Exhibit 10.5
SUBORDINATED PROMISSORY NOTE
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Due April 1, 2001
$5,000,000.00 (subject to As of April 1, 1997
adjustment as set forth below)
FOR VALUE RECEIVED, the undersigned, INTERNATIONAL MEDICAL TECHNICAL
CONSULTANTS, INC., a Kansas corporation (herein called the "Company"), hereby
promises to pay to ROBERT J. DOCKHORN, M.D. (as the designee of the Sellers (as
hereafter defined)) or permitted registered assigns (hereinafter called the
"Payee"), the principal sum of Five Million Dollars ($5,000,000.00) (subject to
adjustment in accordance with the terms of this Note and Section 2.3 of the
Purchase Agreement (as hereafter defined)), together with interest from the date
hereof (computed on the basis of the actual number of days elapsed) at the rate
of eight and one-third of one percent (8.33%) per annum on the unpaid balance
hereof, from time to time at 8510 Delmar Lane, Prairie Village, Kansas 66207 or
at such other place as the Payee may designate from time to time in writing.
The principal balance hereof shall be payable in lawful money of the United
States of America in fourteen (14) equal quarterly installments of $357,142.86
payable on the first day of January, April, July, and October commencing on
October 1, 1997 (each a "Quarterly Payment Date"). In the event that the
outstanding principal amount of this Note is adjusted in accordance with this
Note or Section 2.3 of the Purchase Agreement, such adjustment shall be made in
accordance with this Note or the Purchase Agreement and shall be reflected in an
allonge to this Note.
Until the first anniversary of the date hereof, interest shall accrue on
the unpaid balance hereof and be added to the outstanding principal amount of
this Note on such first anniversary and the twelve (12) remaining quarterly
installments of principal shall be increased by $34,708.33 (subject to
adjustment in accordance with this Note or the Purchase Agreement). On each
Quarterly Payment Date thereafter, the Company will pay in cash accrued interest
on the unpaid balance hereof. If not sooner paid, the entire unpaid principal
balance hereof and accrued interest thereon shall be due and payable in full on
April 1, 2001.
This Note has been issued pursuant to the terms of a Stock Purchase
Agreement dated as of February 11, 1997 by and among PRA International, Inc.
(the "Buyer"), Robert J. Dockhorn, M.D., Beverly W. Dockhorn, Douglas R.
Dockhorn, Douglas R. and Stephanie Dockhorn JTWROS, David W. and Allison
Dockhorn JTWROS and Robert and Beverly Dockhorn Charitable Remainder
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Unitrust (collectively, the "Sellers") and the Company (as amended and in effect
from time to time, the "Purchase Agreement"). Any and all payments that
otherwise may be due and payable under this Note are subject to rights of
setoff, as, to the extent and in accordance with the terms of the Purchase
Agreement.
1. Definitions.
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(a) Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meaning ascribed to them in the
Purchase Agreement.
(b) "Bankruptcy Event" means (i) any insolvency or bankruptcy case or
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proceeding, or any receivership, liquidation (total or partial),
conservatorship, moratorium, rearrangement, reorganization, or other similar
case or proceeding in connection therewith relative to the Company, the Buyer or
their respective assets, whether voluntary or involuntary, (ii) any total or
partial liquidation (but specifically excluding any consensual sale by the
Company or the Buyer of a portion of its assets), dissolution or winding up of
the Company or the Buyer, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or (iii) any full or partial assignment for
the benefit of creditors or any other marshaling of assets and liabilities of
the Company or the Buyer, whether voluntary or involuntary.
(c) "Senior Indebtedness" means the principal of and interest on (including
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any interest accruing subsequent to any Bankruptcy Event), and all obligations
of the Company for the payment of fees, indemnities, costs, expenses, protective
advances and other amounts payable with respect to, arising from or in
connection with, all Indebtedness for borrowed money or credit received
outstanding at any time, including, without limitation, Indebtedness evidenced
by notes, bonds or debentures regardless of whether such Indebtedness may be
convertible into equity securities of the Company or any of its affiliates,
unless by the terms of the instrument creating, governing or evidencing such
Indebtedness it is expressly provided that such Indebtedness is not senior to or
superior in right of payment to this Note; provided, however, that Senior
Indebtedness shall not include (a) trade payables, general obligations and
accrued expenses incurred in the ordinary course of business owing to persons
other than commercial banks, financial institutions or other institutional
lenders or investors and (b) any Indebtedness of the Company (or any of its
successors) to any selling Person in connection with the acquisition of any
Person or business, or some, substantially all or all of the assets of any such
Person or business, irrespective of the form or nature of such transaction
(whether by merger, reverse merger, asset purchase or otherwise), which
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Indebtedness is owed by the Company (or its successor) to a selling Person or
selling Persons in such acquisition (such Indebtedness to such a selling Person
to rank pari passu with the Indebtedness evidenced by this Note).
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(d) "Senior Indebtedness Representative" means, as of a particular date,
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the Person holding the largest outstanding principal amount of Senior
Indebtedness as of such date.
(e) "Standstill Period" means the period commencing on the date on which
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the Payee shall have received written notice from any holder of Senior
Indebtedness of the occurrence of an Event of Default (as defined in any of the
loan documents relating to Senior Indebtedness (collectively, as any such loan
documents may be amended, modified, amended and restated or replaced, the
"Senior Loan Documents") under any of the Senior Loan Documents and ending on
the earlier of (A) 365 days after the commencement of such period and (B) the
date on which all Events of Default under the Senior Loan Documents have been
cured or waived.
(f) "Subordinated Indebtedness" means, collectively, any and all principal,
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interest and other amounts that may be owing or payable from time to time under,
with respect to or in any way in connection with this Note.
2. Subordination.
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(a) Subordination to Senior Indebtedness. Notwithstanding any other
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provision of this Agreement, the payment of the Subordinated Indebtedness is and
shall be junior and subordinated in right of payment to the extent and in the
manner set forth in this Note, to the prior payment in full of all amounts due
and owing upon all Senior Indebtedness at any time outstanding (including any
interest accruing subsequent to any Bankruptcy Event). This Paragraph (a) shall
constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness
and such holders are made obligees hereunder and any one or more of them may
enforce such provisions.
(b) Prior Payment of Senior Indebtedness in Bankruptcy, Etc.
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(i) In the event of any Bankruptcy Event, if all Senior Indebtedness
(including any interest accruing subsequent to any Bankruptcy Event) has
not been paid in full at such time, the Payee and the Sellers shall demand,
but only the holders of Senior Indebtedness may
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collect, payment of all Subordinated Indebtedness due from the Company or
the Buyer, as the case may be. Furthermore, in the event of the occurrence
of any Bankruptcy Event, or any meeting, hearing or proceeding in
connection therewith, involving the Company or the Buyer, if all of the
Senior Indebtedness have not been paid in full in cash at such time, the
Senior Indebtedness Representative is hereby irrevocably authorized at any
meeting or hearing, in any such proceeding and, generally, in connection
with any and all aspects of such Bankruptcy Event, and each of the Company
and the Buyer hereby irrevocably appoints the Senior Indebtedness
Representative to act as its attorney-in-fact in connection therewith
(which power is agreed and acknowledged to be coupled with an interest):
(A) To endorse claims comprising any of the Subordinated
Indebtedness in its own name or the name of any or all of the holders
of Subordinated Indebtedness and apply the same or the proceeds of any
realization upon the same, to the Senior Indebtedness (which payments,
in the absence of an agreement between the holders of Senior
Indebtedness, shall be made on a ratable basis, based upon the amount
of principal outstanding, if there should be two (2) or more holders
of Senior Indebtedness);
(B) To collect any assets of the Company or the Buyer, dividended
or applied by way of dividend or payment or any securities issued on
account of any of the Subordinated Indebtedness and apply the same or
the proceeds thereof, which creditor elects to accept, to the Senior
Indebtedness;
(C) To act in all respects on behalf of and with respect to the
Subordinated Indebtedness, including voting claims from any of the
Subordinated Indebtedness to accept or reject any plan or partial or
complete liquidation, reorganization, arrangement, composition or
extension and negotiating and compromising any such claim in
connection therewith or otherwise; and
(D) To take generally any action in connection with any such
meeting or proceeding which any or all of the holders of Subordinated
Indebtedness might otherwise take.
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(ii) Notwithstanding the provisions of this Paragraph (b), each
holder of Subordinated Indebtedness shall, on behalf of and in the name of
any or all of the holders of Senior Indebtedness be entitled to file any
claims, proofs of claim or other instruments of similar character necessary
to enforce the obligations of the Company or the Buyer with respect to the
Subordinated Indebtedness and the Senior Indebtedness Representative shall
be entitled to file any claims, proofs of claim or other instruments of
similar character necessary to enforce the obligations of the Company or
the Buyer with respect to the Senior Indebtedness. Any and all payments or
distributions received in any such proceedings on account of the
Subordinated Indebtedness shall be delivered to the Senior Indebtedness
Representative until the Senior Indebtedness shall have been paid in full
in cash.
(iii) In order to enable the Senior Indebtedness Representative to
undertake the foregoing, each of the holders of Subordinated Indebtedness
hereby, effective as of the date of initiation or occurrence of any
Bankruptcy Event involving the Company or the Buyer (to and including the
date on which the Senior Indebtedness is irrevocably paid in full in cash),
assigns to the Senior Indebtedness Representative the Subordinated
Indebtedness.
(c) No Payment on Subordinated Indebtedness Under Certain Conditions.
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(i) During any Standstill Period with respect to any Subordinated
Indebtedness, (A) no payment shall be made by the Company or the Buyer or
accepted by the Payee or any of the Sellers with respect to the
Subordinated Indebtedness; and (B) unless the holders of Senior
Indebtedness shall have commenced an action or proceeding against the
Company or the Buyer to enforce any of their rights in respect of the
Senior Indebtedness, no action or proceeding shall be commenced by the
Payee or any of the Sellers with respect to the Subordinated Indebtedness
to collect payment thereof. The acceleration of any Subordinated
Indebtedness by the Payee or any of the Sellers during any Standstill
Period applicable thereto shall be deemed to be automatically rescinded
upon the expiration of such Standstill Period if upon such expiration no
Event of Default (other than failure by the Company or the Buyer to pay the
principal amount so accelerated) exists under this Note.
(ii) Notwithstanding anything herein to the contrary, no Standstill
Period shall commence within 60 days after the end of another
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Standstill Period nor may the provisions of this Paragraph (c) nor the
Standstill Periods established hereby restrict or prohibit for more than
365 days in any 730-day period the Company from making or the holder
thereof from accepting any payment of Subordinated Indebtedness or the
Payee or any of the Sellers from bringing any action or proceeding to
collect any such payment.
(d) Permitted Payments in Respect of Subordinated Indebtedness.
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Notwithstanding any provisions to the contrary contained in this Note, so long
as no Standstill Period or Bankruptcy Event shall then exist, the Company shall
be permitted to remit to the Payee scheduled payments of principal and interest
hereunder (to the extent such payments are due under the terms of this Note).
(e) Payments Held in Trust. If the Payee or any of the Sellers receives
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any payment or distribution in respect of the Subordinated Indebtedness in
violation of the terms of this Note, such payment or distribution shall be held
in trust for and paid ratably to the holders of Senior Indebtedness or their
representatives. No such payments or distributions paid to the holders of
Senior Indebtedness or their representatives by the Payee or any of the Sellers
shall be deemed to discharge any of such Subordinated Indebtedness.
(f) Scope of Subordination. The subordination provisions of this Note are
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intended solely to define the relative rights of (i) the Payee and the Sellers
with respect to the Subordinated Indebtedness and (ii) the holders of Senior
Indebtedness. Nothing in this Note shall impair, as between or among the
Company, the Buyer, their respective creditors (other than the holders of Senior
Indebtedness) and the Payee and Sellers with respect to the Subordinated
Indebtedness, the unconditional and absolute obligation of the Company and the
Buyer to timely pay the principal, interest, and other amounts and obligations
owing under the terms of this Note or affect the rights of the Payee and the
Sellers and the respective creditors of the Company and the Buyer (other than
the holders of Senior Indebtedness), nor shall anything prevent the Payee or any
Seller from accepting any payment with respect to the Subordinated Indebtedness
or exercising all remedies otherwise permitted by applicable law upon default
with respect to the Subordinated Indebtedness or this Note, subject to any
rights under this Note of the holders of Senior Indebtedness.
(g) Notices. The holders of Senior Indebtedness will promptly notify the
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Payee in writing of the occurrence of any Event of Default (as defined in any of
the Senior Loan Documents), and Payee and the Sellers will promptly notify
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the holders of Senior Indebtedness in writing of the occurrence of any Event of
Default hereunder. The failure to give such notice shall not, however, deprive
either the holders of Senior Indebtedness or Payee and the Sellers of any rights
or remedies to which they are entitled hereunder.
(h) Survival of Rights. No right of any present or future holders of any
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Senior Indebtedness to enforce the subordination as provided herein shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, by any forbearance, waiver, consent, compromise, or taking or release of
security by the Company or the Buyer or any such holder in respect of such
Senior Indebtedness or by any noncompliance by the Company or the Buyer with the
terms of this Note, regardless of any knowledge thereof which any such holder
may have or be otherwise charged with. No provision in any supplemental
agreement which affects the superior position of the holders of the Senior
Indebtedness shall be effective against the holders of the Senior Indebtedness
who have not consented thereto.
(i) Miscellaneous.
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(i) The subordination provisions of this Note shall continue to be
effective or be reinstated, as the case may be, if at any time any payment
of any of the Senior Indebtedness is rescinded or must otherwise be
returned by any holder of Senior Indebtedness or any representative of such
holder upon the insolvency, bankruptcy or reorganization of the Company, or
the Buyer, or otherwise, all as though such payment had not been made.
(ii) The Payee and the Sellers, the Company and the Buyer each hereby
waive promptness, diligence, notice of acceptance and any other notice with
respect to any of the Senior Indebtedness and the subordination provisions
of this Note and any requirement that any holder of Senior Indebtedness
protect, secure, perfect or insure any security interest or lien or any
property subject thereto or exhaust any right or take any action against
the Company or the Buyer, or any other person or entity or any collateral.
(iii) No failure on the part of any holder of Senior Indebtedness or
any representative of such holder to exercise, and no delay in exercising,
any right hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
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provided are cumulative and not exclusive of any remedies provided by law.
(iv) The subordination provisions of this Note constitute a
continuing agreement and shall (A) remain in full force and effect until
the Senior Indebtedness shall have been paid in full in cash (or such
payment shall have been duly provided for to the reasonable satisfaction of
the holders of Senior Indebtedness), (B) be binding upon the Payee, the
Sellers, the Company, the Buyer, and each of their respective successors
and assigns, and (C) inure to the benefit of and be enforceable by each
holder of Senior Indebtedness and their representatives, successors,
transferees and assigns. Without limiting the generality of the foregoing
clause (C), any holder of the Senior Indebtedness may assign or otherwise
transfer any note or other evidence of indebtedness held by it, or grant
any participation in any of its rights or obligations under the Senior Loan
Documents, to any other person or entity, and such other person or entity
shall thereupon become vested with all the rights in respect thereof
granted to such holder herein or otherwise.
(v) All rights and interests under the subordination provisions of
this Note of the holders of the Senior Indebtedness and all agreements and
obligations of the Payee, the Sellers, the Company and the Buyer under the
subordination provisions of this Note shall remain in full force and effect
irrespective of (A) any amendment or waiver of or any consent to departure
from any of the Senior Loan Documents or any other agreement or instrument
relating thereto, (B) any exchange, release or non-perfection of any
collateral or security interests therein, or any release or waiver of or
consent to departure from any guarantee for all or any of the Senior
Indebtedness, or (C) the taking of any other action, or any inaction, by or
on the part of any of the holders of Senior Indebtedness or any other
Person that might otherwise in any manner operate to modify or otherwise
affect the subordination provisions contained herein, all of which may be
done without notice to any of the holders of Subordinated Indebtedness or
any other Person.
3. Prepayment.
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The Company may prepay all or any portion of the outstanding principal
amount of this Note at any time and from time to time without any penalty or
premium in the manner provided below. In the case of any partial prepayment
hereof, payments shall be applied first to payment of any accrued interest owing
hereunder, and then against the principal balance hereof. Prepayment of
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principal will be applied to the installments due on this Note in the order of
their maturity.
4. Events of Default; Acceleration.
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If any of the following events ("Events of Default") shall occur: (a) the
Company shall fail to make any principal or interest payment hereunder when the
same becomes due and such failure shall continue for fifteen (15) days after
receipt of written notice from the Payee; (b) the Company or Buyer; (i) shall
make an assignment for the benefit of creditors; (ii) shall be adjudicated
bankrupt or insolvent; (iii) shall seek the appointment of, or be the subject of
an order appointing, a trustee, liquidator or receiver as to all or part of its
assets, (iv) shall commence, approve or consent to, any case or proceeding under
any bankruptcy, reorganization or similar law and, in the case of an involuntary
case or proceeding, such case or proceeding is not dismissed within forty-five
(45) days following the commencement thereof, or (v) shall be the subject of an
order for relief in an involuntary case under federal bankruptcy law; or (c) the
Company or Buyer shall be unable to pay its debts as they mature;
THEN, or at any time thereafter:
(1) In the case of any Event of Default under clauses (b) or (c), the
entire unpaid principal amount outstanding hereunder and all interest accrued
and unpaid thereon shall automatically become forthwith due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by the Company; and
(2) In the case of any Event of Default other than under clauses (b) or
(c), the Payee may, by written notice to the Company, declare the unpaid
principal amount outstanding hereunder and all interest accrued and unpaid
thereon to be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Company.
No remedy herein conferred upon the Payee is intended to be exclusive of
any other remedy and each and every remedy shall be cumulative and in addition
to every other remedy hereunder, now or hereafter existing at law or in equity
or otherwise.
5. Exchange Option in the Event of an IPO.
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In the event of an initial public offering of the Buyer's Common Stock, par
value $.01 per share (the "Common Stock"), the Company shall deliver to the
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Payee a written notice of such offering at least thirty (30) days prior to such
offering. For a period of ten (10) days after the Company's delivery of such
notice, the Payee shall have the right, exercisable in its discretion by
delivering to the Company written notice of exercise within such ten (10) day
period, to exchange any portion of this Note for (a) the number of shares of
Common Stock obtained by (i) dividing the portion of the outstanding amount of
this Note (including accrued and unpaid interest thereon) being exchanged by the
per share issuance price of the Common Stock established by the underwriter
engaged by the Buyer in connection with such offering, and (ii) rounding such
quotient down to the nearest whole number, and (b) a cash payment to the Payee
in an amount equal to the amount by which the quotient obtained pursuant to
clause (i) above was rounded down pursuant to clause (ii) above multiplied by
such per share issuance price. The Company represents and warrants to the Payee
that the Buyer has agreed to provide the shares of Common Stock necessary to
effect the exchange contemplated by this Section in consideration for the Payee
and the Sellers' canceling or, in the case of a partial exchange, decreasing the
amount owing to Sellers under the Note and the Buyer's obligations in respect
thereof under the Guaranty. Notwithstanding anything to the contrary contained
in this Section 5, the rights of the Payee and the Sellers hereunder shall be
subject in all cases to any and all restrictions and requirements imposed by the
Buyer's underwriter in such offering.
6. Further Assurances.
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The Payee and the Sellers, the Company and the Buyer each will, at the
Company's (or, in the case of the Buyer, the Buyer's) expense and at any time
and from time to time, promptly execute and deliver all further agreements,
instruments and documents, and take all further action, that any actual or
potential holders of Senior Indebtedness may reasonably deem necessary or
appropriate in order to reflect the terms of this Note, protect any right or
interest granted or purported to be granted by the provisions of this Note or to
enable any of the holders of Senior Indebtedness to exercise and enforce their
rights and remedies hereunder.
7. Miscellaneous
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(a) In case any provision of this Note shall be invalid, illegal or
unenforceable, or partially invalid, illegal or unenforceable, the provision
shall be enforced to the extent, if any, that it may legally be enforced and the
validity, legality and unenforceability of the remaining provisions shall not in
any way be affected or impaired thereby. The headings in this Note are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
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(b) The terms of this Note shall be governed by and construed in accordance
with the laws of the State of Delaware.
(c) This Note shall not be valid or obligatory for any purpose until
authenticated by the execution hereof by an officer of the Company.
(d) None of the Sellers shall be entitled to transfer to any Person (other
than to the spouse or lineal descendants of any Seller or a trust solely for the
benefit of one or more of the foregoing) all or any portion of such Seller's
interest in this Note or the Indebtedness evidenced hereby.
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IN WITNESS WHEREOF, International Medical Technical Consultants, Inc., a
Kansas corporation, has caused this Note to be signed in its corporate name by
its officer, by authority duly given, all as of the day and year first above
written.
INTERNATIONAL MEDICAL
TECHNICAL CONSULTANTS, INC.
[SEAL]
By: /s/ P.K. Donnelly
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Title: Executive Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGES]
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ACCEPTED AND AGREED
as of the date first above written:
"PAYEE"
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"SELLERS"
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/s/ ROBERT J. DOCKHORN, M.D.
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ROBERT J. DOCKHORN, M.D.
/s/ BEVERLY W. DOCKHORN
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BEVERLY W. DOCKHORN
/s/ DOUGLAS R. DOCKHORN
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DOUGLAS R. DOCKHORN
DOUGLAS R. AND STEPHANIE
DOCKHORN JTWROS
By: /s/ DOUGLAS R. DOCKHORN
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DOUGLAS R. DOCKHORN
By: /s/ STEPHANIE DOCKHORN
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STEPHANIE DOCKHORN
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DAVID W. AND ALLISON
DOCKHORN JTWROS
By: /s/ DAVID W. DOCKHORN
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DAVID W. DOCKHORN
By: /s/ ALLISON DOCKHORN
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ALLISON DOCKHORN
ROBERT AND BEVERLY DOCKHORN
CHARITABLE REMAINDER UNITRUST
By: Larry J. Bingham
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Title: Trustee