10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ___________________ Commission file number 0-17973 MEDCROSS, INC. (Exact name of small business issuer as specified in its charter) FLORIDA 59-2291344 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3227 Bennet Street North, St. Petersburg, Florida 33713 (Address of principal executive offices) (813) 521-1793 (Issuer's telephone number) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at April 30, 1996 Common Stock, par value $0.007 7,063,705 Traditional Small Business Disclosure Format (Check One): Yes No X 1 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements
MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (unaudited) Assets March 31 1996 ---------- Current assets Cash and cash equivalents $ 421,751 Accounts receivable less allowance of $682,565 941,174 Inventory 830,292 Prepaid expenses 107,143 --------- Total current assets 2,300,360 --------- Property and equipment 3,644,566 Less accumulated depreciation 1,905,334 --------- Net property and equipment 1,739,232 --------- Investment in unconsolidated subsidiary 6,250 Intangible assets, net of amortization of $464,216 3,619,151 Other assets 19,116 --------- Total assets $ 7,684,109 ========= Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $ 1,810,927 Advance deposits received 233,728 Accrued royalty fees 450,000 Notes payable - related party 658,000 Notes payable - other 1,520,140 Current portion of long-term debt - related party 39,230 Current portion of long-term debt - other 669,799 Current obligations under capital lease 109,856 --------- Total current liabilities 5,491,680 Long-term debt 78,255 Obligations under capital leases 71,001 Minority interest equity in consolidated subsidiaries 372,036 Commitments and contingencies - Stockholders' equity Preferred stock 1,675,000 Common stock 29,917 Other stockholders' equity ( 33,780) --------- Total stockholders' equity 1,671,137 --------- Total liabilities and stockholders' equity $ 7,684,109 ========= The accompanying notes are an integral part of these consolidated financial statements.
2 2
MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended March 31 ------------------------------- 1996 1995 ----------- ----------- Net health care service revenue $ 592,180 $ 779,604 Equipment sales and service - 337,889 Network service revenue 17,026 - --------- --------- Net operating revenue 609,206 1,117,493 --------- --------- Cost of goods sold - equipment sales and service - 185,157 Salaries and benefits 252,448 328,931 Repairs and maintenance 68,963 76,946 Network expenses 98,233 - Provision for doubtful accounts 41,244 327,588 Depreciation and amortization 281,703 117,952 Write off purchased research and development 2,034,103 - Other operating expenses 506,785 316,788 --------- --------- Operating loss (2,674,273) ( 235,869) Interest expense ( 47,639) ( 39,128) Other income 15,527 3,816 --------- --------- Loss before minority interest in net income of consolidated subsidiaries and income tax provision (2,706,385) ( 271,181) Minority interest in net income of consolidated subsidiary 1,943 12,779 --------- --------- Loss before income tax provision (2,708,328) ( 283,960) Income tax provision - - --------- --------- Net loss $(2,708,328) $( 283,960) ========= ========= Loss per common share after preferred dividends $( .77) $( .18) ========= ========= Weighted average common and equivalent shares outstanding 3,570,784 1,749,163 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 3 3
MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31 ------------------------------- 1996 1995 ------------ ----------- Cash provided (used) by operating activities $( 612,824) $ 50,068 --------- --------- Cash flows from investing activities Purchase of property and equipment ( 6,827) ( 15,000) Proceeds from sale of property and equipment 80 - --------- --------- Net cash used by investing activities ( 6,747) ( 15,000) --------- --------- Cash flows from financing activities Proceeds (reduction) of note payable - related party ( 73,333) 218,000 Proceeds (reduction) of note payable - other 965,565 ( 101,000) Release of Certificate of Deposit held as collateral 60,000 - Reductions of long-term debt ( 42,075) ( 97,286) Reduction of capital lease obligations ( 73,289) ( 59,400) Minority interest distributions - ( 36,500) Issuance of common stock 643 - Additional paid-in capital 123,653 - --------- --------- Net cash provided (used) by financing activities 961,164 ( 76,186) --------- --------- Effect of foreign currency translation on cash flows 1 12 --------- --------- Increase (decrease) in cash and cash equivalents 341,594 ( 41,106) Cash and cash equivalents at beginning of period 80,157 361,157 --------- --------- Cash and cash equivalents at end of period $ 421,751 $ 320,051 ========= =========
Supplemental cash flow information In February 1995, the holder of Class B Preferred Stock converted 9,350 shares into 227,714 shares of common stock of the Company. In February 1996, the Company acquired all of the issued and outstanding stock of I-Link Worldwide, Inc. in exchange for the issuance of an aggregate of 4,000,000 shares of common stock of the Company, of which 2,600,000 shares are held in escrow. In February 1996, a holder of Class A Preferred Stock converted 40,000 shares into 978,891 shares of common stock of the Company. The accompanying notes are an integral part of these consolidated financial statements. 4 4 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Financial Statements In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three-month periods ended March 31, 1996 and March 31, 1995, (b) the financial position at March 31, 1996, and (c) cash flows for the three- month periods ended March 31, 1996 and March 31, 1995, have been made. The unaudited consolidated financial statements and notes are presented as permitted by Form 10-QSB. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The accompanying consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes of the Company for the fiscal year ended December 31, 1995. The results of operations for the three-month period ended March 31, 1996 are not necessarily indicative of those to be expected for the entire year. Note 2 - Acquisition of subsidiary In February 1996, the Company closed its acquisition of all of the issued and outstanding common stock of I-Link Worldwide Inc., a Utah corporation ("I-Link") from ILINK, Ltd., a Utah limited partnership in exchange for the issuance of an aggregate of 4,000,000 shares of common stock of the Company. The purchase price was determined through arms length negotiation. The acquisition was accounted for using the purchase method of accounting. The results of operations of the acquired enterprise are included in the consolidated financial statements beginning February 13, 1996. Pursuant to the terms of the stock purchase agreement, 2,600,000 shares of the common stock issued pursuant to the acquisition of I-Link were placed in escrow to be released as follows: 1. 1,600,000 shares of common stock are to be released upon the receipt of proceeds greater than or equal to $4,000,000 from the sale of the Company's securities pursuant to the conduct of one or more private or public offerings prior to December 31, 1996; and 2. 1,000,000 shares of common stock are to be released upon the first to occur of the following: (i) the monthly revenue derived from subscribers serviced by I-Link and revenue derived from the sale of related products and/or services equals or exceeds $1,000,000; or (ii) the number of subscribers serviced by I-Link exceeds 100,000 one year from the date of receipt by the Company of gross proceeds equal to $4,000,000 from the sale of its securities pursuant to one or more private or public offerings. I-Link provides network and related services, including Internet services, to individuals and businesses in the United States. I-Link is the owner of a proprietary technology (patent pending) which enables the transmission of information via facsimile over the Internet. The following presents the proforma financial information of the Company and I-Link, as applicable for the three months ended March 31, 1996 assuming such transaction had occurred on January 1, 1996 and for the three months ended March 31, 1995 assuming such transaction had occurred on January 1, 1995: 5 5
Three Months Ended Net Loss Per Common March 31, 1996 Revenue Net Loss and Equivalent Share ---------------------- ---------- ------------ -------------------- Company $ 609,206 $(2,708,328) $( .77) I-Link 48,585 ( 139,683) ==== -------- --------- Combined 657,791 (2,848,011) Proforma adjustment - ( 190,378) -------- --------- Proforma combined $ 657,791 $(3,038,389) $( .86) ======= ========= ==== Three Months Ended Net Loss Per Common March 31, 1995 Revenue Net Loss and Equivalent Share --------------------- ----------- ------------ -------------------- Company $ 1,117,493 $( 283,960) $( .18) I-Link 30,697 ( 216,078) ==== --------- --------- Combined 1,148,190 ( 500,038) Proforma adjustment - (2,415,458) --------- --------- Proforma combined $ 1,148,190 $(2,915,496) $(1.68) ========= ========= ==== (1) For the period January 1, 1996 through February 12, 1996.
Note 3 - Intangible Assets Intangible assets of $4,969,314 were recorded by the Company as a result of the acquisition of the common stock of I-Link. The intangible assets recorded by the Company were as follows: Acquisition costs $ 116,279 Subscriber list 323,100 FaxLink patent 456,764 VoiceLink patent 456.987 FaxLink research and development 1,356,068 VoiceLink research and development 678,035 Goodwill 1,582,081 The acquisition costs and the subscriber list are amortized over 12 months, the patents will be amortized over a period to be determined at the time the patents are approved, the research and development has been amortized immediately and the goodwill is amortized over 24 months. Note 4 - Notes Payable Simultaneous with the closing of its acquisition of I-Link, the Company completed a private placement of $1,000,000 in aggregate principal amount of convertible promissory notes (the "10% Notes"). The 10% Notes are payable upon the earlier of August 31, 1996 (subject to extension) or the Company's receipt of proceeds of at least $4,000,000 from subsequent debt or equity offerings. The 10% Notes bear interest payable semi-annually at the rate of 10% until August 31, 1996 (13% after such date if the term of the 10% Note is extended). Up to $1,250 of each $50,000 in principal amount of note is convertible at any time at the option of the holder, into a maximum of 350,000 shares of Common Stock at the rate of approximately $.0714 per share, subject to certain anti- dilution adjustments. The 10% Notes may be extended until February 28, 1997 upon payment by the Company of 2.5% of the then outstanding principal balance of the 10% Note. The proceeds of such offering were used to pay outstanding accounts payable and other debts of I-Link. In addition, the Company assumed notes payable to limited partners of ILINK, Ltd. in the amount of $643,333 and to other parties in the amount of $104,575. 6 6 Note 5 - Long Term Debt As part of the common stock acquisition of I-Link, the Company assumed the obligations under capital leases in the amount of $99,001. The leases vary in rates and have terms from 36 to 41 months expiring February 1998. Monthly payments total approximately $2,000. Note 6 - Commitments and Contingencies The portion of the I-Link common stock purchase price placed in escrow will be released upon the satisfaction of the contingencies described in Note 2 above. The fair market value of the Common Stock at the time of its release from escrow will be charged to goodwill and amortized over the remaining life of the goodwill. Note 7 - Earnings Per Common Share Earnings per common share are based upon the weighted average number of common shares outstanding and the dilutive effect of common stock equivalents consisting of stock options and convertible preferred stock. Fully diluted earnings per share are not presented because it approximates earnings per common share. Note 8 - Geographic Segment Information The Company's operations consist of providing network services and diagnostic and clinical outpatient health care services domestically and the sale and service of used medical equipment in the People's Republic of China (PRC). The corporate office provides management and operational services for network services and domestic outpatient health care services. The eliminations represent charges for these services to entities included in the consolidation. Financial information for the different geographic segments is as follows:
Domestic ------------------------- Three Months Ended Network Corporate/ March 31, 1996 Health Care Services China Management Eliminations Consolidated ----------------------- ------------ ------------ ------------ ------------ ------------ ------------ Revenue $ 530,890 $ 17,026 $ - $ 83,914 $( 22,624) $ 609,206 ========= ========= ========= ========= ========= ========= Operating Profit (Loss) $ 66,962 $(2,623,570) $( 1,772) $( 93,269) $( 22,624) $(2,674,273) ========= ========= ========= ========= ========= ========= Identifiable Assets $ 2,821,013 $ 3,668,368 $ 1,013,881 $ 266,668 $( 85,821) $ 7,684,109 ========= ========= ========= ========= ========= ========= Domestic ------------------------- Three Months Ended Network Corporate/ March 31, 1995 Health Care Services China Management Eliminations Consolidated ----------------------- ------------ ------------ ------------ ------------ ------------ ------------ Revenue $ 696,818 $ - $ 337,889 $ 133,412 $( 50,626) $ 1,117,493 ========= ========= ========= ========= ========= ========= Operating Profit (Loss) $ 146,185 $ - $( 210,987) $( 120,441) $( 50,626) $( 235,869) ========= ========= ========= ========= ========= ========= Identifiable Assets $ 3,533,507 $ - $ 1,044,902 $ 255,319 $( 46,978) $ 4,786,750 ========= ========= ========= ========= ========= =========
Item 2 - Management's Discussion and Analysis The following discussion should be read in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and Analysis set forth in the Company's Form 10-KSB for the fiscal year ended December 31, 1995. 7 7 Results of Operations The following Table represents the net operating revenue and operating profit (loss) of the Company for each category of service offered. The net operating revenue and operating profit (loss) shown are net of intercompany transactions that were eliminated in consolidation.
Three Months Ended March 31 ----------------------------- 1996 1995 ------------ ------------ NET OPERATING REVENUE Diagnostic Imaging $ 530,890 $ 696,818 Sales and Services of Medical Equipment - 337,889 Network Services 17,026 - Management and Other 61,290 82,786 --------- --------- $ 609,206 $ 1,117,493 OPERATING PROFIT (LOSS) ========= ========= Diagnostic Imaging $ 66,962 $ 146,185 Sales and Services of Medical Equipment ( 1,772) ( 210,987) Network Services (2,623,570) - Management and Other ( 115,893) ( 171,067) --------- --------- $(2,674,273) $( 235,869) ========= =========
Diagnostic Imaging Net operating revenue from diagnostic imaging services decreased by 23.8% in the first quarter of 1996 as compared to the first quarter of 1995. Medcross Imaging, Ltd. accounted for $152,981 of the decrease. This decrease in revenue is mainly due to the decrease in the average revenue per patient. The decrease in average revenue per patient was caused by a decrease in the per procedure charge to the hospital clients pursuant to service contracts placed into effect on October 1, 1995. These contracts extended the service period to the hospital from February 29, 1996 to February 28, 1997. While the charge per procedure is reduced, each hospital must meet specific monthly minimum quotas. The decrease in the diagnostic imaging revenue of Medcross Imaging, Ltd. was offset by an increase in the MRI revenue of Tampa MRI of $13,801 in the first quarter of 1996 as compared to the first quarter of 1995. The increase is due to an increase in the number of procedures performed of 39% offset by a decrease in the average revenue per procedure of 23% for the first quarter of 1996 as compared to the corresponding period of 1995. Tampa MRI has obtained and will continue its efforts to obtain managed care contracts. The participation in the managed care environment has caused a decrease in the charges per procedure, however, these decreases have been significantly offset by increases in the number of procedures performed. The revenue of the ultrasound operations decreased 25% in the first quarter of 1996 as compared to the first quarter of 1995. This decrease is mainly due to the decrease in the number of procedures performed of 17% in the first quarter of 1996 as compared to the corresponding period of 1995. The operating profit from diagnostic imaging services decreased by $79,223 in the first quarter of 1996 as compared to the same period of 1995. This decrease is mainly due to a decrease in the operating profit of Medcross Imaging, Ltd. of $102,874 and the ultrasound operations of $18,670, offset by an increase in the operating profit from MRI operations of Tampa MRI of $42,321. The net decrease in operating profit from diagnostic imaging services was due to a decrease in operating revenue, as described above, offset by a decrease in total operating expenses of $86,705 in the first quarter of 1996 as compared to the same period of 1995. During the past several years, there has been increasing pressure from federal and state regulatory and legislative bodies to prevent physicians from referring patients to diagnostic imaging facilities in which they have an ownership interest. Legislation passed in the State of Florida, where all of the Company's diagnostic imaging services operate, placed a fee cap on diagnostic imaging services. An injunction has been obtained 8 8 preventing the State of Florida from enforcing the fee cap. See "Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995. Sales and Service of Medical Equipment The Company sells and services used and refurbished computerized tomography (CT) scanners in the People's Republic of China through a joint venture company, Shenyang Medcross Huamei Medical Equipment Company, Ltd. (SMHME), of which it owns 51%. In the first quarter 1995, the Company's Beijing office, which was closed on May 31, 1995, completed the installation of two CT scanners. The responsibilities for the parts depot and the inventory of the Company's Beijing office were transferred to SMHME. The Company has elected to fully reserve for all amounts due from the sale of the CT scanners sold by its Beijing office. This resulted in an expense of $281,438 in the first quarter of 1995 and an allowance for doubtful accounts of $315,753 as of March 31, 1996. The Company has decided to sell its Beijing operation, and has held discussions regarding the sale of these operations. No assurance can be given regarding the outcome of such negotiations. Management and Other Net operating revenue from management and other activities decreased by $21,496 in the first quarter of 1996 as compared to the same period in 1995. The decrease was primarily related to the management contracts with Bay Area Renal Stone Center ("BARSC"). The BARSC contract accounted for $11,775 in management fees in the first quarter of 1995 and no management fees in the first quarter of 1996. The net operating loss from management and other activities decreased $55,174 in the first quarter of 1996 to $115,893. This decrease in net operating loss was due to the decreased corporate overhead expenses of $76,670, offset by the decrease in net operating revenue. Salaries and benefits decreased $89,260 in the first quarter of 1996 as compared to the same period of 1995, which was offset by an increase in professional fees. Network and Related Services The operating revenue of network and related services from I-Link, was $17,026 in the first quarter of 1996. The net operating loss from network and related services was $2,623,570. This was mainly due to the write-off of research and development costs purchased of $2,034,103 and the additional amortization of intangibles of $139,268. These were recorded pursuant to the purchase of the common stock of I-Link. Excluding the research and development costs written- off and the additional amortization, the operating loss of network and related services was $450,199. Consolidated Operating Results Net operating revenue of the Company decreased $508,287 in the first quarter of 1996 as compared to the same quarter of 1995. This decrease was mainly due to the sale of CT scanners in China during the first quarter of 1995 and not in 1996 and the decrease in the net operating revenue of diagnostic imaging services in the first quarter of 1996 as compared to the first quarter of 1995. Salaries and benefits decreased by $126,611 in the first quarter of 1996 as compared to the same period of 1995. This decrease was offset by the inclusion of salaries and benefits of $50,128 from network and related services during the first quarter of 1996. The decrease in repairs and maintenance was mainly due to diagnostic imaging. Depreciation and amortization increased $163,751 due to the inclusion of I-Link, offset by a decrease in diagnostic imaging. The provision for doubtful accounts decreased $286,344 in 1996 as compared to 1995, due to the reserve for the receivable from the Beijing operations, which did not occur in 1996. Other operating expenses increased a total of $189,997 in the first quarter of 1996 compared to the first quarter of 1995. This is due to the inclusion of I-Link and an increase in management and other activities, offset by a decrease from diagnostic imaging and foreign operations. Total operating expenses increased $1,930,117. This increase in the first quarter of 1996 as compared to the first quarter of 1995 was caused by the inclusion of expenses of $2,640,596 for I-Link, offset by decreases in diagnostic imaging of $86,705, foreign operations of $547,104, and management and other activities of $76,670. 9 9 Liquidity and Capital Resources Working capital used by operations during the first quarter of 1996 was $349,415, compared to working capital provided by operations of $222,402 in the first quarter of 1995. The working capital position of the Company was a deficit of $3,191,320 at March 31, 1996 and $315,573 at December 31, 1995, which includes $669,799 of the current portion of long term debt which is payable in common stock of the Company, and $1,000,000 in promissory notes issued concurrent with the I-Link acquisition. Cash flow used by operating activities was $612,824 in the first quarter of 1996 compared to cash flow provided by operating activities of $50,068 for the same period in 1995. Cash flow used by operating activities includes $600,556 attributable to the inclusion of I-Link in the first quarter of 1996. Investing activities expenditures during the first quarter of 1996 related to the purchase of additional computer equipment for I-Link. During the first quarter of 1996, the Company reduced its long term debt and capital lease obligations by $115,364, notes payable to related parties by $73,333, notes payable to others by $24,435 and the outstanding balance of its line of credit by $60,000. These reductions include indebtedness of I-Link. The inclusion of I-Link in the first quarter of 1996 increased capital lease obligations by $99,001, notes payable to related parties by $693,333, and notes payable to others of $104,575. As of March 31, 1996, the balance outstanding under the line of credit was $340,000. The Company was in violation of loan covenants regarding cash balances, consolidated equity ratios, debt to equity ratios, cash flow coverage ratios and past days sales in accounts receivable under the line of credit at March 31, 1996. The bank has waived those covenant violations through June 30, 1996. Concurrent with the Company's acquisition of the securities of I-Link in February 1996, the Company issued an aggregate of $1 million in 10% Notes and received net proceeds of $845,000. The proceeds of such offering were used to pay operating expenses and certain other indebtedness of I-Link. During the first quarter of 1995, the Company received advances totaling $218,000 from Mortgage Network International, payable on demand. The Company's Vice Chairman/President has management control over Mortgage Network International. The advances were subsequently formalized by the Company issuing a Promissory Note bearing interest at 1% over prime rate of Southwest Bank of Texas, N.A. with a maturity of October 1, 1995. Subsequent to October 1, 1995, the Company and Mortgage Network International modified the note such that: (i) a principal payment in the amount of $88,000 is due and payable on December 31, 1996; (ii) interest thereon is payable monthly at a rate of 10.5%; and (iii) the remaining principal amount of $130,000 with interest thereon at the rate of 10.5% will be paid in 36 equal monthly payments of $4,225.32 beginning December 10, 1995. The Company will require additional financing in order to successfully integrate the business of I-Link, to fund the cash flow operating deficit of I-Link, to expand its business and to discharge outstanding indebtedness, including the 10% Notes, the Mortgage Network International advances, and the outstanding balance of the Company's line of credit with First Union National Bank. Although the Company is presently negotiating for alternative financing to repay First Union National Bank and Mortgage Network International, there can be no assurance such negotiations will be successful. Additional funding through one or more debt or equity offerings in the capital markets will be necessary to continue to implement the growth of the Company's business and expand its operations, including those of I-Link. The availability of such capital sources will depend on prevailing market conditions, interest rates, and financial position and results of operations of the Company. Therefore, there can be no assurance that such financing will be available or that the Company will not be required to issue significant debt or equity securities in order to obtain such financing. PART II - OTHER INFORMATION Item 1. Legal Proceedings A Complaint was filed on April 12, 1996, by JW Charles Financial Services, Inc. ("JWC") against the Company in Palm Beach County Florida Circuit Court, JW Charles Financial Services, Inc. v. Medcross, Inc., Case No: CL96-3218. JWC was issued a Common Stock Purchase Warrant ("Warrant") on or about November 3, 1994 by the Company. The alleged terms of the Warrant granted JWC the right to purchase from the Company 10 10 250,000 shares of the Company's Common Stock subject to adjustment. On or about February 12, 1996, JWC made written demand to the Company to invoke its rights to have the common shares underlying the Warrant registered pursuant to the terms of the Warrant. The Complaint alleges that the Company breached the terms of the Warrant by failing to prepare and file with the Securities and Exchange Commission ("SEC"), a registration statement covering the common stock underlying JWC's Warrant. JWC alleges a breach of contract; and requests specific performance, i.e., registering the shares with the SEC, against the Company. JWC also demands damages in the amount of $2,728,478.00 plus interest, reasonable attorneys fees, and forum costs. The Company believes that it has a meritorious defenses to the Complaint. On May 6, 1996, the Company filed an Answer, Affirmative Defenses and Counter- claim to the Complaint filed by JWC. The Company's counterclaim seeks damages, cancellation of warrants, and interest and costs. Item 5. Other Information The Company entered into a consulting agreement with Windy City, Inc. for the period beginning January 1, 1996 and ending December 31, 1998. Mr. Joel Kanter, a director of the Company, is the President and a Director of Windy City, Inc. Pursuant to such agreement, Windy City, Inc. was engaged to provide such consulting services as requested by the Company in exchange for compensation at the rate of $6,250 per calendar quarter. On April 29, 1996, the Company was notified that I-Link was in breach of its contractual obligation to make payments to Spyglass. Spyglass provides software licenses to I-Link. I-Link was obligated to pay Spyglass Initial and Quarterly Minimum License Fees in the amount of $45,000 and $63,750, respectively no later than 30 days subsequent to the end of each calendar quarter that the payments were due. Total indebtedness claimed by Spyglass is $273,606, including late payment fees. The Company was notified by Spyglass that it claims the right to terminate the agreement in its entirety in the event the breach of the agreement is not cured within 30 days. Management of I-Link is discussing the matter with Spyglass but there can be no assurance that a satisfactory resolution will be obtained. Item 6(a) - Exhibits Page 3(a) Amendment to the Amended and Restated Articles of Incorporation dated April 29, 1996. 13 3(b) Composite copy of the Amended and Restated Articles of Incorporation incorporating all amendments through the date of the filing of this Form 10-QSB. 21 10(a) Consulting Agreement, effective January 1, 1996, by and between Windy City, Inc. and Medcross, Inc. 42 11 Statement regarding computation of earnings per common share. 45 27 Financial Data Schedule. 46 Item 6(b) - Reports on Form 8-K An amendment to the report on Form 8-K dated February 23, 1996 was filed by the Company regarding the acquisition of the securities of I-Link Worldwide Inc., the completion of a private placement of $1,000,000 in aggregate principal amount of convertible promissory notes, and the conversion of Class A Preferred Stock into Common Stock. The amendment included financial statements of the business acquired and proforma financial statements. A report on Form 8-K was filed by the Company regarding the complaint filed by JW Charles Financial Services, Inc., the appointment of Clay Wilkes as a director of the Company and appending an updated Statement of Risk Factors. 11 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. MEDCROSS, INC. (Registrant) Date: May 20, 1996 By: /s/ HENRY TOH Henry Toh President, Chief Executive Office and Acting Chief Financial Officer 12 12 EX-3 2 ARTICLES OF AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MEDCROSS, INC. Pursuant to Article III of the Amended and Restated Articles of Incorporation (the "Articles of Incorporation") of Medcross, Inc. (the "Corporation"), and the provisions of Section 607.0602 of the Florida Business Corporation Act, the board of directors of the Corporation (the "Board of Directors") previously designated 240,000 shares of Class C Preferred Stock on or about December 18, 1995, when the Corporation filed with the Secretary of State of the State of Florida, Articles of Amendment to the Amended and Restated Articles of Incorporation of Medcross, Inc. No Class C Preferred Stock shares were issued pursuant to such designation. At its meeting on April 17, 1996, the Board of Directors has resolved to further amend Article III of the Articles of Incorporation and specifically to modify the rights and preferences relating to the 240,000 shares of Class C Preferred Stock as set forth hereinbelow. 1. The name of the corporation is Medcross, Inc. 2. Article III is hereby ameded by adding Section III(f), which shall read in its entirety as follows: (f) Of the 500,000 shares of Preferred Stock authorized hereunder, 240,000 shares of Preferred Stock shall be designated as Class C 12% Cumulative Convertible Preferred Stock (the "Class C Preferred Stock"), shall have a par value of $10.00 per share, and shall have the following rights and preferences: 1. Dividends. The holders of the Class C Preferred Stock ("Holders") shall be entitled to cumulative preferential dividends, when, as and if declared by the Board of Directors in an amount equal to 12% per annum of the liquidation preference per share of $40.00. Dividends may be paid (to the extent permissible under the Florida Business Corporation Act) to the holders of the Class C Preferred Stock in cash and/or shares of Common Stock (or any combination thereof), at the option of the Corporation. To the extent that Dividends are paid in shares of Common Stock, the shares will be valued at last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sales prices for the last three trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or as reported in the Nasdaq National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market System, the last reported sale price as furnished by the National Association of Securities Dealers, Inc. through Nasdaq or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted on Nasdaq, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it for the two days immediately preceding such issuance or sale and the day of such issuance or sale. 1 13 2. Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, each share of Class C Preferred Stock shall be entitled to receive $40.00 per share. 3. Voting Rights. Except as otherwise required by applicable law, the Class C Preferred Stock shall have no voting rights. 4. Redemption. The Corporation may not redeem any shares of Class C Preferred Stock; provided, however, that nothing herein shall prohibit the Corporation in its sole discretion from repurchasing the Class C Preferred Stock in negotiation transaction(s) with the Holders. 5. Conversion Into Common Stock. (a) Subject to the terms and conditions of this subsection, issued and outstanding shares of Class C Preferred Stock are convertible at the option of the holder thereof into shares of common stock, par value $.007 per share (the "Common Stock") of the Corporation ninety days after issuance, provided, however, on May 31, 1997, (the "Conversion Date"), all of the out- standing Class C Preferred Stock shall automatically be converted, provided urther that such Common Stock is the subject of an effective registration statement under the Securities Act of 1933, as amended (the "Act"), without further action of the Corporation or the Holders of the Class C Preferred Stock, into shares of Common Stock as set forth herein. The shares of Class C Preferred Stock held by each holder thereof shall be converted into seven (7) shares of Common Stock. However, on any liquidation of the Corporation, the right of conversion shall terminate at the close of business on the last full usiness day before the date fixed for payment of the amount distributable on the Class C Preferred Stock, provided that thirty days prior written notice of the same by the Company is sent to the Holders at their address of record. (b) Promptly after the receipt of certificates representing Class C Preferred Stock and surrender of Class C Preferred Stock, the Corporation shall issue and deliver, or cause to be issued and delivered, to the Holder a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such Class C Preferred Stock. No fractional shares shall be issued upon conversion of the Class C Preferred Stock into shares of Common Stock. To the extent permitted by law, the conversion shall be deemed to have been effected as of the close of business on the Conversion Date (or on the next preceding business day if the Conversion Date is not a business day) and at that time the rights of the holder of Class C Preferred Stock, as such holder, shall cease, and the holder of the Class C Preferred Stock shall become the holder of record of shares of Common Stock. 6. Rank. With respect to the payment of dividends and upon liquidation, the shares of the Class C Preferred Stock shall be subordinate to the issued and outstanding shares of Class A Preferred Stock and Class B Preferred Stock of the Corporation and shall rank senior to the shares of Preferred Stock and to the shares of Common Stock of the Corporation." 2 14 7. Registration Rights. The Corporation hereby covenants and agrees as follows: (a) Definitions. As used herein, the following terms shall have the meanings set forth below: (1) The terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of the effectiveness of such registration statement or document. (2) The term "Registrable Securities" shall mean: (a) the Common Stock issuable upon conversion of the Class C Preferred Stock and (b) any Common Stock issued in payment of dividends on the Class C Preferred Stock. (b) Registration Rights. The Corporation shall file a registration statement on one occasion covering the Registrable Securities as soon as practicable and use its best-efforts to have such registration statement declared effective on or before the Conversion Date. The registration statement filed pursuant to this section may, subject to the provisions of this section, include other securities of the Corporation and may include securities of the Corporation being sold for the account of the Corporation. If the Holders intend to distribute the Registrable Securities covered by the registration statement by means of an underwriting, they shall so advise the Corporation in writing, and the Corporation shall include such information in the written notice referred to in this subsection. The right of any party hereto to registration pursuant to this section shall be conditioned upon such party's participation in such underwriting and the inclusion of such party's Registrable Securities in the underwriting to the extent requested (unless otherwise mutually agreed by a majority in interest of the Holders and such party) to the extent provided herein. If the underwriter (or managing underwriter on behalf of all the underwriters) has not limited the number of Registrable Securities to be underwritten, the Corporation may include securities for its own account or for the account of other shareholders in such registration if the underwriters in their absolute discretion so agree and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited. (c) Obligations of the Corporation. Whenever required hereunder to effect the registration of any Registrable Securities, the Corporation shall, as expeditiously as reasonably possible: (1) Prepare and file with the Securities and Exchange Commission ("SEC") a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for at least nine (9) months. 3 15 (2) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (3) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other Corporate Materials as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (4) Use its best efforts to register and qualify the securities covered by such registration statement under the securities laws of such jurisdiction as shall be reasonably requested by the Holders for the distribution of the securities covered by the registration statement, provided that the Corporation shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction. (5) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement with terms generally satisfactory to the managing underwriter of such offering. (6) Notify the Holders, promptly after the Corporation shall have received notice thereof, of the time when the registration statement becomes effective or any supplement to any prospectus forming a part of the registration statement has been filed. (7) Notify the Holders of any stop order suspending the effectiveness of the registration statement and use its reasonable best efforts to remove such stop order. (d) Furnish Information. It shall be a condition precedent to the obligations of the Corporation to take any action pursuant hereto that the Holder, having chosen to have its Registrable Securities included for registration, shall furnish to the Corporation such information regarding the Holder, its Registrable Securities and the intended method of disposition of such securities as shall be required to effect the registration thereof. The Holder shall be required to represent to the Corporation that all such information which is given is complete and accurate in all material respects. The Holder shall deliver to the Corporation a statement in writing from the beneficial owners of such securities that such beneficial owners bona fide intend to sell, transfer or otherwise dispose of such securities. (e) Expenses. (1) Registration Expenses. All expenses incurred by the Corporation in complying with this section, including with out limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Corporation, "Blue Sky" fees and expenses, and the expense of any special audits incident to or required by any such registration shall be borne by the Corporation. 4 16 (2) Selling Expenses. All underwriting discounts, underwriters' expense allowance, and selling commissions applicable to the sale of Registrable Securities by the Holders and all fees and disbursements of any special counsel (other than the Corporation's counsel) shall be borne by the Holders of the Registrable Securities so registered pro rata on the basis of the number of Registrable Securities so registered. (f) Underwriting Requirements. All Holders proposing to distribute their Registrable Securities through an underwriting in which the Corporation has proposed or is proposing to participate, shall (together with the Corporation and any other Holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Corporation. Notwithstanding any other subsection of this section, at the request of the managing underwriter, the Holder shall delay the sale of Registrable Securities which such Holder has requested be registered hereunder for up to ninety (90) days following the effective date of the registration statement. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Corporation and the underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall not be withdrawn from such registration except at the election of the Holder. (g) Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this section. (h) Indemnification. In the event that any Registrable Securities are included in a registration statement pursuant hereto: (1) To the extent permitted by law, the Corporation will indemnify and hold harmless each Holder, the officers, directors and partners of each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (a) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (b) 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 (c) any violation or alleged violation by the Corporation of the Act, the Exchange Act, any applicable state securities law or any rule or regulation promulgated under the Act, the Exchange Act or any applicable state securities law; and the Corporation will reimburse the 5 17 Holder for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Corporation (which consent shall not be unreasonably withheld), nor shall the Corporation be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Holder; and further provided, however, that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any untrue statement, alleged untrue statement, omission or alleged omission made in any preliminary prospectus but eliminated or remedied in the prospectus, such indemnity agreement shall not inure to the benefit of any underwriter or broker, if a copy of the prospectus was not sent or given to such person with or prior to the confirmation of the sale of such securities to such person. (2) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Corporation, its directors, its officers, any person who controls the Corporation within the meaning of the Act or the Exchange Act, any underwriter (within the meaning of the Act) for the Corporation and any person who controls such underwriter against any losses, claims, damages or liabilities (joint or several) to which the Corporation or any such director, officer, controlling person or underwriter or controlling person may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by the Holder expressly for use in connection with such registration; provided, however, that the indemnity agreement contained in this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld. (3) Promptly after receipt by an indemnified party of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party hereunder, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such 6 18 counsel in such proceeding. The failure to notify an indemnifying party within a reasonable time of the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party hereunder, but the omission so to notify the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this subsection. (i) Reports Under Exchange Act. Following registration of the Corporation's securities under the Exchange Act and with a view of making available to the Holders the benefits of Rule 144 under the Act and any other rule or regulation promulgated by the SEC that may at any time permit a Holder to sell securities of the Corporation to the public without registration, the Corporation agrees to: (1) Use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144, at all times;and (2) Use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Corporation under the Act and the Exchange Act. (j) Termination of the Corporation's Obligations. (1) The Corporation shall have no obligations pursuant to Subsection 7(b) or 7(c) with respect to any request made by the Holder after April 29,1999. (2) Notwithstanding any provision hereof to the contrary, the Corporation shall not be required to effect any registration under the Act or under any state securities laws on behalf of any Holder or Holders if, in the opinion of counsel for the Corporation, the offering or transfer by such Holder or Holders in the manner proposed (including without limitation, the number of shares proposed to be offered or transferred and the method of offering or transfer) is exempt from the registration requirements of the Act and the securities or "Blue Sky" laws of applicable states. (k) Holder's Acceptance of Obligations. Acceptance of this Warrant by its Holder(s) shall be deemed to constitute the unqualified acceptance by the Holder of all of the terms and conditions set forth herein. 3. The Corporation has not yet issued shares of Class C Preferred Stock. 4. The foregoing amendment was duly adopted by the Board of Directors, without the requirement of shareholder action, by meeting held on April 17, 1996, pursuant to the provisions of the Florida Business Corporation Act. 5. Shareholder action is not required to effectuate the action taken hereby. 7 19 IN WITNESS WHEREOF, Medcross, Inc. has caused this Certificate of Amendment to theArticles of Incorporation to be executed by its President and attested to by its Secretary this 26th day of April, 1996. MEDCROSS, INC. By: /s/ Henry Y.L. Toh Henry Y.L. Toh, President ATTEST: /s/ Stephanie E. Giallourakis Stephanie E. Giallourakis, Secretary 8 20 EX-3 3 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MEDCROSS, INC. MEDCROSS, INC., a corporation organized and existing under the laws of the State of Florida, hereby certifies as follows: 1. The name of the corporation is MEDCROSS, INC. and the name under which the corporation was originally incorporated is Mobile Medical, Inc. The date of filing its original Articles of Incorporation with the Department of State was April 21, 1983. 2. These Amended and Restated Articles of Incorporation have been adopted by the shareholders and the Board of Directors pursuant to Sections 607.194(4) and 607.194(2), respectively, Florida Statutes. ARTICLE I NAME The name of this corporation is MEDCROSS, INC. ARTICLE II PURPOSES This corporation may engage in any activity or business permitted under the laws of the United States of America and of this State. ARTICLE III CAPITAL STOCK The maximum number of shares of stock which this corporation is authorized to have at any time is: (a) 20,000,000 shares of common stock, having a par value of $.007 per share (the "Common Stock"); and (b) 500,000 shares of preferred stock, having a par value of $10.00 per share (the "Preferred Stock"). The Preferred Stock may be issued in one or more series. The Board of Directors shall have the authority to divide the Preferred Stock into one or more series and, subject to the provisions and limitations set forth herein, to determine the relative rights and preferences of the shares of any series so established with regard to the rate or manner of payment of dividends, whether such shares may be redeemed and, if so, the redemption price and the terms and conditions of redemption, sinking fund provisions, if any, for the redemption or purchase of such shares, the terms and conditions, if any, on which such shares may be converted, and voting rights, if any. Provided, however, except as to any rights and preferences as determined by the Board of Directors as set forth above, all shares of such Preferred Stock regardless of series shall be identical. 1 21 (c) Of the 250,000 shares of Preferred Stock authorized hereunder, 7,500 shares of Preferred Stock shall be designated 12% Cumulative Convertible Preferred Stock, shall have a par value of $10 per share, and shall have the following rights and preferences: 1. Dividends. The holders of the shares of 12% Cumulative Convertible Preferred Stock shall be entitled to receive out of any assets at the time legally available therefor and when and as declared by the Board of Directors dividends at the rate of One Dollar and Twenty Cents ($1.20) per share per annum, and no more, payable in cash quarterly commencing on April 1, 1992, and continuing on the first day of July, October, January, and April of each year that any shares of 12% Cumulative Convertible Preferred Stock are outstanding. Such dividends are prior and in preference to any declaration or payment of any distribution (as defined below) on the Common Stock of the Company. Such dividends shall accrue on each share of 12% Cumulative Convertible Preferred Stock from day to day from the date of initial issuance thereof whether or not earned or declared, so that if such dividends with respect to any previous dividend period at the rate provided for herein have not been paid on, or declared and set apart for, all shares of 12% Cumulative Convertible Preferred Stock at the time outstanding, the deficiency shall be fully paid on, or declared and set apart for, such shares before any distribution shall be paid on, or declared and set apart for, the Common Stock. For purposes hereof, unless the context otherwise requires, the term "distribution" shall mean the transfer of cash or property without consideration, whether by way of dividend or otherwise, payable other than in Common Stock, on the repurchase or redemption of shares of capital stock of the Company (other than redemptions provided for in Subsection 3 hereof or repurchases of Common Stock held by employees of the Company upon termination of their employment pursuant to agreements providing for such repurchase) for cash or property. 2. Voting Rights. Each share of 12% Cumulative Convertible Preferred Stock shall entitle the holder thereof to 40 votes on all matters submitted to a vote of the Company's shareholders. 3. Redemption. (a) The Company may, at any time after issuance of the 12% Cumulative Convertible Preferred Stock, call for redemption at the Redemption Price (as defined below) any or all of the outstanding shares of 12% Cumulative Convertible Preferred Stock in accordance with this Subsection 3. If the Company redeems less than all the outstanding shares of 12% Cumulative Convertible Preferred Stock, the Company shall redeem from each holder a number of shares of 12% Cumulative Convertible Preferred Stock that bears the same proportion to all the shares of 12% Cumulative Convertible Preferred Stock to be redeemed as the shares of 12% Cumulative Convertible Preferred Stock held of record by the holder bears to all the shares of 12% Cumulative Convertible Preferred Stock at the time outstanding. However, if a fraction of a share would be redeemed from any holder, the Company may, in order to avoid the redemption of a fractional share, redeem the next higher whole number of shares from the holder or, at its option, add that fraction to the shares to be redeemed from any other holder or holders. 2 22 (b) The Company shall mail notice of any redemption by certified mail, postage prepaid, to each holder of record of the shares of the 12% Cumulative Convertible Preferred Stock to be redeemed, at his or her address registered with the Company, which notice shall be accompanied by payment in full of the Redemption Price. The date of the mailing of notice of redemption shall be the Redemption Date. (c) If notice of redemption has been mailed and the Company has made payment of the Redemption Price, on the Redemption Date all rights of the holders of the shares, as shareholders of the Company by reason of the ownership of the shares, shall cease, and after the Redemption Date the shares shall not be outstanding. If less than all the shares represented by any certificate are redeemed, a new certificate, representing the unredeemed shares, shall be issued to the holder thereof without cost (except for the payment of any applicable transfer taxes) to the holder. (d) To facilitate the redemption of any shares of 12% Cumulative Convertible Preferred Stock, the Board of Directors is authorized to cause the transfer books of the Company to be closed as to such shares as of the record date for determining the holders of 12% Cumulative Convertible Preferred Stock entitled to notice of redemption. (e) For purposes hereof, the term "Redemption Price" shall mean $10.50 per share of 12% Cumulative Convertible Preferred Stock. (f) In the event that the shares of 12% Cumulative Convertible Preferred Stock are redeemed, the Board of Directors reserves the right to further amend the Company's Articles of Incorporation to amend and re-designate the rights and preferences applicable to the shares of Preferred Stock designated herein as 12% Cumulative Convertible Preferred Stock. 4. Optional Conversion Into Common Stock. (a) Subject to the provisions of Subsection 3 hereof regarding redemption, and subject to the terms and conditions of this Subsection 4, the holder of any share or shares of 12% Cumulative Convertible Preferred Stock has the right at any time after the expiration of six months after the issuance of the shares of 12% Cumulative Convertible Preferred Stock at its option to convert all or a portion of the shares of 12% Cumulative Convertible Preferred Stock held by it into such number of whole shares of Common Stock as is determined by multiplying the number of shares of 12% Cumulative Convertible Preferred Stock converted by 40. However, on any liquidation of the Company, the right of conversion shall terminate at the close of business on the last full business day before the date fixed for payment of the amount distributable on the 12% Cumulative Convertible Preferred Stock. The holder may exercise this right of conversion only by giving written notice that the holder elects to convert a stated number of shares of the 12% Cumulative Convertible Preferred Stock into shares of Common Stock on the date specified in the notice and surrendering to the Company a certificate or certificates for the 12% Cumulative Convertible Preferred Stock to be converted, at its principal office, at any time during its usual business hours on or before the date set forth in the 3 23 notice, together with a statement of the name or names (with addresses) in which the certificate or certificates for Common Stock should be issued. (b) Promptly after the receipt of the written notice referred to above and surrender of the share or shares of 12% Cumulative Convertible Preferred Stock to be converted, the Company shall issue and deliver, or cause to be issued and delivered, to the holder a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares. No fractional shares shall be issued upon conversion of the 12% Cumulative Convertible Preferred Stock into shares of Common Stock. To the extent permitted by law, the conversion shall be deemed to have been effected as of the close of business on the date specified in the written notice, and at that time the rights of the holder of the share or shares, as such a holder, shall cease, and the holder of the 12% Cumulative Convertible Preferred Stock shall become the holder of record of the shares of Common Stock. 5. Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of shares of the 12% Cumulative Convertible Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus, or earnings, before any payment shall be made in respect of the Common Stock, an amount equal to Ten Dollars ($10.00) per share, plus all accrued and unpaid dividends thereon to the date fixed for distribution. After setting apart or paying in full the preferential amounts due the holders of the 12% Cumulative Convertible Preferred Stock, the remaining assets of the Company available for distribution to stockholders, if any, shall be distributed exclusively to the holders of Common Stock, each such issued and outstanding share of Common Stock entitling the holder thereof to receive an equal proportion of said remaining assets. If upon liquidation, dissolution, or winding up of the Company, the assets of the Company available for distribution to its shareholders shall be insufficient to pay the holders of the 12% Cumulative Convertible Preferred Stock the full amounts to which they respectively shall be entitled, the holders of the 12% Cumulative Convertible Preferred Stock shall share ratably in any distribution of assets according to the respective amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. Neither a consolidation nor merger of the Company into or with any other corporation or corporations, nor the merger of any other corporation into the Company, nor the sale or transfer by the Company of all or any part of its assets, nor a reorganization of the Company, nor the purchase or redemption of all or part of the outstanding shares of any class or classes of the capital stock of the Company, nor a reduction of the capital stock of the Company shall be deemed to be a liquidation, dissolution, or winding up of the Company within the meaning of any of the provisions of this Subsection 5. (d) Of the 250,000 shares of Preferred Stock authorized hereunder, 200,000 shares of Preferred Stock shall be designated Class A Variable Rate Cumulative Convertible Preferred Stock ("Class A Preferred Stock"), shall have par value of $10.00 per share, and shall have the following rights and preferences: 4 24 1. Dividends. The holders of the shares of Class A Preferred Stock shall be entitled to receive out of any assets at the time legally available therefor and when and as declared by the Board of Directors cumulative dividends at the rate of 5.55% per annum; provided, however, the dividend rate shall be adjusted monthly commencing on April 1, 1992, and continuing on the first day of each and every month thereafter while each share of Class A Preferred Stock is outstanding. The dividend rate for each such month shall be equal to the published rate paid by Texas Commerce Bank, National Association, Houston, Texas, on 30-day certificates of deposit in effect on the first day of each such month plus 2%. Dividends shall be payable in cash quarterly commencing on April 1, 1992, and continuing on the first day of July, October, January, and April of each year that any shares of Class A Preferred Stock are outstanding. Such dividends are prior and in preference to any declaration or payment of any distribution (as defined below) on the Common Stock of the Company. Such dividends shall accrue on each share of Class A Preferred Stock from day to day from the date of initial issuance thereof whether or not there are funds legally available for payment of dividends, or such dividends are earned or declared, so that if such dividends with respect to any previous dividend period at the rate provided for herein have not been paid on, or declared and set apart for, all shares of Class A Preferred Stock at the time outstanding, the deficiency shall be fully paid on, or declared and set apart for, such shares before any distribution shall be paid on, or declared and set apart for, the Common Stock. For purposes hereof, unless the context otherwise requires, the term "distribution" shall mean the transfer of cash or property without consideration, or issuance of indebtedness, whether by way of dividend or otherwise, payable other than in Common Stock, as a dividend on any class or series of capital stock of the Company on the repurchase or redemption of shares of capital stock of the Company (other than repurchases of Common Stock held by employees of the Company upon termination of their employment pursuant to agreements providing for such repurchase) for cash or property or as a payment by the Company in liquidation of all or a portion of its assets. 2. Voting Rights. Each share of Class A Preferred Stock shall entitle the holder thereof to that number of votes which is equal to the number of shares of Common Stock into which the Class A Preferred Stock is convertible pursuant to Subsection 4 at the time the vote is taken, on all matters submitted to a vote of the Company's shareholders. Except as otherwise provided herein or required by law, holders of shares of Class A Preferred Stock shall vote with the holders of shares of Common Stock and any other class of stock entitled to vote and not as a separate class. 3. [Intentionally omitted.] 4. Optional Conversion Into Common Stock. (a) Subject to the terms and conditions of this Subsection 4, the holder of any share or shares of Class A Preferred Stock has the right at any time after the issuance of the shares of Class A Preferred Stock at its option to convert all or a portion of the shares of Class A Preferred Stock 5 25 held by it into such number of whole shares of Common Stock as is determined by multiplying the number of shares of Class A Preferred Stock by a fraction, the numerator of which is $10.00 and the denominator is the Conversion Price (as hereinafter defined). However, on any liquidation of the Company, the right of conversion shall terminate at the close of business on the last full business day before the date fixed for payment of the amount distributable on the Class A Preferred Stock. The holder may exercise this right of conversion only by giving written notice that the holder elects to convert a stated number of shares of the Class A Preferred Stock into shares of Common Stock on the date specified in the notice and surrendering to the Company a certificate or certificates for the Class A Preferred Stock to be converted, at its principal office, at any time during its usual business hours on or before the date set forth in the notice, together with a statement of the name or names (with addresses) in which the certificate or certificates for Common Stock should be issued. (b) Promptly after the receipt of the written notice referred to above and surrender of the share or shares of Class A Preferred Stock to be converted, the Company shall issue and deliver, or cause to be issued and delivered, to the holder a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares. No fractional shares shall be issued upon conversion of the Class A Preferred Stock into shares of Common Stock. To the extent permitted by law, the conversion shall be deemed to have been effected as of the close of business on the date specified in the written notice, and at that time the rights of the holder of the share or shares, as such a holder, shall cease, and the holder of the Class A Preferred Stock shall become the holder of record of the shares of Common Stock. (c) The conversion price per share of Common Stock as of any date (the "Conversion Price") shall be $.058375 (the "Initial Conversion Price"), as adjusted from time to time in accordance with paragraph (d) of this Subsection 4. (d) (1) In the event that the Company shall make any distribution of its assets upon or with respect to its Common Stock, as a liquidating or partial liquidating dividend, each holder of a share of Class A Preferred Stock shall, upon the exercise of his right to convert after the record date for such distribution or, in the absence of a record date, after the date of such distribution, receive, in addition to the shares subscribed for, the amount of such assets (or, at the option of the Company, a sum equal to the value thereof at the time of distribution as determined by the Board of Directors in its sole discretion) which would have been distributed to such holder if he had exercised his right to convert immediately prior to the record date for such distribution or, in the absence of a record date, immediately prior to the date of such distribution. (2) If at any time the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. 6 26 (3) If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation, shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive stock, securities, or assets with respect to or in exchange for their shares of Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger, or sale, each holder of a share(s) of Class A Preferred Stock shall have the right thereafter for so long as such share(s) is outstanding to convert such share(s) into the kind and amount of stock, securities, or assets receivable upon such reorganization, reclassification, consolidations, merger, or sale by a holder of the number of shares of Common Stock into which such share(s) of Class A Preferred Stock might have been converted immediately prior to such reorganization, reclassification, consolidations, merger, or sale, subject to adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for herein. (4) Before taking any action which would cause an adjustment reducing the Conversion Price at any time in effect below the then par value of the shares of Common Stock issuable upon conversion of shares of Class A Preferred Stock, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such Conversion Price as so adjusted. (5) Whenever the Conversion Price is adjusted, as herein provided, the Company shall send to each holder of a share of Class A Preferred Stock a certificate of a firm of independent public accountants (who may be the accountants regularly employed by the Company) selected by the Board of Directors setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (6) In case: (1) the Company shall declare a dividend (or any other distribution) on its Common Stock; or (2) the Company shall authorize the granting to holders of shares of Common Stock of rights to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any capital reorganization or reclassification of the capital stock of the Company or of any consolidation or merger of the Company with another corporation, or of the sale of all or substantially all of its assets to another corporation which is to be effected in such a way that holders of the Common Stock shall be entitled to receive stock, securities, or other assets with respect to or in exchange for Common Stock; or (4) of the voluntary or involuntary dissolution, liquidation, or winding up of the Company; 7 27 then the Company shall promptly send to the holder of each share of Class A Preferred Stock, at least 30 days prior to the applicable record date hereinafter specified, a notice stating (1) the date on which a record is to be taken for the purpose of such dividend or distribution of rights, or, if a record date is not to be taken, the date as of which the holders of shares of Common Stock of record would be entitled to such dividend or distribution of rights, or (2) the date on which such capital reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up is expected to become effective, and the date as of which it is expected that the holders of shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other assets deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up. 5. Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of shares of the Class A Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus, or earnings, before any payment shall be made in respect of the Class B Preferred Stock or Common Stock, an amount equal to Ten Dollars ($10.00) per share, plus all accrued and unpaid dividends thereon to the date fixed for distribution. After setting apart or paying in full the preferential amounts due the holders of the Class A Preferred Stock, the remaining assets of the Company available for distribution to stockholders, if any, shall be distributed exclusively to the holders of Class B Preferred Stock or Common Stock. If upon liquidation, dissolution, or winding up of the Company, the assets of the Company available for distribution to its shareholders shall be insufficient to pay the holders of the Class A Preferred Stock the full amounts to which they respectively shall be entitled, the holders of the Class A Preferred Stock shall share ratably in any distribution of assets according to the respective amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. Neither a consolidation nor merger of the Company into or with any other corporation or corporations, nor the merger of any other corporation into the Company, nor the sale or transfer by the Company of all or any part of its assets, nor a reorganization of the Company, nor the purchase or redemption of all or part of the outstanding shares of any class or classes of the capital stock of the Company, nor a reduction of the capital stock of the Company shall be deemed to be a liquidation, dissolution, or winding up of the Company within the meaning of any of the provisions of this Subsection 5. (e) Of the 250,000 shares of Preferred Stock authorized hereunder, 22,500 shares of Preferred Stock shall be designated Class B Variable Rate Cumulative Convertible Preferred Stock ("Class B Preferred Stock"), shall have a par value of $10.00 per share, and shall have the following rights and preferences: 1. Dividends. The holders of the shares of Class B Preferred Stock shall be entitled to receive out of any assets at the time legally available therefor and when and as declared by the Board of Directors cumulative dividends at the rate of 5.55% per annum; provided, however, the dividend rate shall be adjusted monthly commencing on April 1, 1992, and continuing on the first day of each and every month thereafter while each share of Class B Preferred Stock is outstanding. The dividend rate for each such 8 28 month shall be equal to the published rate paid by Texas Commerce Bank, National Association, Houston, Texas, on 30-day certificates of deposit in effect on the first day of each such month plus 2%. Dividends shall be payable in cash quarterly commencing on April 1, 1992, and continuing on the first day of July, October, January, and April of each year that any shares of Class B Preferred Stock are outstanding. Such dividends are prior and in preference to any declaration or payment of any distribution (as defined below) on the Common Stock of the Company. Such dividends shall accrue on each share of Class B Preferred Stock from day to day from the date of initial issuance thereof whether or not there are funds legally available for payment of dividends, or such dividends are earned or declared, so that if such dividends with respect to any previous dividend period at the rate provided for herein have not been paid on, or declared and set apart for, all shares of Class B Preferred Stock at the time outstanding, the deficiency shall be fully paid on, or declared and set apart for, such shares before any distribution shall be paid on, or declared and set apart for, the Common Stock. For purposes hereof, unless the context otherwise requires, the term "distribution" shall mean the transfer of cash or property without consideration, or issuance of indebtedness, whether by way of dividend or otherwise, payable other than in Common Stock, as a dividend on any class or series of capital stock of the Company on the repurchase or redemption of shares of capital stock of the Company (other than redemptions provided for in Subsection 3 hereof or repurchases of Common Stock held by employees of the Company upon termination of their employment pursuant to agreements providing for such repurchase) for cash or property or as a payment by the Company in liquidation of all or a portion of its assets. 2. Voting Rights. Except as otherwise provided by law, the shares of Class B Preferred Stock shall have no voting rights. 3. Redemption. (a) The Company may, at any time after issuance of the Class B Preferred Stock, call for redemption at the Redemption Price (as defined below) any or all of the outstanding shares of Class B Preferred Stock in accordance with this Subsection 3. The Company shall mail notice of any redemption by certified mail, postage prepaid, to each holder of record of the shares of the Class B Preferred Stock to be redeemed, at his or her address registered with the Company, which notice shall be accompanied by payment in full of the Redemption Price. The date of the mailing of notice of redemption shall be the Redemption Date. (b) If notice of redemption has been mailed and the Company has made payment of the Redemption Price, on the Redemption Date all rights of the holders of the shares, as shareholders of the Company by reason of the ownership of the shares, shall cease, and after the Redemption Date the shares shall not be outstanding. If less than all the shares represented by any certificate are redeemed, a new certificate, representing the unredeemed shares, shall be issued to the holder thereof without cost (except for the payment of any applicable transfer taxes) to the holder. If called for redemption, the right to convert Class B Preferred Stock to Common Stock 9 29 pursuant to Subsection 4 shall terminate on the close of business on the day before the date fixed for actual payment of the Redemption Price unless the Company shall default in paying the Redemption Price. (c) To facilitate the redemption of any shares of Class B Preferred Stock, the Board of Directors is authorized to cause the transfer books of the Company to be closed as to such shares as of the record date for determining the holders of Class B Preferred Stock entitled to notice of redemption. (d) For purposes hereof, the term "Redemption Price" shall mean $10.00 per share of Class B Preferred Stock, plus the amount of any accrued and unpaid dividends on such share on the date payment of the Redemption Price is paid. 4. Optional Conversion Into Common Stock. (a) Subject to the provisions of Subsection 3 hereof regarding redemption, and subject to the terms and conditions of this Subsection 4, the holder of any share or shares of Class B Preferred Stock has the right at any time after the issuance of the shares of Class B Preferred Stock at its option to convert all or a portion of the shares of Class B Preferred Stock held by it into such number of whole shares of Common Stock as is determined by multiplying the number of shares of Class B Preferred Stock by a fraction, the numerator of which is $10.00 and the denominator is the Conversion Price (as hereinafter defined). However, on any liquidation of the Company, the right of conversion shall terminate at the close of business on the last full business day before the date fixed for payment of the amount distributable on the Class B Preferred Stock. The holder may exercise this right of conversion only by giving written notice that the holder elects to convert a stated number of hares of the Class B Preferred Stock into shares of Common Stock on the date specified in the notice and surrendering to the Company a certificate or certificates for the Class B Preferred Stock to be converted, at its principal office, at any time during its usual business hours on or before the date set forth in the notice, together with a statement of the name or names (with addresses) in which the certificate or certificates for Common Stock should be issued. (b) Promptly after the receipt of the written notice referred to above and surrender of the share or shares of Class B Preferred Stock to be converted, the Company shall issue and deliver, or cause to be issued and delivered, to the holder a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares. No fractional shares shall be issued upon conversion of the Class B Preferred Stock into shares of Common Stock. To the extent permitted by law, the conversion shall be deemed to have been effected as of the close of business on the date specified in the written notice, and at that time the rights of the holder of the share or shares, as such a holder, shall cease, and the holder of the Class B Preferred Stock shall become the holder of record of the shares of Common Stock. (c) The conversion price per share of Common Stock as of any date (the "Conversion Price") shall be $.058375 (the "Initial Conversion Price"), as adjusted from time to time in accordance with paragraph (d) of this Subsection 4. 10 30 (d) (1) In the event that the Company shall make any distribution of its assets upon or with respect to its Common Stock, as a liquidating or partial liquidating dividend, each holder of a share of Class B Preferred Stock shall, upon the exercise of his right to convert after the record date for such distribution or, in the absence of a record date, after the date of such distribution, receive, in addition to the shares subscribed for, the amount of such assets (or, at the option of the Company, a sum equal to the value thereof at the time of distribution as determined by the Board of Directors in its sole discretion) which would have been distributed to such holder if he had exercised his right to convert immediately prior to the record date for such distribution or, in the absence of a record date, immediately prior to the date of such distribution. (2) If at any time the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. (3) If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation, shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive stock, securities, or assets with respect to or in exchange for their shares of Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger, or sale, each holder of a share(s) of Class B Preferred Stock shall have the right hereafter for so long as such share(s) is outstanding to convert such share(s) into the kind and amount of stock, securities, or assets receivable upon such reorganization, reclassification, consolidations, merger, or sale by a holder of the number of shares of Common Stock into which such share(s) of Class B Preferred Stock might have been converted immediately prior to such reorganization, reclassification, consolidations, merger, or sale, subject to adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for herein. (4) Before taking any action which would cause an adjustment reducing the Conversion Price at any time in effect below the then par value of the shares of Common Stock issuable upon conversion of shares of Class B Preferred Stock, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such Conversion Price as so adjusted. (5) Whenever the Conversion Price is adjusted, as herein provided, the Company shall send to each holder of a share of Class B Preferred Stock a certificate of a firm of independent public accountants (who may be the accountants regularly employed by the Company) selected by the Board of Directors setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. 11 31 (6) In case: (1) the Company shall declare a dividend (or any other distribution) on its Common Stock; or (2) the Company shall authorize the granting to holders of shares of Common Stock of rights to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any capital reorganization or reclassification of the capital stock of the Company or of any consolidation or merger of the Company with another corporation, or of the sale of all or substantially all of its assets to another corporation which is to be effected in such a way that holders of the Common Stock shall be entitled to receive stock, securities, or other assets with respect to or in exchange for Common Stock; or (4) of the voluntary or involuntary dissolution, liquidation, or winding up of the Company; then the Company shall promptly send to the holder of each share of Class B Preferred Stock, at least 30 days prior to the applicable record date hereinafter specified, a notice stating (1) the date on which a record is to be taken for the purpose of such dividend or distribution of rights, or, if a record date is not to be taken, the date as of which the holders of shares of Common Stock of record would be entitled to such dividend or distribution of rights, or (2) the date on which such capital reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up is expected to become effective, and the date as of which it is expected that the holders of shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other assets deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up. 5. Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of shares of the Class B Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus, or earnings, before any payment shall be made in respect of the Common Stock, an amount equal to Ten Dollars ($10.00) per share, plus all accrued and unpaid dividends thereon to the date fixed for distribution. After setting apart or paying in full the preferential amounts due the holders of the Class B Preferred Stock, the remaining assets of the Company available for distribution to stockholders, if any, shall be distributed exclusively to the holders of Common Stock, each such issued and outstanding share of Common Stock entitling the holder thereof to receive an equal proportion of said remaining assets. If upon liquidation, dissolution, or winding up of the Company, the assets of the Company available for distribution to its shareholders shall be insufficient to pay the holders of the Class B Preferred Stock the full amounts to which they respectively shall be entitled, the holders of the Class B Preferred Stock shall share ratably in any distribution of assets according to the respective amounts which would be 12 32 payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. Neither a consolidation nor merger of the Company into or with any other corporation or corporations, nor the merger of any other corporation into the Company, nor the sale or transfer by the Company of all or any part of its assets, nor a reorganization of the Company, nor the purchase or redemption of all or part of the outstanding shares of any class or classes of the capital stock of the Company, nor a reduction of the capital stock of the Company shall be deemed to be a liquidation, dissolution, or winding up of the Company within the meaning of any of the provisions of this Subsection 5. (f) Of the 500,000 shares of Preferred Stock authorized hereunder, 240,000 shares of Preferred Stock shall be designated as Class C 12% Cumulative Convertible Preferred Stock (the "Class C Preferred Stock"), shall have a par value of $10.00 per share, and shall have the following rights and preferences: 1. Dividends. The holders of the Class C Preferred Stock ("Holders") shall be entitled to cumulative preferential dividends, when, as and if declared by the Board of Directors in an amount equal to 12% per annum of the liquidation preference per share of $40.00. Dividends may be paid (to the extent permissible under the Florida Business Corporation Act) to the holders of the Class C Preferred Stock in cash and/or shares of Common Stock (or any combination thereof), at the option of the Corporation. To the extent that Dividends are paid in shares of Common Stock, the shares will be valued at last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sales prices for the last three trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or as reported in the Nasdaq National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market System, the last reported sale price as furnished by the National Association of Securities Dealers, Inc. through Nasdaq or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted on Nasdaq, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it for the two days immediately preceding such issuance or sale and the day of such issuance or sale. 2. Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, each share of Class C Preferred Stock shall be entitled to receive $40.00 per share. 3. Voting Rights. Except as otherwise required by applicable law, the Class C Preferred Stock shall have no voting rights. 4. Redemption. The Corporation may not redeem any shares of Class C Preferred Stock; provided, however, that nothing herein shall prohibit the Corporation in its sole discretion from repurchasing the Class C Preferred Stock in negotiation transaction(s) with the Holders. 13 33 5. Conversion Into Common Stock. (a) Subject to the terms and conditions of this sub- section, issued and outstanding shares of Class C Preferred Stock are convertible at the option of the holder thereof into shares of common stock, par value $.007 per share (the "Common Stock") of the Corporation ninety days after issuance, provided, however, on May 31, 1997, (the "Conversion Date"), all of the outstanding Class C Preferred Stock shall automatically be converted, provided further that such Common Stock is the subject of an effective registration statement under the Securities Act of 1933, as amended (the "Act"), without further action of the Corporation or the Holders of the Class C Preferred Stock, into shares of Common Stock as set forth herein. The shares of Class C Preferred Stock held by each holder thereof shall be converted into even (7) shares of Common Stock. However, on any liquidation of the Corporation, the right of conversion shall terminate at the close of business on the last full business day before the date fixed for payment of the amount distributable on the Class C Preferred Stock, provided that thirty days prior written notice of the same by the Company is sent to the Holders at their address of record. (b) Promptly after the receipt of certificates representing Class C Preferred Stock and surrender of Class C Preferred Stock, the Corporation shall issue and deliver, or cause to be issued and delivered, to the Holder a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such Class C Preferred Stock. No fractional shares shall be issued upon conversion of the Class C Preferred Stock into shares of Common Stock. To the extent permitted by law, the conversion shall be deemed to have been effected as of the close of business on the Conversion Date (or on the next preceding business day if the Conversion Date is not a business day) and at that time the rights of the holder of Class C Preferred Stock, as such holder, shall cease, and the holder of the Class C Preferred Stock shall become the holder of record of shares of Common Stock. 6. Rank. With respect to the payment of dividends and upon liquidation, the shares of the Class C Preferred Stock shall be subordinate to the issued and outstanding shares of Class A Preferred Stock and Class B Preferred Stock of the Corporation and shall rank senior to the shares of Preferred Stock and to the shares of Common Stock of the Corporation." 7. Registration Rights. The Corporation hereby covenants and agrees as follows: (a) Definitions. As used herein, the following terms shall have the meanings set forth below: (1) The terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of the effectiveness of such registration statement or document. 14 34 (2) The term "Registrable Securities" shall mean: (a) the Common Stock issuable upon conversion of the Class C Preferred Stock and (b) any Common Stock issued in payment of dividends on the Class C Preferred Stock. (b) Registration Rights. The Corporation shall file a registration statement on one occasion covering the Registrable Securities as soon as practicable and use its best-efforts to have such registration statement declared effective on or before the Conversion Date. The registration statement filed pursuant to this section may, subject to the provisions of this section, include other securities of the Corporation and may include securities of the Corporation being sold for the account of the Corporation. If the Holders intend to distribute the Registrable Securities covered by the registration statement by means of an underwriting, they shall so advise the Corporation in writing, and the Corporation shall include such information in the written notice referred to in this subsection. The right of any party hereto to registration pursuant to this section shall be conditioned upon such party's participation in such underwriting and the inclusion of such party's Registrable Securities in the underwriting to the extent requested (unless otherwise mutually agreed by a majority in interest of the Holders and such party) to the extent provided herein. If the underwriter (or managing underwriter on behalf of all the underwriters) has not limited the number of Registrable Securities to be underwritten, the Corporation may include securities for its own account or for the account of other shareholders in such registration if the underwriters in their absolute discretion so agree and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited. (c) Obligations of the Corporation. Whenever required hereunder to effect the registration of any Registrable Securities, the Corporation shall, as expeditiously as reasonably possible: (1) Prepare and file with the Securities and Exchange Commission ("SEC") a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for at least nine (9) months. (2) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (3) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other Corporate Materials as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. 15 35 (4) Use its best efforts to register and qualify the securities covered by such registration statement under the securities laws of such jurisdiction as shall be reasonably requested by the Holders for the distribution of the securities covered by the registration statement, provided that the Corporation shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction. (5) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement with terms generally satisfactory to the managing underwriter of such offering. (6) Notify the Holders, promptly after the Corporation shall have received notice thereof, of the time when the registration statement becomes effective or any supplement to any prospectus forming a part of the registration statement has been filed. (7) Notify the Holders of any stop order suspending the effectiveness of the registration statement and use its reasonable best efforts to remove such stop order. (d) Furnish Information. It shall be a condition precedent to the obligations of the Corporation to take any action pursuant hereto that the Holder, having chosen to have its Registrable Securities included for registration, shall furnish to the Corporation such information regarding the Holder, its Registrable Securities and the intended method of disposition of such securities as shall be required to effect the registration thereof. The Holder shall be required to represent to the Corporation that all such information which is given is complete and accurate in all material respects. The Holder shall deliver to the Corporation a statement in writing from the beneficial owners of such securities that such beneficial owners bona fide intend to sell, transfer or otherwise dispose of such securities. (e) Expenses. (1) Registration Expenses. All expenses incurred by the Corporation in complying with this section, including with out limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Corporation, "Blue Sky" fees and expenses, and the expense of any special audits incident to or required by any such registration shall be borne by the Corporation. (2) Selling Expenses. All underwriting discounts, underwriters' expense allowance, and selling commissions applicable to the sale of Registrable Securities by the Holders and all fees and disbursements of any special counsel (other than the Corporation's counsel) shall be borne by the Holders of the Registrable Securities so registered pro rata on the basis of the number of Registrable Securities so registered. 16 36 (f) Underwriting Requirements. All Holders proposing to distribute their Registrable Securities through an underwriting in which the Corporation has proposed or is proposing to participate, shall (together with the Corporation and any other Holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Corporation. Notwithstanding any other subsection of this section, at the request of the managing underwriter, the Holder shall delay the sale of Registrable Securities which such Holder has requested be registered hereunder for up to ninety (90) days following the effective date of the registration statement. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Corporation and the underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall not be withdrawn from such registration except at the election of the Holder. (g) Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this section. (h) Indemnification. In the event that any Registrable Securities are included in a registration statement pursuant hereto: (1) To the extent permitted by law, the Corporation will indemnify and hold harmless each Holder, the officers, directors and partners of each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (a) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (b) 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 (c) any violation or alleged violation by the Corporation of the Act, the Exchange Act, any applicable state securities law or any rule or regulation promulgated under the Act, the Exchange Act or any applicable state securities law; and the Corporation will reimburse the Holder for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Corporation (which consent shall not be unreasonably withheld), nor shall the Corporation be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Holder; and further provided, however, that the foregoing indemnity 17 37 agreement is subject to the condition that, insofar as it relates to any untrue statement, alleged untrue statement, omission or alleged omission made in any preliminary prospectus but eliminated or remedied in the prospectus, such indemnity agreement shall not inure to the benefit of any underwriter or broker, if a copy of the prospectus was not sent or given to such person with or prior to the confirmation of the sale of such securities to such person. (2) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Corporation, its directors, its officers, any person who controls the Corporation within the meaning of the Act or the Exchange Act, any underwriter (within the meaning of the Act) for the Corporation and any person who controls such underwriter against any losses, claims, damages or liabilities (joint or several) to which the Corporation or any such director, officer, controlling person or underwriter or controlling person may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by the Holder expressly for use in connection with such registration; provided, however, that the indemnity agreement contained in this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld. (3) Promptly after receipt by an indemnified party of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party hereunder, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to notify an indemnifying party within a reasonable time of the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party hereunder, but the omission so to notify the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this subsection. (i) Reports Under Exchange Act. Following registration of the Corporation's securities under the Exchange Act and with a view of making available to the Holders the benefits of Rule 144 under the Act and any other rule or regulation promulgated by the SEC that may at any time permit a Holder to sell securities of the Corporation to the public without registration, the Corporation agrees to: 18 38 (1) Use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144, at all times; and (2) Use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Corporation under the Act and the Exchange Act. (j) Termination of the Corporation's Obligations. (1) The Corporation shall have no obligations pursuant to Subsection 7(b) or 7(c) with respect to any request made by the Holder after April 29, 1999. (2) Notwithstanding any provision hereof to the contrary, the Corporation shall not be required to effect any registration under the Act or under any state securities laws on behalf of any Holder or Holders if, in the opinion of counsel for the Corporation, the offering or transfer by such Holder or Holders in the manner proposed (including without limitation, the number of shares proposed to be offered or transferred and the method of offering or transfer) is exempt from the registration requirements of the Act and the securities or "Blue Sky" laws of applicable states. (k) Holder's Acceptance of Obligations. Acceptance of this Warrant by its Holder(s) shall be deemed to constitute the unqualified acceptance by the Holder of all of the terms and conditions set forth herein. ARTICLE IV VOTING RIGHTS Each holder of Common Stock is entitled to one vote for each share of Common Stock that he holds on each matter submitted to a vote at a meeting of shareholders. ARTICLE V BOARD OF DIRECTORS 1. Number. The property, business, and affairs of the corporation shall be managed and controlled by the Board of Directors. The number of directors of the corporation shall not be less than five nor more than nine, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the whole Board of Directors, and such exact number shall be five until otherwise determined by resolution adopted by affirmative vote of a majority of the whole Board of Directors; provided, however, that the number of directors shall not be reduced so as to shorten the term of a director at that time in office. As used in this Article V, the term 19 39 "whole Board" means the total number of directors which the corporation would have if there were no vacancies. 2. Classes. The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. Directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the number of directors, may be filled by the Board of Directors acting by a majority of the directors then in office and any directors so chosen would hold office until the next election of the class for which such directors have been chosen and until their successors are elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. At each annual meeting of shareholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. 3. Removal. Any director may be removed by the vote of a majority of the whole Board of Directors, but only for cause. Except as may otherwise be provided by law, cause for removal shall be construed to exist only if: (a) the director whose removal is proposed has been convicted of a felony by a court of competent jurisdiction; or (b) such director has been adjudicated by a court of competent jurisdiction to be liable for negligence or misconduct in the performance of his duty to the corporation in a matter of substantial importance to the corporation and such adjudication is no longer subject to direct appeal. In addition, any director or the entire Board of Directors may be removed, with or without cause, by the affirmative vote of the holders of at least 67% of the outstanding shares of the corporation then entitled to vote generally in the election of directors cast at a meeting of the shareholders called for that purpose. 4. Vacancies. Any vacancies in the Board of Directors resulting from death, resignation, retirement, removal from office, the creation of a new directorship by an increase in the authorized number of directors, or otherwise shall be filled by a majority vote of the directors then in office, though less than a quorum of the entire Board of Directors. Directors so chosen to fill any vacancy shall hold office for a term expiring at the annual meeting of shareholders at which the term of the class to which they have been elected expires. 5. Amendment, Alteration, Repeal, Etc. Notwithstanding anything contained in these Articles of Incorporation to the contrary, the affirmative vote of the holders of at least 67% of the outstanding shares of the corporation then entitled to vote in the election of directors shall be required to amend, alter, or repeal or to adopt any provision inconsistent with, this Article V. 20 40 ARTICLE VI LIQUIDATION, REORGANIZATION, MERGER, CONSOLIDATION, SALE OF SUBSTANTIALLY ALL ASSETS, OR RECLASSIFICATION OF SECURITIES Any liquidation, reorganization, merger, consolidation, sale of substantially all of the corporation's assets, or the reclassification of its securities shall be approved by (a) the holders of at least a majority of the issued and outstanding Common Stock held by other than officers, directors, and those persons who hold 5% or more of the outstanding Common Stock, and (b) a vote of a majority of shares of issued and outstanding Common Stock held by the Company's officers, directors, and those persons who hold 5% or more of the outstanding Common Stock. Notwithstanding anything contained in these Articles of Incorporation to the contrary, the affirmative vote of the holders of at least 67% of the outstanding shares of the corporation then entitled to vote in the election of directors shall be required to amend, alter, or repeal, or to adopt any provision inconsistent with, this Article VI. 21 41 EX-10 4 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement"), dated as of November 28, 1995 between Medcross, Inc., a Florida corporation (the "Company"), and Windy City, Inc. ("Consultant"). W I T N E S S E T H: WHEREAS, in light of the expertise and experience of Consultant, the Company desires to engage Consultant to provide the Company with consulting services and Consultant is willing and able to provide such services; and WHEREAS, the Company and Consultant desire to set forth in a formal written agreement the terms and conditions upon which Consultant shall provide services to the Company; NOW, THEREFORE, in consideration of the mutual benefits to be derived from this Agreement, the Company and Consultant hereby agree as follows: 1. Appointment; Consulting Services. (a) The Company hereby retains Consultant to render those consulting services contemplated by this Agreement commencing on January 1, 1996 until December 31, 1998 (the "Term"). Notwithstanding any other provision of this Section 1(a), the term of this Agreement may be extended beyond the Term by the written agreement of the parties. (b) During the Term hereof, Consultant agrees to render to the Company such consulting advice as shall be requested from time to time by the President of the Company in connection with the business conducted or to be conducted by the Company. In performing services hereunder, Consultant shall report to the Company's President. During the Term hereof, Consultant shall be an independent contractor of the Company and not an employee. During the Term ereof, Consultant shall have no power or authority to represent or bind the Company unless specifically authorized in writing by the President of the Company. 2. Payments to Consultant During the Term. The Company agrees to pay to Consultant during the Term and any extension thereof the following: (a) In consideration of Consultant's performance of the consulting services described herein during the Term hereof, the Company agrees to pay to Consultant a consulting fee of Six Thousand Two Hundred and Fifty Dollars ($6,250) per calendar quarter, which fee, in the aggregate amount of $75,000, shall be deemed to have been earned upon effectiveness hereof. Such consulting fee shall be payable in arrears on the last day of each calendar quarter during which this Agreement is in effect. 1 42 (b) The Company shall reimburse Consultant for all reasonable out -of-pocket expenses directly incurred by Consultant in connection with Consultant's rendering of the consulting services set forth in this Agreement; provided, however, that the incurrence of such expenses in an amount greater than $100.00 must be approved in writing in advance by the President of the Company. Any such reimbursement hereunder shall be made by the Company within 30 days after submission by Consultant of supporting documentation as reasonably required by the Company. 3. Consolidation; Merger; Sale of Assets; Change of Control. Nothing in this Agreement shall preclude the Company from combining, consolidating or merging with or into, transferring all or substantially all of its assets to, or entering into a partnership or joint venture with, another corporation or other entity, or effecting any other kind of corporate combination provided that the corporation resulting from or surviving such combination, consolidation or merger, or to which such assets are transferred, or such partnership or joint venture assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger, transfer of assets or formation of such partnership or joint venture, this Agreement shall inure to the benefit of, be assumed by, and be binding upon such resulting or surviving transferee corporation or such partnership or joint venture, and the term "Company," as used in this Agreement, shall mean such corporation, partnership or joint venture, or other entity and this Agreement shall continue in full force and effect and shall entitle Consultant to exactly the same compensation, benefits, perquisites, payments and other rights as would have been their entitlement had such combination, consolidation, merger, transfer of assets or formation of such partnership or joint venture not occurred. 4. Survival of Obligations. The obligations of the parties under Sections 2, 3 and 5 of this Agreement shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by Consultant, upon the expiration of this Agreement or otherwise). 5. Reformation; Severability. In case any one or more of the provisions or part of a provision contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect in any jurisdiction, such invalidity, illegality or unenforceability shall be deemed not to affect any other jurisdiction or any other provision or part of a provision of this Agreement nor shall such invalidity, illegality or unenforceability affect the validity, legality or enforceability of this Agreement or any provision or provisions hereof in any other jurisdiction, and this Agreement shall be reformed and construed in such jurisdiction as if such provision or part of a provision held to be invalid or illegal or unenforceable had never been contained herein and such provision or part reformed so that it would be valid, legal and enforceable in such jurisdiction to the maximum extent possible. In furtherance and not in 2 43 limitation of the foregoing, the Company and Consultant each intend that the representations, warranties and covenants contained in Sections 3 and 4 shall be deemed to be a series of separate representations, warranties and covenants, one for each county, state, territory or jurisdiction of the United States and any foreign country referenced therein. If, in any judicial proceeding, a court shall refuse to enforce any of such separate representations, warranties and covenants, then such unenforceable representations, warranties and covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate representations, warranties and covenants to be enforced in such proceedings. If, in any judicial proceeding, a court shall refuse to enforce any one or more of such separate representations, warranties and covenants because the total time thereof is deemed to be excessive or unreasonable, then it is the intent of the parties hereto that such representations, warranties and covenants, which would otherwise be unenforceable due to such excessive or unreasonable period of time, be enforced for such lesser period of time as shall be deemed reasonable and not excessive by such court. 6. Entire Agreement; Amendment. This Agreement contains the entire agreement between the Company and Consultant with respect to the subject matter thereof. This Agreement may not be amended, waived, changed, modified or discharged except by an instrument in writing executed by or on behalf of the party against whom any amendment, waiver, change, modification or discharge is sought. No course of conduct or dealing shall be construed to modify, amend or otherwise affect any of the provisions hereof. 7. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery, if personally delivered, (ii) the next business day, if delivered with all charges prepaid to a recognized overnight delivery service for next day delivery, or (iii) five days after mailing, if mailed, postage prepaid, via first class mail, in each such case as follows: (a) To the Company: (b) To Consultant: Medcross, Inc. Windy City, Inc. 3227 Bennet Street North 8000 Towers Crescent Drive St. Petersburg, Florida 33713 Suite 1070 Attn: Henry Y.L. Toh, President Vienna, Virginia 22180 Attention: Joel S. Kanter, President 3 44 with a copy to: with a copy to: De Martino Finkelstein Rosen & VirgaBarack, Ferrazzano, Kirschbaum & 1818 N Street, N.W., Suite 400 Perlman Washington, D.C. 20036 333 West Wacker Drive, Suite 2700 Attn: Ralph V. De Martino, Chicago, Illinois 60606 Esquire Attention: Joshua Kanter, Esquire and/or to such other persons and addresses as any party shall have specified in writing to the other. 8. Assignability. This Agreement shall not be assignable by Consultant and shall be binding upon, and shall inure to the benefit of, the successors of the Company. Notwithstanding any other provision of this Agreement, this Agreement shall be assignable by the Company, as contemplated by Section 8 hereof or otherwise, provided that the assignee is a subsidiary of the Company. 9. Representation by Counsel. Each of the parties hereto represents, warrants and covenants that he or it has had ample opportunity to consider entering into this Agreement and has had an opportunity to consult with counsel regarding this Agreement prior to executing the same. 10. Governing Law. This Agreement shall be governed by and construed under the laws of the State of Florida without regard to the conflicts of law principles thereof. 11. Waiver and Further Agreement. Any waiver of any breach of any terms or conditions of this Agreement shall not operate as a waiver of any other breach of such terms or conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as the other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 12. Headings of No Effect. The paragraph headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 4 45 13. 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATTEST: MEDCROSS, INC. /s/ Stephanie E. Giallourakis By: /s/ Henry Y. L. Toh Henry Y. L. Toh, President WITNESS: WINDY CITY, INC. /s/ Unknown Signature By: /s/ Joel S. Kanter Joel S. Kanter, President 5 46 EX-11 5
EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE For the Period Ended March 31 -------------------------- 1996 1995 ------------ ------------ Earnings per common and common equivalent share Net loss available to common and equivalent shares $(2,733,940) $( 314,923) ========= ========= Weighted average common shares outstanding 2,971,400 1,632,776 Adjustments Assumed issuance of shares purchased under stock option and stock purchase plans 1,018 - Assumed exercise of warrants and other options 38,998 - Assumed conversion of: Class A Variable Rate Cumulative Convertible Preferred Stock 559,368 - Class B Variable Rate Cumulative Convertible Preferred Stock - 339,043 --------- --------- Total common and equivalent shares 3,570,784 1,749,043 ========= ========= Loss per common and equivalent share $( .77) $( .18) ========= ========= Fully diluted earnings per common and common equivalent share Net loss available to common and equivalent share $(2,733,940) $( 314,923) ========= ========= Weighted average common shares outstanding 2,971,400 1,632,776 Adjustments Assumed issuance of shares purchased under stock option and stock purchase plans 2,632 - Assumed exercise of warrants and other options 51,120 - Assumed conversion of: Class A Variable Rate Cumulative Convertible Preferred Stock 559,368 - Class B Variable Rate Cumulative Convertible Preferred Stock - 339,043 --------- --------- Total common and equivalent shares 3,584,520 1,749,163 ========= ========= Loss per common and equivalent share after preferred dividends $( .76) $( .18) ========= =========
47 EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS DATED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 MAR-31-1996 421,751 0 941,174 682,565 830,292 2,300,360 3,644,566 1,905,334 7,684,109 5,491,680 0 0 1,675,000 29,917 (33,780) 7,684,109 609,206 609,206 0 3,242,235 (15,527) 41,244 47,639 (2,706,385) 0 (2,708,328) 0 0 0 (2,708,328) (.77) (.76)