documents or
goods, to execute for Borrower's account any and all applications for steamship
or airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 INDEMNITY. BORROWER HEREBY AGREES TO INDEMNIFY THE RELEASED PARTIES
AND HOLD THEM HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEBTS, LIABILITIES,
DEMANDS, OBLIGATIONS, ACTIONS, CAUSES OF ACTION, PENALTIES, COSTS AND EXPENSES
(INCLUDING ATTORNEYS' FEES), OF EVERY NATURE, CHARACTER AND DESCRIPTION, WHICH
THE RELEASED
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PARTIES MAY SUSTAIN OR INCUR BASED UPON OR ARISING OUT OF ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY
OF THE OBLIGATIONS, INCLUDING ANY TRANSACTIONS OR OCCURRENCES RELATING TO THE
ISSUANCE OF ANY CREDIT ACCOMMODATION, THE COLLATERAL RELATING THERETO, ANY
DRAFTS THEREUNDER AND ANY ERRORS OR OMISSIONS RELATING THERETO (INCLUDING ANY
LOSS OR CLAIM DUE TO ANY ACTION OR INACTION TAKEN BY THE ISSUER OF ANY CREDIT
ACCOMMODATION) (AND FOR THIS PURPOSE ANY CHARGES TO LENDER BY ANY ISSUER OF
CREDIT ACCOMMODATIONS SHALL BE CONCLUSIVE AS TO THEIR APPROPRIATENESS AND MAY BE
CHARGED TO THE LOAN ACCOUNT), OR ANY OTHER MATTER, CAUSE OR THING WHATSOEVER
OCCURRED, DONE, OMITTED OR SUFFERED TO BE DONE BY LENDER RELATING TO BORROWER OR
THE OBLIGATIONS (EXCEPT ANY SUCH AMOUNTS SUSTAINED OR INCURRED AS THE RESULT OF
THE WILLFUL MISCONDUCT OF THE RELEASED PARTIES). NOTWITHSTANDING ANY PROVISION
IN THIS AGREEMENT TO THE CONTRARY, THE INDEMNITY AGREEMENT SET FORTH IN THIS
SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT.
7. TERM.
7.1 MATURITY DATE. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement shall initially continue in effect
until the Maturity Date set forth in Section 7 of Schedule A (the "INITIAL
TERM"). This Agreement and the other Loan Documents and Lender's security
interests in and Liens upon the Collateral, and all representations, warranties
and covenants of Borrower contained herein and therein, shall remain in full
force and effect after the Maturity Date until all of the monetary Obligations
are indefeasibly paid in full.
7.2 EARLY TERMINATION. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence of an Event of Default, without notice, effective
immediately; PROVIDED, that if any Affiliate of Borrower is also a party to a
financing arrangement with Lender, no such early termination shall be effective
unless such Affiliate simultaneously terminates its financing arrangement with
Lender. If so terminated by Borrower under this Section 7.2, Borrower shall pay
to Lender (i) an early termination fee (the "EARLY TERMINATION FEE") in the
amount set forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid
Facility Fee. Such fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations. In addition, if Borrower so
terminates and repays the Obligations without having provided Lender with at
least thirty days' prior written notice thereof, an additional amount equal to
thirty days of interest at the applicable Interest Rate(s), based on the average
outstanding amount of the Obligations for the six month period immediately
preceding the date of termination.
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7.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay in full all Obligations,
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if, on the Maturity
Date or on any earlier effective date of termination, there are any outstanding
Credit Accommodations, then on such date Borrower shall provide to Lender cash
collateral in an amount equal to 110% of the Credit Accommodation Balance to
secure all of the Obligations (including estimated attorneys' fees and other
expenses) relating to said Credit Accommodations or such greater percentage or
amount as Lender reasonably deems appropriate, pursuant to a cash pledge
agreement in form and substance satisfactory to Lender.
7.4 EFFECT OF TERMINATION. No termination shall affect or impair any
right or remedy of Lender or relieve Borrower of any of the Obligations until
all of the monetary Obligations have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary Obligations
(and the provision of cash collateral with respect to any Credit Accommodation
Balance as required by Section 7.3) and termination of this Agreement, Lender
shall promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be reasonably required to
terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "EVENT OF DEFAULT" under this Agreement, and Borrower shall
give Lender immediate written notice thereof: (i) if any warranty,
representation, statement, report or certificate made or delivered to Lender by
Borrower or any of Borrower's officers, employees or agents is untrue or
misleading; (ii) if Borrower fails to pay when due any principal or interest on
any Loan or any other monetary Obligation; (iii) if Borrower breaches any
covenant or obligation contained in this Agreement or any other Loan Document or
fails to perform any other non-monetary Obligation; (iv) if one or more levies,
assessments, attachments, seizures, liens or encumbrances (other than a
Permitted Lien) aggregating in excess of $25,000 are made or permitted to exist
on all or any part of the Collateral, provided that if any such levy,
assessment, attachment, seizure, lien or encumbrance does not specify a fixed
dollar amount, the dollar amount covered by such levy, assessment, attachment,
seizure, lien or encumbrance shall be assumed to be in excess of $25,000, and
further provided, that even if such levies, assessments, seizures, liens or
encumbrances are not in the aggregate in excess of $25,000, Lender shall still
have the right to establish Reserves in connection therewith; (v) if one or more
judgments aggregating in excess of $25,000, or any injunction or attachment, is
obtained against Borrower or any Obligor or which remains unstayed for more than
ten days or is enforced; (vi) provided, that Borrower (A) has received written
notice of such default, the occurrence of any default under any financing
agreement, security agreement or other agreement, instrument or document
executed and delivered by Borrower with, or in favor of, any Person other than
Lender; provided, however, this clause does not apply to non-payment of
dividends by Borrower to its preferred shareholders, unless such non-payment of
dividends gives rise to remedies pursuant to Section
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A(8) of Section 2 of Article VI of the Articles of Incorporation of Borrower, or
(B) has received notice of such default or has actual knowledge of such default
the occurrence of any default under any financing agreement, security agreement,
or other agreement, instrument or document executed and delivered by Borrower or
any Affiliate of Borrower with, or in favor of, Lender or any Affiliate of
Lender; (vii) the dissolution, death, termination of existence in good standing,
insolvency or business failure or suspension or cessation of business as usual
of Borrower or any Obligor (or of any general partner of Borrower or any Obligor
if it is a partnership) or the appointment of a receiver, trustee or custodian
for all or any part of the property of, or an assignment for the benefit of
creditors by Borrower or any Obligor, or the commencement of any proceeding by
Borrower or any Obligor under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, or if Borrower makes or sends
a notice of a bulk transfer or calls a meeting of its creditors; (viii) the
commencement of any proceeding against Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; (ix) the actual or attempted revocation or termination of, or
limitation or denial of liability upon, any guaranty of the Obligations, or any
security document securing the Obligations, by any Obligor; (x) if Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations attempts to limit or terminate its subordination agreement; (xi)
if there is any actual or threatened indictment of Borrower or any Obligor under
any criminal statute or commencement or threatened commencement of criminal or
civil proceedings against Borrower or any Obligor, pursuant to which the
potential penalties or remedies sought or available include forfeiture of any
property of Borrower or such Obligor; (xii) if an Event of Default occurs under
any Loan and Security Agreement between Lender and an Affiliate of Borrower; or
(xiii) if Lender determines in good faith that the Collateral is insufficient to
fully secure the Obligations or that the prospect of payment of performance of
the Obligations is impaired.
8.2 REMEDIES. Upon the occurrence of any Default, and at any time
thereafter, Lender, at its option, may cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other Loan Document. Upon the
occurrence of any Event of Default, and at any time thereafter, Lender, at its
option, and without notice or demand of any kind (all of which are hereby
expressly waived by Borrower), may do any one or more of the following: (i)
cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other Loan Document; (ii) accelerate and declare all or any
part of the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any of the Obligations; (iii) take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Lender, without judicial process, to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain (or cause a custodian
to remain) on the premises in exclusive control thereof, without charge for so
long as Lender deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other agreement; PROVIDED,
that if
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Lender seeks to take possession of any of the Collateral by court process,
Borrower hereby irrevocably waives (A) any bond and any surety or security
relating thereto required by law as an incident to such possession, (B) any
demand for possession prior to the commencement of any suit or action to recover
possession thereof and (C) any requirement that Lender retain possession of, and
not dispose of, any such Collateral until after trial or final judgment; (iv)
require Borrower to assemble any or all of the Collateral and make it available
to Lender at one or more places designated by Lender which are reasonably
convenient to Lender and Borrower, and to remove the Collateral to such
locations as Lender may deem advisable; (v) complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Lender shall have the right to
use Borrower's premises, vehicles and other Equipment and all other property
without charge; (vi) sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Lender obtains possession of it or after further
manufacturing, processing or repair, at one or more public or private sales, in
lots or in bulk, for cash, exchange or other property, or on credit (a "SALE"),
and to adjourn any such Sale from time to time without notice other than oral
announcement at the time scheduled for Sale (and, in connection therewith, (A)
Lender shall have the right to conduct such Sale on Borrower's premises without
charge, for such times as Lender deems reasonable, on Lender's premises, or
elsewhere, and the Collateral need not be located at the place of Sale; (B)
Lender may directly or through any of its Affiliates purchase or lease any of
the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive copies of any of Borrower's federal and state income tax
returns and copies of the books and records utilized in the preparation thereof
or relating thereto. In addition to the foregoing remedies, upon the occurrence
of any Event of Default resulting from a breach of any of the financial
covenants set forth in Section 5.19, Lender may, at its option, upon not less
than ten days' prior notice to Borrower, reduce any or all of the Advance Rates
set forth in Section 1(b) of Schedule A to the extent Lender, in its sole
discretion, deems appropriate. In addition to the rights and remedies set forth
above, Lender shall have all the other rights and remedies accorded a secured
party after default under the UCC and under all other applicable laws, and under
any other Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at least
seven days prior to the sale designating the time and place of sale in the case
of a
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public sale or the time after which any private sale or other disposition is to
be made shall be deemed to be reasonable notice, and Borrower waives any other
notice. If any Collateral is sold or leased by Lender on credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment is collected by Lender.
8.3 APPLICATION OF PROCEEDS. Subject to any application required by law,
all proceeds realized as the result of any Sale shall be applied by Lender to
the Obligations in such order as Lender shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
but Borrower shall remain liable to Lender for any deficiency. If Lender, in
its sole discretion, directly or indirectly enters into a deferred payment or
other credit transaction with any purchaser at any Sale, Lender shall have the
option, exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Lender of the cash
therefor.
9. GENERAL PROVISIONS.
9.1 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender or Borrower at the address shown in the heading to this
Agreement, or by facsimile to the facsimile number shown in Section 9(i) of
Schedule A, or at any other address (or to any other facsimile number)
designated in writing by one party to the other party in the manner prescribed
in this Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
9.2 SEVERABILITY. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
9.3 INTEGRATION. This Agreement and the other Loan Documents represent
the final, entire and complete agreement between Borrower and Lender and
supersede all prior and contemporaneous negotiations, oral representations and
agreements, all of which are merged and integrated into this Agreement. THERE
ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES
WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 WAIVERS. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Documents shall not waive or diminish any right of Lender later to
demand and receive strict compliance therewith. Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar. None of the provisions of this Agreement or any other Loan
Document shall be deemed to have been waived by any act or knowledge of Lender
or its agents or employees, but only by a specific written waiver signed by an
authorized officer of
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Lender and delivered to Borrower. Borrower waives demand, protest, notice of
protest and notice of default or dishonor, notice of payment and nonpayment,
release, compromise, settlement, extension or renewal of any commercial paper,
Instrument, Account, General Intangible, Document, Chattel Paper, Investment
Property or guaranty at any time held by Lender on which Borrower is or may in
any way be liable, and notice of any action taken by Lender, unless expressly
required by this Agreement, and notice of acceptance hereof.
9.5 AMENDMENT. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement and the other Loan
Documents.
9.7 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
9.8 BENEFIT OF AGREEMENT; ASSIGNABILITY. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
PROVIDED, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of the Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements,
23
<PAGE>
NATIONS CREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
instruments and documents requested by Lender in connection with each such
assignment and participation.
9.9 HEADINGS; CONSTRUCTION. Section and subsection headings are used in
this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK, NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL
IS LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY
OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES
----- --- ----------
THAT ANY CLAIM OR DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS OF NEW YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER
AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT,
24
<PAGE>
NATIONS CREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE
LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR
OMISSIONS OF LENDER OR BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, ATTORNEYS OR AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR
BORROWER, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO
INTERPOSE ANY CLAIMS, DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY
ACTION OR PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR
ANY MATTER RELATING THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE
PRIOR TO LENDER'S TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO
EXERCISE ANY OF LENDER'S REMEDIES and (iv) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING
WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND
THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH
BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING
WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
9.12 NONAPPLICABILITY OF ARTICLE 5069-15.01 ET SEQ. Borrower and Lender
hereby agree that, except for Section 15.10(b) (as recodified by Section 346.004
of the Tex. Fin. Code or any other successor statute thereof), the provisions of
Tex. Rev. Civ. Stat. Ann. art. 5069-15.01 et seq. (Vernon 1987) (as recodified
------
by Chapter 346 of the Tex. Fin. Code or any other successor statute thereof)
(regulating certain revolving credit loans and revolving tri-party accounts)
shall not apply to this Agreement or any of the other Loan Documents.
9.13 WAIVER OF CONSUMER RIGHTS. BORROWER HEREBY WAIVES ITS RIGHTS UNDER
THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ.
BUSINESS & COMMERCIAL CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF THE BORROWER'S OWN
SELECTION, THE BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER. BORROWER EXPRESSLY
WARRANTS AND REPRESENTS THAT THE BORROWER (A) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION RELATIVE TO THE LENDER, AND (B) HAS BEEN
REPRESENTED BY
25
<PAGE>
NATIONS CREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT.
BORROWER HAS READ AND UNDERSTANDS SECTION 9.13:
/s/ JWC (INITIALS OF OFFICER OF BORROWER)
---------------
9.14 ORAL AGREEMENTS. THE WRITTEN LOAN AGREEMENTS REPRESENT THE FINAL
-----------------------------------------------
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
- -----------------------------------------------------------------------------
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
- ---------------------------------------------------------------------------
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
- --------------------------------------------
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
BORROWER: LENDER:
CLINICOR, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ JAMES W. CLARK, JR. By /s/ ROBERT BELLISH
------------------------------- ----------------------------------
Its Treasurer Its Authorized Signatory
---------------------------
26
<PAGE>
SCHEDULE A
DESCRIPTION OF CERTAIN TERMS
This Schedule is an integral part of the Loan and Security Agreement
BETWEEN CLINICOR, INC. and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount: $2,500,000.00
(b) Advance Rates:
(i) Accounts Advance Rate: as to Eligible Accounts - 85.0% and as
to Eligible Accrued Unbilled Accounts
- 50.0%; provided, in each case, that
if the Dilution Percentage exceeds
5.0%, such advance rate will be
reduced by the number of full or
partial percentage points of such
excess
(ii) Inventory Advance Rate(s):
(A) Finished goods: N/A
(B) Raw materials: N/A
(C) Work in process: N/A
(c) Accounts Sublimit: N/A as to Eligible Accounts, as to
Eligible Accrued Unbilled Accounts -
$500,000
(d) Inventory Sublimit(s):
(i) Overall sublimit on N/A
advances against Eligible
Inventory
(ii) Sublimit on advances N/A
against finished goods
(iii) Sublimit on advances N/A
against raw materials
<PAGE>
(iv) Sublimit on advances N/A
against work in process
(e) Credit Accommodation Limit: N/A; No Credit Accommodations will be
provided with this Agreement.
(f) Permanent Reserve Amount: N/A
(g) Overadvance Amount: N/A
2. Loan Limits for Term Loan:
(a) Principal Amount:
(i) Equipment Advance N/A
(ii) Real Property Advance: N/A
(b) Repayment Schedule:
(i) Equipment Advance: N/A
(ii) Real Property Advance: N/A
3. Interest Rates:
(a) Revolving Loans: 2.25% per annum in excess of the Prime
Rate
(b) Term Loan: N/A
4. Minimum Loan Amount: $750,000 during initial one year term.
Thereafter, $1,000,000
5. Maximum Days:
(a) Maximum days after original
INVOICE DATE for Eligible 90
Accounts:
(b) Maximum days after original
INVOICE DUE DATE for Eligible
Accounts: N/A
6. Fees:
<PAGE>
(a) Closing Fee: $12,500.00
(b) Facility Fee: One percent (1.0%) of the Maximum
Facility Amount.
(c) Servicing Fee: N/A
(d) Unused Line Fee: 0.25% per annum
(e) Minimum Borrowing Fee:
(i) Applicable period: Each year ending on an anniversary of
the date of the Agreement.
(ii) Date payable: Each anniversary of the date of the
Agreement.
(f) Success Fee: N/A
(g) Warrants: N/A
(h) Early Termination Fee: If terminated during the first year of
the Initial Term, 4% of the Maximum
Facility Amount. If terminated during
the second year of the Initial Term,
2.0% of the Maximum Facility Amount.
If terminated during the third year of
the Initial Term, 1.5% of the Maximum
Facility Amount. If terminated during
the fourth year of the Initial Term,
0.5% of the Maximum Facility Amount.
The early termination fee shall be
waived if the Loans are refinanced by
NationsBank, N.A. after eighteen
months from the date of the Agreement.
(i) Fees for letters of credit and N/A
other Credit Accommodations
(or guaranties thereof by
Lender):
7. Maturity Date: December 19, 2001
8. Financial Covenants:
(a) Capital Expenditure Limitation: N/A
<PAGE>
(b) Minimum Net Worth N/A
Requirement:
(c) Minimum Tangible Net Worth: N/A
(d) Minimum Working Capital: N/A
(e) Maximum Cumulative Net Loss: N/A
(f) Minimum Cumulative Net N/A
Income:
(g) Maximum Leverage Ratio: N/A
(h) Limitation on Purchase Money N/A
Security Interests:
(i) Limitation on Equipment N/A
Leases:
(j) Additional Financial Covenants: N/A
9. Borrower Information:
(a) Prior Names of Borrower: Pegasus Tax and Financial Planning
Services, Inc.
(b) Prior Trade Names of N/A
Borrower:
(c) Existing Trade Names of Clarity Consulting Group, Clinicor
Borrower:
(d) Inventory Locations: None
(e) Other Locations: 8123 Broadway, San Antonio, Texas;
Royal Albert House, Suite No. 3, Sheet
Street, Windsor, Berks (London,
England); [307 Camp Craft Road, Suite
200, Austin, Texas - currently being
subleased by Borrower to FG Squared
Multimedia Corp.]
(f) Litigation: None
(g) Ownership of Borrower: N/A
<PAGE>
(h) Subsidiaries (and ownership None
thereof):
(i) Facsimile Numbers:
Borrower: (512) 477-0027
Lender: (312) 443-8275
10. Description of Real Property: N/A
11. Lender's Bank: First National Bank of Chicago/NBD
12. Other Covenants: N/A
13. Exceptions to Negative Covenants: N/A
IN WITNESS WHEREOF, Borrower and lender have signed this Schedule A as
of the date set forth in the heading to the Agreement.
BORROWER: LENDER:
CLINICOR, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ JAMES W. CLARK, JR. By /s/ ROBERT BELLISH
--------------------------------- --------------------------------------
Its Treasurer Its Authorized Signatory
------------------------------
<PAGE>
SCHEDULE B
DEFINITIONS
This Schedule is an integral part of the Loan and Security Agreement
between CLINICOR, INC. and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
As used in the Agreement, the following terms have the following meanings:
"ACCOUNT" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"ACCOUNT DEBTOR" means the obligor on an Account or Chattel Paper.
"ACCOUNT PROCEEDS" has the meaning set forth in Section 4.1.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise.
"AGREEMENT" and "THIS AGREEMENT" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
"AVAILABILITY" has the meaning set forth in Section 1.1(a)
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
(S) 101 et seq.).
------
"BLOCKED ACCOUNT" has the meaning set forth in Section 4.1.
"BORROWER" has the meaning set forth in the heading to the Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the heading to the
Agreement.
"BUSINESS DAY" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York are authorized to close.
"CHATTEL PAPER" has the meaning set forth in the UCC.
B-1
<PAGE>
"COLLATERAL" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.
"CREDIT ACCOMMODATION" has the meaning set forth in Section 1.1(a).
"CREDIT ACCOMMODATION BALANCE" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due in
connection therewith.
"DEFAULT" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"DEFAULT RATE" has the meaning set forth in Section 2.1.
"DEPOSIT ACCOUNT" has the meaning set forth in the UCC.
"DILUTION PERCENTAGE" means the gross amount of all returns,
allowances, discounts, credits, write- offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"DOCUMENT" has the meaning set forth in the UCC.
"EARLY TERMINATION FEE" has the meaning set forth in Section 7.2.
"ELIGIBLE ACCOUNT" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (PROVIDED, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen days' prior written notice to Borrower). An Account shall be deemed to
meet the current general criteria if (i) neither the Account Debtor nor any of
its Affiliates is an Affiliate, creditor or supplier of Borrower; (ii) it does
not remain unpaid more than the earlier to occur of (A) the number of days after
the original INVOICE DATE set forth in Section 5(a) of Schedule A or (B) the
number of days after the original INVOICE DUE DATE set forth in Section 5(b) of
Schedule A; (iii) the Account Debtor or its Affiliates are not past due on other
Accounts owing to Borrower comprising more than 50% of the aggregate amount of
all Accounts owing to Borrower by such Account Debtor or its Affiliates; (iv)
all Accounts owing by the Account Debtor or its Affiliates do not represent more
than 20% of the aggregate amount of all otherwise Eligible Accounts (PROVIDED,
that Accounts which are deemed to be ineligible solely by reason of this clause
(iv) shall be considered Eligible Accounts to the extent of the amount thereof
which does not exceed 20% of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement with respect to such
Account (including any of the representations set forth in Section 5.4) has been
breached; (vi) the Account is not subject to any contra relationship,
counterclaim, dispute or set-off (PROVIDED, that Accounts which are deemed to be
ineligible solely by reason of this clause (vi) shall be considered Eligible
Accounts to the extent of the amount thereof which is not affected by such
contra relationships,
B-2
<PAGE>
counterclaims, disputes or set-offs); (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; (viii) it is absolutely owing to Borrower and does not
arise from a sale on a bill-and-hold, guarantied sale, sale-or-return, sale- on-
approval, consignment, retainage or any other repurchase or return basis or
consist of progress billings; (ix) Lender shall have verified the Account in a
manner satisfactory to Lender; (x) the Account Debtor is not the United States
of America or any state or political subdivision (or any department, agency or
instrumentality thereof), unless Borrower has complied with the Assignment of
Claims Act of 1940 (31 U.S.C. (S)203 et seq.) or other applicable similar state
or local law in a manner satisfactory to Lender; (xi) it is at all times subject
to Lender's duly perfected, first priority security interest and to no other
Lien that is not a Permitted Lien, and the goods giving rise to such Account (A)
were not, at the time of sale, subject to any Lien except Permitted Liens and
(B) have been delivered to and accepted by the Account Debtor, or the services
giving rise to such Account have been performed by Borrower and accepted by the
Account Debtor; (xii) the Account is not evidenced by Chattel Paper or an
Instrument of any kind and has not been reduced to judgment; (xiii) the Account
Debtor's total indebtedness to Borrower does not exceed the amount of any credit
limit established by Borrower or Lender and the Account Debtor is otherwise
deemed to be creditworthy by Lender (PROVIDED, that Accounts which are deemed to
be ineligible solely by reason of this clause (xiii) shall be considered
Eligible Accounts to the extent the amount of such Accounts does not exceed the
lower of such credit limits); (xiv) there are no facts or circumstances
existing, or which could reasonably be anticipated to occur, which might result
in any adverse change in the Account Debtor's financial condition or impair or
delay the collectibility of all or any portion of such Account and which are
known to Borrower or Lender; (xv) Lender has been furnished with all documents
and other information pertaining to such Account which Lender has requested, or
which Borrower is obligated to deliver to Lender, pursuant to this Agreement;
(xvi) Borrower has not made an agreement with the Account Debtor to extend the
time of payment thereof beyond the time periods set forth in clause (ii) above;
and (xvii) Borrower has not posted a surety or other bond in respect of the
contract under which such Account arose.
"ELIGIBLE ACCRUED UNBILLED ACCOUNTS" means, at any time of
determination, an Account which otherwise constitutes an Eligible Account,
except that it has not yet been invoiced by Borrower.
"ELIGIBLE EQUIPMENT" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
B-3
<PAGE>
"ELIGIBLE INVENTORY" means, at any time of determination, Inventory
(other than packaging materials and supplies) which satisfies the general
criteria set forth below and which is otherwise acceptable to Lender (PROVIDED,
that Lender may, in its sole discretion, change the general criteria for
acceptability of Eligible Inventory upon at least fifteen days' prior written
notice to Borrower). Inventory shall be deemed to meet the current general
criteria if (i) it consists of raw materials or finished goods, or work-in-
process that is readily marketable in its current form; (ii) it is in good, new
and saleable condition; (iii) it is not slow-moving, obsolete, unmerchantable,
returned or repossessed; (iv) it is not in the possession of a processor,
consignee or bailee, or located on premises leased or subleased to Borrower, or
on premises subject to a mortgage in favor of a Person other than Lender, unless
such processor, consignee, bailee or mortgagee or the lessor or sublessor of
such premises, as the case may be, has executed and delivered all documentation
which Lender shall require to evidence the subordination or other limitation or
extinguishment of such Person's rights with respect to such Inventory and
Lender's right to gain access thereto; (v) it meets all standards imposed by any
governmental agency or authority; (vi) it conforms in all respects to any
covenants, warranties and representations set forth in the Agreement; (vii) it
is at all times subject to Lender's duly perfected, first priority security
interest and no other Lien except a Permitted Lien; and (viii) it is situated at
an Inventory Location listed in Section 9(d) of Schedule A or other location of
which Lender has been notified as required by Section 5.6.
"ELIGIBLE REAL PROPERTY" means, at any time of determination, Real
Property owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"EQUIPMENT" means all Goods which are used or bought for use primarily
in business (including farming or a profession) or by a Person who is a non-
profit organization or governmental subdivision or agency and which are not
Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"EQUIPMENT ADVANCE" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules, regulations and orders promulgated thereunder.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in effect
from time to time, consistently applied.
"GENERAL INTANGIBLES" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents,
B-4
<PAGE>
patent applications, trademarks, trademark applications (other than "intent to
use" applications until a verified statement of use is filed with respect to
such applications) and the goodwill of the business symbolized thereby, names,
trade names, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, security and other deposits, causes of action and
other rights in all litigation presently or hereafter pending for any cause or
claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, rights to purchase or sell real or personal
property, rights as a licensor or licensee of any kind, royalties, telephone
numbers, internet addresses, proprietary information, purchase orders, and all
insurance policies and claims (including life insurance, key man insurance,
credit insurance, liability insurance, property insurance and other insurance),
tax refunds and claims, letters of credit, banker's acceptances and guaranties,
computer programs, discs, tapes and tape files in the possession of Borrower or
any other Person, claims under guaranties, security interests or other security
held by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature.
"GOODS" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"INITIAL TERM" has the meaning set forth in Section 7.1.
"INSTRUMENT" has the meaning set forth in the UCC.
"INVENTORY" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"INVESTMENT PROPERTY" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"LENDER" has the meaning set forth in the heading to the Agreement.
"LIEN" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement
B-5
<PAGE>
pursuant to which title to the property has been retained by or vested in some
other Person for security purposes.
"LOAN ACCOUNT" has the meaning set forth in Section 2.4.
"LOAN DOCUMENTS" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower or any Obligor in connection with,
or to evidence the transactions contemplated by, this Agreement.
"LOAN LIMITS" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"LOANS" means, collectively, the Revolving Loans and any Term Loan.
"LOCK BOX" has the meaning set forth in Section 4.1.
"MATURITY DATE" has the meaning set forth in Section 7.1.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Lender, whether evidenced by this Agreement or any
other Loan Document, whether arising from an extension of credit, opening of a
Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, Minimum Borrowing Fees and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Document.
B-6
<PAGE>
"OBLIGOR" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of any
property which is security for the Obligations, other than Borrower.
"PERMITTED LIENS" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(h) of Schedule A; (ii) leases of specific items of Equipment
in an aggregate amount not to exceed the limit set forth in Section 8(i) of
Schedule A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens
which are fully subordinate to the security interests of Lender and are
consented to in writing by Lender; (v) security interests being terminated
concurrently with the execution of this Agreement; (vi) Liens of materialmen,
mechanics, warehousemen or carriers arising in the ordinary course of business
and securing obligations which are not delinquent; (vii) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (i) or (ii) above; PROVIDED,
that any extension, renewal or replacement Lien is limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase; (viii) Liens in favor
of customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods; and (ix) security deposits posted in
connection with real property leases or subleases. Lender will have the right to
require, as a condition to its consent under clause (iv) above, that the holder
of the additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations remain
outstanding, and that Borrower agree that any uncured default in any obligation
secured by the subordinate Lien shall also constitute an Event of Default under
this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"PRIME RATE" means, at any given time, the prime rate as quoted in The
Wall Street Journal as the base rate on corporate loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not necessarily
the lowest rate offered by such banks).
"REAL PROPERTY" means the real property described in Section 10 of
Schedule A.
"REAL PROPERTY ADVANCE" has the meaning set forth in Section 1.1(b).
"RELEASED PARTIES" has the meaning set forth in Section 6.1.
"RESERVES" has the meaning set forth in Section 1.2.
"REVOLVING LOANS" has the meaning set forth in Section 1.1(b).
"SALE" has the meaning set forth in Section 8.2.
B-7
<PAGE>
"SUBSIDIARY" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
"TERM" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"TERM LOAN" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted
and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein.
The term "INCLUDING," whenever used in this Agreement, shall mean "including but
not limited to." The singular form of any term shall include the plural form,
and vice versa, when the context so requires. References to Sections,
subsections and Schedules are to Sections and subsections of, and Schedules to,
this Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
BORROWER: LENDER:
CLINICOR, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ JAMES W. CLARK, JR.
--------------------------------
Its Treasurer By /s/ ROBERT BELLISH
----------------------------- ------------------------------------
Its Authorized Signatory
B-8
<PAGE>
EXHIBIT 10(p)
EMPLOYMENT AGREEMENT
THIS AGREEMENT is executed to be effective March 17, 1998 between Clinicor,
Inc., a Nevada corporation (the "Corporation"), and Susan Krivacic (the
"Employee").
W I T N E S S E T H:
-------------------
1. Employment. The Corporation hereby employs the Employee and the
----------
Employee hereby accepts such employment and agrees to perform the services
specified herein upon the terms and conditions hereinafter set forth.
2. Term. Subject only to the provisions for termination as hereinafter
----
set forth, the term of this Agreement shall begin on the effective date hereof
and shall terminate on March 16, 1999. Unless either party gives the other
thirty (30) days written notice prior to the expiration of the initial or any
renewal term hereof, this Agreement shall automatically renew for four (4)
additional periods of one (1) year each.
3. Compensation. The Corporation shall pay to the Employee a minimum
------------
base salary of One Hundred Thirty Thousand and No/100 Dollars ($130,000.00) per
year, payable in equal bi-monthly installments, and net of applicable
withholdings. The Employee shall be entitled to receive such further
compensation in the form of bonuses and salary increases as shall be authorized
by the Board of Directors of the Corporation (the "Board") from time to time.
<PAGE>
4. Benefits.
--------
(a) In addition to the direct remuneration provided for in the
preceding Section 3, the Employee shall be entitled to participate in and to
receive benefits consistent with those of other executive officers of the
Corporation. Such benefits shall include annual vacation time of no less then
four (4) weeks.
(b) The Corporation shall, simultaneously with the commencement of
the Employee's employment hereunder (or as soon thereafter as a meeting of the
Board may conveniently be convened, but in no event later than March 31, 1998),
grant to the Employee options to purchase a total of one hundred fifty thousand
(150,000) shares of the Corporation's common stock. The exercise price
applicable to such options shall be the closing price of such stock on the Over-
the-Counter Bulletin Board on the business day immediately preceding the date of
grant. The options shall vest in five (5) equal annual increments on March 1 of
each year, commencing March 1, 1999, provided the Employee is still employed by
the Corporation on such dates. The options, if unexercised, shall terminate and
expire ninety (90) days after the termination of the Employee's employment by
the Corporation, and in any event no later than March 1, 2005. The Employee
understands and acknowledges that the grant of options as set forth above does
not constitute a promise by the Corporation to continue the term of the
Employee's employment hereunder beyond the term provided for in Section 2
hereof. The description of the terms and conditions of
2
<PAGE>
the options contained in this Section 4(b) is in all respects subject to and
qualified by the terms and conditions of the Corporation's 1995 Employee,
Consultant and Director Stock Option Plan and the standard form of Option
Agreement thereunder, each of which has been supplied to the Employee.
5. Duties. The Employee has been elected Senior Vice President of
------
Marketing and Business Development of the Corporation, and she agrees to perform
the duties normally incidental to this office for as long as she holds the
office. The Employee acknowledges that she occupies this office at the
discretion of the Board and that her title may be changed at any time and that
such change will not constitute a breach of this Agreement. The Employee agrees
to perform for the Corporation such duties and responsibilities as may
reasonably be prescribed from time to time by the Board, and the Corporation
agrees to provide the Employee with such office supplies and support, including
a cellular phone, as are normally incidental to such duties.
6. Extent of Service. The Employee shall devote her full time, attention
-----------------
and energy to the business of the Corporation and shall faithfully,
industriously, and to the best of her ability perform all of the duties that may
be required of her as an employee and as an officer of the Corporation. The
Employee shall not directly or indirectly render any services to any other
person or organization, whether for compensation or otherwise, without the prior
consent of the Board. The Employee will not engage in
3
<PAGE>
activities, businesses, or investments that would in any way conflict with the
best interests of the Corporation.
7. Confidentiality and Non-Solicitation.
------------------------------------
(a) The Employee recognizes and acknowledges that she will have access
to certain Confidential Information of the Corporation (as hereinafter defined)
and that such information constitutes valuable, special and unique property of
the Corporation. The Employee will not, during or after the term of her
employment, directly or indirectly divulge, disclose or otherwise communicate or
make available any of such Confidential Information to any person, firm,
corporation, association, or other entity for any reason or purpose whatsoever
without the prior written consent of the Corporation. Confidential Information
includes without limitation each of the following with respect to the
Corporation: (i) financial information; (ii) information concerning marketing
plans or strategies; (iii) information concerning sponsors, investigators and
other third parties with whom the Corporation has contacts; (iv) information
concerning the Corporation's markets and potential markets; (v) information
concerning business methods and practices; (vi) client proprietary information,
contracts, proposals, work in process and research; (vii) information concerning
development or marketing programs or plans or client lists; and (viii) any other
information that the Corporation reasonably treats and identifies as
confidential. Confidential Information shall also include without limitation any
4
<PAGE>
information or materials received by the Corporation from third parties in
confidence (or subject to nondisclosure or similar agreements). Notwithstanding
the foregoing, Confidential Information does not include information the
Employee had prior to her employment with the Corporation or information that is
generally available to the public or in the pharmaceutical industry. The
Employee should consider all information coming into her possession by virtue of
her employment relationship with the Corporation to be Confidential Information
unless it is freely available to the public.
(b) The Employee shall not, during her employment with the
Corporation or for a period of six (6) months thereafter, directly or indirectly
solicit, or interfere with the Corporation's relationships with, or entice away
from the Corporation, any sponsor, any investigator with whom the Employee has
had a relationship during her employment at the Corporation or any other person,
firm or corporation who has at any time during the term of the Employee's
employment hereunder done business with the Corporation; provided, however,
nothing herein shall prevent the Employee from doing business with any person,
firm or entity with whom she has had a business relationship prior to the
Employee's employment with the Corporation. The Employee shall not, during the
term of her employment with the Corporation or for a period of six (6) months
thereafter, offer employment to or procure employment for any person who has at
any time during the term of
5
<PAGE>
the Employee's employment hereunder been employed by the Corporation.
8. Materials. All data, protocols, listings, charts, drawings, records,
---------
documents, programs, software, documentation, memoranda, journals, notebooks,
records, files, drafts, specifications and similar items relating to the
business of the Corporation or its customers, whether compiled by the Employee,
furnished to the Employee by the Corporation, its customers or clients or
otherwise made accessible to the Employee or coming into her possession, while
the Employee is in the employ of the Corporation, and copies of any such items,
shall be and remain the sole and exclusive property of the Corporation or its
customers or clients, as the case may be, and none of such items shall be
removed from the Corporation's business premises by the Employee without the
prior consent of the Corporation, except as required in the course of her
employment. All of such items shall be returned to the Corporation by the
Employee upon the termination of her employment with the Corporation for
whatever reason. The provisions of this Section 8 shall not, however, prohibit
the Employee from using any materials published by the Corporation and made
available (without breach of this Section) to the general public.
9. Termination.
-----------
(a) Death or Disability. Subject to any broader rights granted the
-------------------
Employee under applicable law, including under the
6
<PAGE>
Family Medical Leave Act or under the Americans with Disabilities Act, in the
event of the Employee's death or in the event of her disability for a period in
excess of one (1) month during the term of this Agreement, the Corporation may
terminate this Agreement, in which event the Corporation shall pay to the
Employee or to her heirs or personal representatives the amount of compensation
and benefits accrued under Sections 3 and 4 hereof through the date of death or
(in case of disability) through the end of the one-month period commencing with
the onset of disability. The Corporation shall thereafter have no further
liability under this Agreement to the Employee or her heirs or personal
representatives. "Disability" for purposes hereof shall be deemed to have
occurred if the Employee because of injury or sickness is unable to perform each
of the material duties of her occupation.
(b) Termination with Cause by the Corporation. At any time during the
-----------------------------------------
term hereof, the Corporation shall have the right to terminate for cause the
Employee's employment under this Agreement upon the occurrence of any of the
following events by the Employee:
(i) willful or repeated violation of any of the provisions of
this Agreement, which continues after written notice and ten (10) days in
which to cure;
(ii) dishonesty, fraud, embezzlement, defalcation, conviction of
any felonious offense or persistent neglect of her material duties
hereunder; or
(iii) intentionally imparting Confidential Information, as
defined in Section 7, to competitors or
7
<PAGE>
to other third parties other than in the course of carrying out her
corporate duties.
Such termination shall be effective immediately upon the delivery to the
Employee by the Corporation of written notice of such termination. In the event
of a termination of the Employee's employment for cause in accordance with the
provisions of this Section 9(b), the Corporation shall pay to the Employee on
the date of termination all compensation and benefits accrued under Sections 3
and 4 of this Agreement to the date of such termination. Thereafter, the
Corporation shall have no further obligation to the Employee.
(c) Termination with Cause by the Employee. At any time during the
--------------------------------------
term hereof, the Employee shall have the right to terminate her employment
hereunder for cause upon the failure of the Corporation to comply with any of
the material terms of this Agreement. Such termination shall be effective
immediately upon the delivery to the Corporation by the Employee of written
notice of such termination. In the event of a termination of the Employee's
employment for cause in accordance with the provisions of this Section 9(c), the
Corporation shall pay to the Employee on the date of termination all
compensation and benefits accrued under Sections 3 and 4 of this Agreement to
the date of such termination. Thereafter, neither the Corporation nor the
Employee shall have any obligation to the other hereunder, except as accrued
prior to the date of termination or as set forth in Sections 7 and 8 hereof.
8
<PAGE>
10. No Termination Without Cause by the Corporation. The Corporation
-----------------------------------------------
shall not be entitled to terminate the Employee's employment during either the
initial or any renewal term hereof without cause. The Corporation may, however,
with or without cause, suspend the performance of the Employee's duties
hereunder, such suspension to be effective immediately upon written notification
by the Corporation to the Employee. In such event, the Employee shall
continue to be an employee of the Corporation through the conclusion of the
initial or renewal term during which suspension of duties occurs, and the
Employee shall be entitled during such initial or renewal term to receive all
compensation and benefits provided for herein, including any benefits related to
the vesting of options pursuant to any Stock Option Agreement to which the
Employee is a party.
11. Invocation of Non-Compete by Previous Employer.
----------------------------------------------
(a) The Employee and the Corporation acknowledge that, as of the date
hereof, both have reason to believe that the Employee's former employer,
Quintiles, Inc. (the "Former Employer"), will not elect to invoke the
non-compete provisions of Section 7(a) of one certain letter agreement dated
April 10, 1996 between the Former Employer and the Employee (the "Letter
Agreement").
(b) If, notwithstanding the parties' mutual understanding, the Former
Employer does elect to invoke such provision by making one (1) or more payments
to the Employee in the
9
<PAGE>
amounts set forth in Section 7 of the Letter Agreement, then, at the option of
either party hereto, this Agreement shall immediately terminate and be of no
further force or effect whatsoever, except that the provisions of Sections 7(a),
8 and 11(c) hereof shall survive termination. Moreover, if the Former Employer
and the Employee enter into any agreement pursuant to which the Employee
voluntarily agrees to be bound by contractual confidentiality, non-competition
or non-solicitation provisions that are different in any material respect from
those set forth in the draft agreement transmitted to the Former Employer by the
Employee on March 9, 1998 (a copy of which has been delivered to counsel for the
Corporation) and to which the Corporation has not expressly consented, then, at
the option of the Corporation, this Agreement shall terminate and be of no
further force or effect whatsoever, except that the provisions of Sections 7(a)
and 8 hereof shall survive such termination.
(c) In the event the Former Employer asserts any claim or brings any
proceedings (including but not limited to arbitration or court action) against
the Employee pursuant to the non-compete, non-solicitation and non-disclosure
provisions contained in the Letter Agreement, the Corporation agrees to
indemnify and hold harmless the Employee from any such claims or proceedings,
including but not limited to any liability for such claims and any expenses,
including attorneys' fees, incurred in connection with the defense of such
claims or proceedings. Notwithstanding the
10
<PAGE>
foregoing, the claims and proceedings indemnified against hereunder (i) include
only those claims or proceedings that are directly related to and arise out of
the employment of the Employee by the Corporation and (ii) exclude claims or
proceedings that arise out of the Employee's knowing or grossly negligent
violation of this Agreement or the Letter Agreement, as modified by any
subsequent agreement between the Employee and the Former Employer. Moreover,
nothing in this Section 11(c) in any way limits the ability of the Corporation
to terminate this Agreement pursuant to Section 11(b) above.
(d) Each of the Corporation and the Employee acknowledges that the
Employee is bound by the non-compete, non-solicitation and non-disclosure
provisions of the Letter Agreement. The Employee agrees not to take any action
that would be prohibited under the Letter Agreement, as modified by any
subsequent agreement between the Employee and the Former Employer, and the
Corporation agrees not to cause or request the Employee to take any such action.
12. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficient if in writing and if delivered (including delivery
by private courier or facsimile transmittal) or sent by registered or certified
mail, postage prepaid, return receipt requested to the Employee at 6809 Marbry's
Ridge Cove, Austin, Texas 78731, or to the Corporation at 1717 West Sixth
Street, Suite 400, Austin, Texas 78703, or to such other
11
<PAGE>
address as either party shall designate by written notice to the other. Such
notice shall be effective as of the earlier of the date received or, if mailed
as described above, three days after the date of mailing.
13. Assignment. This Agreement may not be assigned by either party hereto
----------
without the consent of the other party. Subject to the foregoing, the rights
and obligations of the Corporation under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of the
Corporation, and the rights of the Employee under this Agreement shall inure to
the benefit of the heirs and personal representatives of the Employee.
14. Miscellaneous.
-------------
(a) This Agreement shall be subject to and governed by the laws of the
State of Texas and is performable in Travis County, Texas.
(b) Whenever the context requires, the gender of all words used herein
shall include the masculine, feminine and neuter, and the number of all words
shall include the singular and plural. Titles of sections are for convenience
only and neither limit nor amplify any of the provisions contained herein.
(c) Upon execution of this Agreement, the right, duties and
obligations of the parties hereto with respect to the matters set forth herein
shall be governed solely by the provisions of this Agreement, and all
representations, warranties, terms and conditions with respect to such matters
which may be contained in
12
<PAGE>
any prior writing executed by any of the parties shall be null and void and of
no further force and effect.
(d) Whenever possible, each provision of this Agreement will be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement, or the application thereof to any party
hereto or under any circumstances, shall be invalid or unenforceable to any
extent under applicable law, such provision shall be deemed severed from this
Agreement with respect to such party or such circumstance, without invalidating
the remainder of this Agreement or the application of such provision to other
persons or circumstances, and a new provision shall be deemed to be substituted
in lieu of the provision so severed which new provision shall, to the extent
possible, accomplish the intent of the parties hereto as evidenced by the
provision so severed.
(e) In the event of a breach or threatened breach by the Employee of
any provision of this Agreement, then in addition to any other available remedy
to which the Corporation may be entitled, including the recovery of damages, the
Corporation shall be entitled to an injunction restraining the Employee from
breaching or attempting to breach, in whole or in part, any of the provisions of
this Agreement. In addition, in the event of a breach by either party of any
provision of this Agreement, the non-breaching or (in the event of litigation)
the prevailing party shall be entitled to recover from the other party all
reasonable
13
<PAGE>
costs and attorneys' fees incurred by the non-breaching or prevailing party in
seeking any of such remedies.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date set forth above.
CLINICOR, INC.
By: /s/ Robert Sammis
----------------------------------
Robert S. Sammis, President
"CORPORATION"
/s/ Susan Krivacic 3-17-98
-----------------------------------
SUSAN KRIVACIC
"EMPLOYEE"
14
<PAGE>
EXHIBIT 10(q)
CLINICOR, INC.
AMENDED AND RESTATED 1995 DIRECTOR, EMPLOYEE
AND CONSULTANT STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are:
. to attract and retain the best available personnel for positions of
substantial responsibility;
. to provide additional incentive to Employees, Directors and
Consultants to remain with the Company; and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
a. "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
b. "APPLICABLE LAWS" means the legal requirements relating to the
admin istration of stock option plans under state corporate and securities laws
and the Code.
c. "BOARD" means the Board of Directors of the Company.
d. "CODE" means the Internal Revenue Code of 1986, as amended.
e. "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
f. "COMMON STOCK" means the Common Stock of the Company.
g. "COMPANY" means CLINICOR, INC., a Nevada corporation, formerly
Pegasus Tax and Financial Planning Services, Inc., a Nevada corporation.
h. "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services, and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company, or who are not
compensated by the Company for their services as Directors.
i. "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship is not interrupted or terminated by the
Company, any
<PAGE>
Parent or Subsidiary. Continuous Status as an Employee or Consultant shall not
be considered interrupted in the case of: (i) any leave of absence approved by
the Company, including sick leave, military leave, or any other personal leave;
provided, however, that for purposes of Incentive Stock Options, no such leave
may exceed ninety (90) days, unless re-employment upon the expiration of such
leave is guaranteed by contract (including certain Company policies) or statute;
provided, further, that on the ninety-first (91st) day of any such leave (where
re-employment is not guaranteed by contract or statute) the Optionee's Incentive
Stock Option shall automatically convert to a Nonstatutory Stock Option; or (ii)
transfers between locations of the Company or between the Company, its Parent,
its Subsidiaries, or its successor.
j. "DIRECTOR" means a member of the Board. A Director may or may
not be an Employee or Consultant of the Company.
k. "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
l. "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a Director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
m. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
n. "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
i) If the Common Stock is listed on any established stock
exchange or a national market system, including, without limitation, the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no shares were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last market
trading day prior to the date of determination, as reported in The Wall Street
Journal, or such other source as the Administrator deems reliable;
ii) If the Common Stock is quoted on the NASDAQ System
(but not on the National Market System thereof), or is regularly quoted by a
recognized securities dealer, but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal, or such
other source as the Administrator deems reliable;
iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
2
<PAGE>
o. "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
p. "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
q. "NOTICE OF GRANT" means a written notice evidencing certain terms
and conditions of an individual Option grant. The Notice of Grant is part of
the Option Agreement.
r. "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated there under.
s. "OPTION" means a stock option granted pursuant to the Plan.
t. "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
u. "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
v. "OPTIONED STOCK" means the Common Stock subject to an Option.
w. "OPTIONEE" means an Employee, Consultant or Director who holds an
outstanding Option.
x. "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
y. "PLAN" shall mean this 1995 Employee and Consultant Stock Option
Plan.
z. "RULE 16b-3" means Rule 16b-3 of the Exchange Act, or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
aa. "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
bb. "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,000,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
3
<PAGE>
However, should the Company reacquire Shares which were issued pursuant to the
exercise of an Option, such Shares shall not become available for future grant
under the Plan.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has been terminated); provided,
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. ADMINISTRATION OF THE PLAN.
a. PROCEDURE.
i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees who are neither
Directors nor Officers.
ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS
SUBJECT TO SECTION 16(b). With respect to Option grants made to Employees who
are also Officers or Directors subject to Section 16(b) of the Exchange Act, the
Plan shall be administered by (A) the Board, if the Board may administer the
Plan in compliance with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a committee designated by the Board
to administer the Plan, which committee shall be constituted to comply with the
rules governing a plan intended to qualify as a discretionary plan under Rule
16b-3. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time, the Board
may increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules governing
a plan intended to qualify as a discretionary plan under Rule 16b-3.
iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With
respect to Option grants made to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board; or (B) a committee designated by the Board, which committee shall be
constituted to satisfy Applicable Laws. Once appointed, such Committee shall
serve in its designated capacity and otherwise directed by the Board. The Board
may increase the size of the new Committee and appoint additional members,
remove members (with or without cause), and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Applicable Laws.
b. POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
4
<PAGE>
i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2.n. of the Plan;
ii) to select the Consultants and Employees to whom
Options may be granted hereunder and to grant options to Directors;
iii) to determine whether and to what extent Options are
granted hereunder;
iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
v) to approve forms of agreement for use under the Plan;
vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
vii) to reduce the exercise price of any Option to the then-
current Fair Market Value, if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
ix) to prescribe, amend and rescind rules and regulations
relating to the Plan;
x) to modify or amend each Option (subject to Section 16
of the Plan);
xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
xii) to institute an Option Exchange Program;
xiii) to determine the terms and restrictions applicable to
Options; and
xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
5
<PAGE>
c. EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. ELIGIBILITY. Nonstatutory Stock Options may be granted to Employees,
Consultants and Directors. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee, Consultant or Director who has
been granted an Option may be granted additional Options.
6. LIMITATIONS.
a. Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares subject to an Optionee's incentive stock options granted by the
Company, any Parent or Subsidiary, which become exercisable for the first time
during any calendar year (under all plans of the Company, or any Parent or
Subsidiary), exceeds $100,000, such excess Options shall be treated as Non
statutory Stock Options. For purposes of this Section 6.a., Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.
b. Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
7. TERM OF PLAN. Subject to Section 16 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board, or its
approval by the stockholders of the Company as described in Section 18 of the
Plan. It shall continue in effect for a term of ten (10) years, (unless
terminated earlier) under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Notice
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company, or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
6
<PAGE>
9. OPTION EXERCISE PRICE AND CONSIDERATION.
a. EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
i) In the case of an Incentive Stock Option:
a) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company, or any Parent
or Subsidiary, the per Share exercise price shall be no less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of grant.
b) granted to any Employee, the per Share exercise
price shall be no less than one hundred percent (100%) of the Fair Market Value
per Share on the date of grant.
ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.
b. WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
c. FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist of:
i) cash;
ii) check;
iii) promissory note;
iv) other Shares which (a) in the case of Shares acquired
upon exercise of an Option, have been owned by the Optionee for more than six
(6) months on the date of surrender; and (b) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
7
<PAGE>
v) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
vi) any combination of the foregoing methods of payment; or
vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
a. PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan, and
at such times and under such conditions as determined by the Administrator and
set forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when the Company receives:
(i) written notice of exercise, together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option (all in accordance with the Option Agreement) from the person
entitled to exercise the Option, and (ii) full payment for the Shares with
respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
Stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
b. TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is determined by the
Administrator, and only to the extent that the Optionee was entitled to exercise
it at the date of such termination (but in no event later than the expiration of
the term of such Option as set forth in the Notice of Grant). In the case of an
Incentive Stock Option, the Administrator shall determine such period of time
(in no event to exceed ninety (90) days from the date of termination) when the
Option is granted. If, at the date
8
<PAGE>
of termination, the Optionee is not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his
or her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan. The
provisions of this Section 10.b. shall not apply to an Optionee who has been
granted an Option in connection with his or her service as a Director of the
Company (regardless of whether such Director is an Employee or Consultant).
c. DISABILITY OF OPTIONEE. In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan. The provisions of this Section 10.c.
shall not apply to an Optionee who has been granted an Option in connection with
his or her service as a Director of the Company (regardless of whether such
Director is an Employee or Consultant).
d. DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate and the Shares covered by such Option shall
revert to the Plan.
e. RULE 16b-3. Options granted to individuals subject to Section 16
of the Exchange Act ("Insiders"), must comply with the applicable provisions of
Rule 16b-3 and shall contain such additional conditions or restrictions as may
be required thereunder to qualify for the maximum exemption from Section 16 of
the Exchange Act with respect to Plan transactions.
11. NONTRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner, other than by
Will or by the laws of descent or distribution, and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
9
<PAGE>
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER, ASSET
SALE OR CHANGE OF CONTROL.
a. CHANGES IN CAPITALIZATION. Subject to any required action by the
Stockholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option, and the number of Shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per Share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued Shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares of Common Stock subject to an Option.
b. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as of
a date fixed by the Board and give each Optionee the right to exercise his or
her Option as to all or any part of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.
c. MERGER OR ASSET SALE. Subject to the provisions of paragraph (d)
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option shall be assumed or an equivalent option or right shall be
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option, the
Administrator shall, in lieu of such assumption or substitution, provide for the
Optionee to have the right to exercise the Option as to all or a portion of the
Optioned Stock, including Shares as to which it would not otherwise be
exercisable. If the Administrator makes an Option exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase, for each
Share of Optioned Stock subject to the Option immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were
10
<PAGE>
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per-share consideration received by
holders of Common Stock in the merger or sale of assets.
d. CHANGE IN CONTROL. In the event of a "Change of Control" of the
Company, as defined in paragraph (e) below, then the following acceleration and
valuation provisions shall apply:
i) Except as otherwise determined by the Board, in its
discretion, in the event of an anticipated Change in Control, any Options
outstanding on the date such Change in Control is determined to have occurred
that are not yet exercisable and vested on such date shall become fully
exercisable and vested.
ii) Except as otherwise determined by the Board, in its
discretion, in the event of an anticipated Change in Control, all outstanding
Options, to the extent they are exercisable and vested (including Options that
shall become exercisable and vested pursuant to subparagraph i) above), shall be
terminated in exchange for a cash payment equal to the Change in Control Price
(reduced by the exercise price applicable to such Options). These cash proceeds
shall be paid to the Optionee or, in the event of death of an Optionee, prior to
payment, to the estate of the Optionee or a person who acquired the right to
exercise the Option by bequest or inheritance.
iii) Any payment made pursuant to this paragraph (d) shall not
exceed the maximum amount which could be paid to an Optionee without having the
payment treated as an "excess parachute payment" within the meaning of (S)280G
of the Code.
e. DEFINITION OF "CHANGE IN CONTROL". For purposes of this Section
12, a "Change in Control" means the happening of any of the following:
i) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as trustee), is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing more
than twenty-five percent (25%) of the combined voting power of the Company's
then-outstanding securities entitled to vote generally in the election of
directors; or
ii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining
11
<PAGE>
outstanding or by being converted into voting securities of the surviving
entity) at least seventy-five percent (75%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve an agreement for the sale or disposition by the Company
of all or substantially all the Company's assets; or
iii) A change in the composition of the Board of Directors of
the Company occurring within a two (2) year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. "Incumbent Directors"
shall mean directors who either (A) are directors of the Company as of the date
the Plan is approved by the stockholders; or (B) are elected, or nominated for
election, to the Board of Directors of the Company with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
f. CHANGE IN CONTROL PRICE. For purposes of this Section 12,
"Change in Control Price" shall be, as determined by the Board: (i) the highest
Fair Market Value of a Share within the 60-day period immediately preceding the
date of determination of the Change of Control Price by the Board (the "60-Day
Period"); or (ii) the highest price paid or offered per Share, as determined by
the Board, in any bona fide transaction or bona fide offer related to the Change
in Control of the Company, at any time within the 60-Day Period; or (iii) some
lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share.
13. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
a. AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
b. STOCKHOLDER APPROVAL. The Company shall obtain Stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such Stockholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
c. EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
12
<PAGE>
15. CONDITIONS UPON ISSUANCE OF SHARES.
a. LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
b. INVESTMENT REPRESENTATION. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares, if, in the opinion of counsel for the Company, such a representation is
required.
16. LIABILITY OF COMPANY.
a. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
b. GRANTS EXCEEDING ALLOTTED SHARES. If the Option Stock covered by
an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional Stockholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless Stockholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 14.b. of the Plan.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the Stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such Stockholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CLINICOR,
INC., FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997, AND FOR THE 3- AND 12- MONTH
PERIODS ENDED DECEMBER 31, 1997, AND THE ACCOMPANYING NOTES AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> SEP-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 3,255,182 3,255,182
<SECURITIES> 0 0
<RECEIVABLES> 2,492,928 2,492,928
<ALLOWANCES> 20,000 20,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,857,933 5,857,933
<PP&E> 1,707,178 1,707,178
<DEPRECIATION> 678,056 678,056
<TOTAL-ASSETS> 6,887,055 6,887,055
<CURRENT-LIABILITIES> 2,220,209 2,220,209
<BONDS> 68,173<F1> 68,173<F1>
4,086 4,086
0 0
<COMMON> 8,930,000 8,930,000
<OTHER-SE> (4,267,240) (4,267,240)
<TOTAL-LIABILITY-AND-EQUITY> 6,887,055 6,887,055
<SALES> 2,621,722 10,856,562
<TOTAL-REVENUES> 2,621,722 10,856,562
<CGS> 2,169,364 8,843,114
<TOTAL-COSTS> 3,308,366 12,867,200
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 151,850<F2> 329,897<F2>
<INCOME-PRETAX> (838,494) (2,340,535)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (838,494) (2,340,535)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (838,494) (2,340,535)
<EPS-PRIMARY> (0.65) (1.07)
<EPS-DILUTED> (0.65) (1.07)
<FN>
<F1>Consists of capitalized obligations, excluding current portions.
<F2>Net interest expense is net of interest revenue.
</FN>
</TABLE>
