SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (date of earliest event reported): June 5, 1997
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Medcross, Inc.
(Exact name of registrant as specified in its charter)
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Florida 0-17973 59-2291344
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
13751 South Wadsworth Park Drive, Suite 200, Draper, UT 84020
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 576-5000
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ITEM 5. OTHER EVENTS
On June 6, 1997, Medcross, Inc. (the "Company") entered into a term loan
agreement ("Loan Agreement") and promissory note ("Note") with Winter Harbor,
L.L.C. (the "Lender" or the "Investor") pursuant to which the Lender agreed to
loan to the Company the principal sum of $2,000,000 (the "Loan") for capital
expenditures and working capital purposes. In addition to the Loan Agreement and
Note, the Company executed and delivered to Lender a pledge agreement ("Pledge
Agreement") pursuant to which the Company granted to the Lender a security
interest in all of the issued and outstanding capital stock of I-Link
Communications, Inc., a Utah corporation ("I-Link") and Family
Telecommunications, Incorporated, a Utah corporation ("FTI"), each of which is a
wholly-owned subsidiary of the Company. In addition, I-Link and FTI each
executed a subsidiary guaranty ("Guaranty") pursuant to which I-Link and FTI
each guaranteed the obligations of the Company to Lender under the Loan
Agreement and Note. Further, I-Link and FTI each executed a security agreement
("Security Agreement") pursuant to which I-Link and FTI granted to Lender a
security interest in substantially all of their personal property as collateral
security for their obligations under the Guaranty and for the Company's
obligations under the Loan Agreement and the Note.
As further consideration for Lender's commitment to make the Loan, the
Company granted to Lender a warrant ("Loan Warrant") to purchase up to five
hundred thousand (500,000) shares of common stock of the Company (the "Common
Stock") at a purchase price of $4.97 per share, subject to adjustment, pursuant
to the terms of a Warrant Agreement between the parties. The Loan Warrant
expires on March 11, 2002, and contains demand and piggyback registration rights
and customary anti-dilution terms.
The maturity date of the Note is October 15, 1998; however, the Loan
Agreement anticipates an equity investment in the Company by the Lender (the
"Investment"). Upon closing of the Investment, all principal and accrued
interest then due under the Note shall be credited toward payment of the
Lender's purchase price for the Investment and the Note shall be cancelled. As
provided in the Loan Agreement, if the Company fails to negotiate in good faith
with the Lender, and as a consequence thereof the parties have not entered into
a letter of intent summarizing the principal terms of the Investment by
September 1, 1997, or have not executed definitive agreements with respect to
the Investment by October 15, 1997, then in either such case, the Company shall
be required to make a mandatory prepayment of the Loan in an amount equal to the
entire outstanding principal balance of the Loan plus all accrued interest,
within three days of such date. Mandatory prepayment is also required if there
is a sale by the Company or any of its subsidiaries of any material assets, or
if the Company issues or sells any shares of its capital stock or other equity
interest or incurs any indebtedness for borrowed money. In the latter cases, the
mandatory prepayment amount shall be equal to 100% of the Company's net cash
proceeds of such sale, up to the total amount of principal and accrued interest
then due under the Note.
Also on June 6, 1997 the Company executed a letter of intent ("LOI") with
the Investor as to the Investment. The LOI serves as the basis for negotiations
between the parties and the
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definitive terms of the Investment may differ from the terms set forth herein.
The LOI contemplates that the Investor will invest $12,100,000 in a series of
the Company's convertible preferred stock to be created (the "Series M Preferred
Stock"). The Investor will purchase 4,400,000 shares of Series M Preferred Stock
for $2.75 per share. The Series M Preferred Stock will be entitled to receive
cumulative dividends in the amount of 10% per annum before any other class of
preferred or common stock receives any dividends. Thereafter, the Series M
Preferred Stock will participate with the common stock in the issuance of any
dividends on a per share basis. The Series M Preferred Stock will be senior to
all other series of the Company's preferred stock or Common Stock as to
liquidation rights, which rights shall be deemed to include accrued or unpaid
dividends relating to the Series M Preferred Stock. The Series M Preferred Stock
shall be convertible at any time prior to the fifth anniversary of its issuance,
at the sole option of the Investor, into shares of Common Stock on a one-to-one
basis; provided, however, that the Series M Preferred Stock shall be
automatically converted to Common Stock on the fifth anniversary of its issuance
at no cost to the Investor. The conversion price shall be equal to the lower of
$2.75 per share or 50% of the average closing bid price of the Common Stock for
the ten trading days immediately preceding the fifth anniversary of issuance.
The basis for discretionary conversion, or the conversion price for automatic
conversion, shall be adjusted upon the occurrence of certain events, including
without limitation, issuance of stock dividends, recapitalization of the
Company, or the issuance of stock by the Company at less than the fair market
value thereof. Conversion of the Series M Preferred Stock will be subject to
approval by the Company's shareholders of an increase in the number of shares of
authorized capital stock at the Company's next annual shareholders meeting. The
Series M Preferred Stock will vote with the Common Stock on an as-converted
basis on all matters which are submitted to a vote of the stockholders, except
as may otherwise be provided by law or by the Company's Articles of
Incorporation or By-laws; provided, however, that the Series M Preferred Stock
will have the right to appoint two members of the Company's board of directors.
As stated above, upon closing of the issuance of the Series M Preferred Stock,
the Investor shall be entitled to a credit against the purchase price of the
Series M Preferred Stock in the amount of principal and accrued interest under
the Loan, and the Note evidencing the Loan shall be cancelled.
As additional consideration for its equity financing commitments, the
Investor will be issued additional warrants by the Company to acquire (a)
2,500,000 shares of Common Stock at an exercise price of $2.75 per share (the
"Series A Warrants"), (b) 2,500,000 shares of Common Stock at an exercise price
of $4.00 per share (the "Series B Warrants") and (c) 5,000,000 shares of Common
Stock at an exercise price of $9.31 (the "Series C Warrants"). The respective
exercise prices for the Series A Warrants, the Series B Warrants and the Series
C Warrants (collectively, the "Investment Warrants") shall be subject to
adjustment. The Series A Warrants will be exercisable at any time for thirty
months from the date of issuance, and the Series B Warrants and Series C
Warrants will be exercisable at any time for sixty months from the date of
issuance. All of the Investment Warrants (i) will have demand registration
rights and anti-dilution rights and (ii) will contain standard cashless exercise
provisions.
The LOI also provides that, in the event that certain stockholders of the
Company (including key management) propose to effect a transfer to a third party
of their interests in the
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Company, then the Investor shall have the option to require such selling
stockholders to provide the Investor the right to participate in such
transaction on the same terms and conditions as the selling stockholders.
Further, the Investor shall have (i) preemptive rights with respect to future
issuances of equity interests or securities convertible into or exchangeable for
equity interests of the Company in order that the Investor may maintain its
proportional economic interest in the Company, (ii) a put right to cause the
Company to purchase all of the equity interests then held by Investor in the
Company at the fair market value of such equity interests, in the event of a
change of control of the Company, (iii) the right to require holders of warrants
to acquire an aggregate of 1,000,000 shares of Common Stock, which warrants have
an exercise price of $2.00 or less per share, to enter into agreements with the
Investor to sell such warrants to the Investor for an aggregate purchase price
of $1,000,000, and (iv) the right to review and approve the existing employment,
non-competition and consulting agreements of the Company's key executives.
On June 5, 1997 the Company entered into a letter of agreement (the "MLOI")
with MIBridge, Inc., a New Jersey corporation ("MIBridge") and Mr. Dror Nahumi,
the principal shareholder of MIBridge, pursuant to which the Company will enter
into negotiations with MIBridge to acquire all of the issued and outstanding
stock of MIBridge (the "Acquisition"). MIBridge is the owner of patent-pending
audio-conferencing technology and is a leader in creating speech-encoding and
compression algorithms designed to produce superior audio quality and lower
delay over low-band networks. The MLOI serves as the basis for negotiations
between the parties and the definitive terms of the Acquisition may differ from
the terms set forth herein. The MLOI contemplates that the Company will pay the
stockholders of MIBridge (the "Selling Stockholders") consideration consisting
of (i) an aggregate $2,000,000 in cash, payable in quarterly installments over
three years, and (ii) an aggregate 1,000 shares of a series of the Company's
convertible preferred stock to be created (the "Series D Preferred Stock"). The
1,000 shares of Series D Preferred Stock will be convertible at the option of
the Selling Shareholders, at any time during the nine months following the
closing of the Acquisition, into such number of shares of Common Stock as shall
equal the sum of $6,250,000 divided by $9.13 (the "Conversion Price"), which
price was the closing bid price of the Company's Common Stock on June 5, 1997.
On the nine-month anniversary of the closing of the Acquisition, any unconverted
Series D Preferred Stock shall automatically convert to Common Stock. In either
case, the Series D Preferred Stock shall be converted at the lower of the
Conversion Price or the average closing bid price for the five trading days
immediately preceding the date the Company receives notice of conversion or the
automatic conversion date, as the case may be. The Series D Preferred Stock
shall be entitled to participate in any dividends which may be declared for
Common Stock on an as-converted basis. The Selling Stockholders shall receive
piggy-back registration rights whereby they may participate in any registration
of securities the Company my undertake after the first anniversary of the
closing of the Acquisition (excluding registrations of employee benefit plan
securities). Conversion of the Series D Preferred Stock will be subject to
approval by the Company's shareholders of an increase in the number of shares of
authorized capital stock at the Company's next annual shareholders meeting.
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The MLOI further provides that the Company shall enter into an employment
contract with Mr. Nahumi providing terms, conditions and benefits similar to
those provided in employment contracts with existing members of the Company's
senior management, including standard confidentiality, non-competition and
assignment of invention provisions. Mr. Nahumi's annual salary shall be at
least $100,000, and Mr. Nahumi will devote his full time to managing the
operations of MIBridge under the direction of the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99(a) Loan Agreement dated as of June 6, 1997, by and between the Company and
Winter Harbor, L.L.C. ("Lender" or "Investor").
99(b) Promissory Note dated June 6, 1997, in the principal amount of
$2,000,000, made by Company in favor of Lender.
99(c) Warrant Agreement dated as of June 6, 1997, by and between the Company
and Lender; and related Warrant Certificate.
99(d) Pledge Agreement dated as of June 6, 1997, by and between the Company and
Lender.
99(e) Security Agreement dated as of June 6, 1997, by and among Family
Telecommunications, Incorporated ("FTI"), I-Link Communications, Inc.
("I-Link") and Lender.
99(f) Subsidiary Guaranty dated as of June 6, 1997, by and among FTI, I-Link
and Lender.
99(g) Assignment for Security dated as of June 6, 1997, by and between I-Link
and Lender.
99(h) Letter of Intent dated June 6, 1997, by and between the Company and
Investor.
99(i) Term Sheet for Proposed Equity Investment by Winter Harbor, L.L.C., dated
June 6, 1997.
99(j) Letter of Intent dated June 5, 1997, by and among the Company, MIBridge,
Inc. and Dror Nahumi.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MEDCROSS, INC.
(Registrant)
Dated: June 20, 1997 By: /s/ John W. Edwards
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John W. Edwards, President,
Chief Executive Officer
Dated: June 20, 1997 By: /s/ Karl S. Ryser, Jr.
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Karl S. Ryser, Jr.,
Chief Financial Officer
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