<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1996.
REGISTRATION NO. 333-9815
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
MEDICAL ALLIANCE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 8099 73-1347577
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
</TABLE>
---------------------
MARK NOVY
MEDICAL ALLIANCE, INC.
2445 GATEWAY DRIVE, SUITE 150
IRVING, TEXAS 75063
(214) 580-8999
(Name, address, including zip code, and telephone number, including area
code, of registrant's principal executive offices and agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS W. HUGHES
WALTER EARL BISSEX
RICHARD F. DAHLSON WINSTEAD SECHREST & MINICK P.C.
JACKSON & WALKER, L.L.P. 5400 RENAISSANCE TOWER
901 MAIN STREET, SUITE 6000 1201 ELM STREET
DALLAS, TEXAS 75202 DALLAS, TEXAS 75270
(214) 953-5896 (214) 745-5400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.002 per share........... 2,300,000 shares $13.00 $29,900,000 $10,310
====================================================================================================================================
</TABLE>
(1) Includes 300,000 shares subject to the exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MEDICAL ALLIANCE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- ------ ------------------------------------------ ------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Facing Page; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. *
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered.............................. Description of Capital Stock
10. Interests of Named Experts and Counsel.... Legal Matters; Experts
11. Information with Respect to the
Registrant.............................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend
Policy; Dilution; Capitalization;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal
Shareholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Underwriting; Legal Matters; Experts;
Additional Information; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. *
</TABLE>
- ---------------
* Not Applicable
<PAGE> 3
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1996
PROSPECTUS
2,000,000 SHARES
LOGO
COMMON STOCK
------------------------------
All of the 2,000,000 shares of Common Stock, $0.002 par value per share
(the "Common Stock"), offered hereby are being sold by Medical Alliance, Inc.
("Medical Alliance" or the "Company"). Prior to this offering (the "Offering"),
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company's
Common Stock has been approved for listing on the Nasdaq National Market under
the symbol "MAII" subject to notice of issuance.
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
- ----------------------------------------------------------------------------------------------
Total(3)................................ $ $ $
==============================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------------
The shares of Common Stock are being offered severally by the Underwriters,
subject to prior sale, when, as and if accepted by the Underwriters and subject
to conditions including their right to reject orders, in whole or in part. It is
expected that delivery of the shares will be made at the offices of Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, on or about
, 1996.
------------------------------
BEAR, STEARNS & CO. INC. EQUITABLE SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
- --------------------------------------------------------------------------------
MEDICAL ALLIANCE, INC.
[LOGO]
A LEADING NATIONAL PROVIDER OF SERVICES TO
CREATE TEMPORARY SURGICAL SITES IN THE PHYSICIAN OFFICE
SERVING APPROXIMATELY 2,500 PHYSICIANS
ACROSS THE U.S.
MEDICAL SURGICAL SERVICES
AESTHETIC ELECTIVE SERVICES
DISTRICT OFFICES
FACILITATING PROCEDURES IN GYNECOLOGY, UROLOGY, PODIATRY,
DERMATOLOGY, OTOLARYNGOLOGY AND PLASTIC SURGERY.
- --------------------------------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The Company intends to furnish to its shareholders annual reports
containing audited consolidated financial statements certified by independent
public accountants for each year and quarterly reports containing unaudited
consolidated financial statements for the first three quarters of each fiscal
year.
<PAGE> 5
[LOGO]
CREATING TEMPORARY SURGICAL SITES IN THE PHYSICIAN'S OFFICE
TO BENEFIT PAYORS, PHYSICIANS AND PATIENTS*
<TABLE>
<S> <C>
ENHANCED PATIENT SATISFACTION INCREASED PHYSICIAN PRODUCTIVITY
- Shorter recovery times - Ability to perform a broad array
- Reduced anesthesia requirements of procedures
- Increased scheduling flexibility - On-site technical assistance
- Optimizes procedure scheduling
[Photograph of technician demonstrating
equipment to physician]
BENEFICIARIES
- PAYORS
- PHYSICIANS
- PATIENTS
HIGH QUALITY MEDICAL SERVICES
- Physician training and credentialing
- Protocols and standards for office-based
procedures
- Procedure documentation
[Photograph of Company representative
conducting training session]
GREATER ACCESS TO ADVANCED MEDICAL IMPROVED PROCEDURAL COST-EFFECTIVENESS
TECHNOLOGIES - Lower facility cost
- State-of-the-art laser technologies - Lower personnel cost
- Devices for minimally invasive surgery - Lower out-of-pocket expenditures for
- Integrated medical systems delivered in patients
office
[Photograph of technician unloading
medical equipment from van]
</TABLE>
* Photographs depict medical equipment leased to the Company.
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed financial data, including the
Consolidated Financial Statements and the notes thereto, appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information contained in this
Prospectus: (i) assumes that the Underwriters' over-allotment option is not
exercised, (ii) has been adjusted to give effect to a 1.561-for-1 stock split,
effected through a stock dividend, prior to the consummation of the Offering,
and (iii) has been adjusted to give effect to the conversion of the outstanding
shares of Convertible Preferred Stock into Common Stock upon consummation of the
Offering. "Medical Alliance" or the "Company" refers to Medical Alliance, Inc.
and its subsidiaries.
THE COMPANY
Medical Alliance provides a complete range of services used to create
temporary surgical sites in physician offices in 40 states and Canada and
believes it is a leading national provider of such services. The Company's
services facilitate the migration of established surgical procedures and
advanced medical technologies from hospitals and outpatient surgery centers to a
lower-cost setting, the physician's office. Payors, physicians and patients
benefit from the Company's services through reduced costs for surgical
procedures, increased physician productivity, greater access to advanced medical
technologies and improved patient satisfaction. The Company has over 100 managed
care contracts that in aggregate cover approximately 16 million lives. Managed
care contracts are made directly between the Company and managed care
organizations, and typically have automatically renewable one-year terms. The
Company has served approximately 2,500 physicians during the six months ended
June 30, 1996, and currently, physicians perform approximately 6,000 procedures
monthly using the Company's services. The Company's services include:
- Providing on-site technical personnel and medical equipment on a
scheduled basis;
- Monitoring and documenting preoperative, intraoperative and postoperative
procedures;
- Returning the physician's office to its pre-procedure condition;
- Establishing procedural safety and quality assurance protocols for
office-based procedures;
- Facilitating physician training and qualification; and
- Physician credentialing pursuant to contracts with managed care
organizations.
The Company provides its services along two primary business lines: medical
surgical and aesthetic elective services. The Company's medical surgical
services allow physicians to perform approximately 25 different office-based
surgical procedures across numerous specialties, including gynecology, podiatry,
urology and otolaryngology. The Company's aesthetic elective services are
utilized primarily by plastic surgeons and dermatologists for cosmetic
procedures such as skin resurfacing, vascular and pigmented lesion treatment,
and tattoo removal. The Company is generally reimbursed for providing its
medical surgical services by third-party payors, including through its contracts
with managed care organizations, and is paid directly by patients for any
required copayments and deductibles. For providing its aesthetic elective
services, the Company is paid directly by patients, generally at the time of
service. The Company derived approximately 64% and 33% of its net revenues in
1995 from the provision of medical surgical and aesthetic elective services,
respectively. None of the Company's net revenues is derived from Medicare or
Medicaid reimbursement.
The Company markets its services directly to physicians and managed care
organizations. If a managed care organization decides to enter into a contract
with the Company, a formal agreement is negotiated stipulating each party's
responsibilities and a structure for financial reimbursement. If a physician
decides to utilize the Company's services, the physician will enter into a
contract with the Company certifying as to the physician's credentials and
training in the use of the technology. The contract will also define the
relative responsibilities of the Company and the physician. Generally, the
Company does not require the physician to exclusively utilize the Company's
services.
In utilizing the Company's services, a physician will schedule an
office-based procedure for a specified date and time. If appropriate, the
Company will verify a patient's insurance coverage and obtain any necessary
3
<PAGE> 7
precertification from the third-party payor. Prior to arrival of the patient,
the Company's field technician will create a temporary surgical setting in the
physician's office that meets the Company's preoperative protocol and will
configure the transportable medical equipment in accordance with the Company's
procedure guidelines. Prior to performing the procedure, the physician and/or
his or her staff is required to inspect the temporary surgical setting, test and
accept all medical equipment, and record such acceptance in the field
technician's delivery log. After the physician has finished using the Company's
services, the field technician returns the physician's office to its
pre-procedure condition. An invoice for the Company's services is then either
presented to the patient or sent to the third-party payor.
According to Medical Data International, Inc. ("MDI"), total surgical
procedures in the United States have increased by 12.4% from 25.8 million
procedures in 1990 to 29.0 million procedures in 1994. Over this period, the
number of surgeries performed in an outpatient setting as a percentage of total
surgeries performed annually in the United States has increased. The volume of
outpatient surgical procedures has grown by 71.8% over this period, from 11.0
million procedures, or approximately 43% of total surgeries in 1990, to 18.9
million procedures, or approximately 65% of total surgeries in 1994.
Furthermore, the prevalence of surgical procedures occurring in a physician's
office has increased, representing approximately 12% of total outpatient
procedures performed in 1994 as compared to approximately 6% in 1990. The
Company believes that a broader array of procedures, including more complex
surgeries, is currently being performed in an outpatient setting than was
performed in a similar setting in 1990 and believes that the migration of
outpatient procedures to a physician's office will continue.
The Company also believes that the number of aesthetic elective procedures
performed annually in the United States will continue to grow, primarily due to
the development of new technologies for cosmetic procedures, increased public
awareness, shorter recovery times and the aging of the "baby boom" generation.
According to an American Academy of Cosmetic Surgery survey (the "AACS Survey"),
approximately 2.7 million cosmetic procedures were performed in the United
States in 1994. The Company believes that a majority of such procedures are or
can be performed in a physician's office. According to a survey by the American
Society of Plastic and Reconstructive Surgeons (the "ASPRS Survey"), patients
between the ages of 35 and 50 represented 41% of the cosmetic procedures
performed in the United States in 1994, and the number of people who say they
approve of cosmetic surgery, either for themselves or others, has increased 50%
in the last decade. According to the ASPRS Survey, approximately 36% of the
cosmetic procedures performed in 1994 were performed in a physician's office.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.............. 2,000,000 shares
Common Stock to be outstanding after the
Offering(1).................................... 5,623,596 shares
Use of proceeds.................................. To repay indebtedness, make capital
expenditures, including the acquisition
of medical equipment, and hire additional
personnel, and for working capital and
general corporate purposes, including
possible acquisitions. See "Use of
Proceeds."
Reserved Nasdaq National Market symbol........... MAII
</TABLE>
- ---------------
(1) Excludes 902,315 shares of Common Stock issuable upon the exercise of
outstanding stock options granted under the Company's Amended and Restated
1994 Long-Term Incentive Plan (the "Incentive Plan") (60,106 of which are
exercisable at the initial offering price, assumed to be $12.00) at a
weighted average exercise price of $2.68 per share, 294,436 shares of
Common Stock reserved for future option grants or awards under the
Incentive Plan and 49,328 shares of Common Stock issuable upon the exercise
of outstanding warrants at a weighted average exercise price of $1.69 per
share. See "Management -- Incentive Plan" and "Description of Capital
Stock -- Warrants."
4
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................... $1,827 $3,148 $3,720 $5,262 $11,177 $4,854 $8,395
Operating expenses(1)........... 1,981 3,051 3,408 4,603 9,226 3,969 6,972
Depreciation and amortization... 193 283 333 293 719 265 653
Operating income (loss)......... (347) (186) (21) 365 1,232 621 770
Interest and other expense,
net........................... 125 141 156 173 259 140 139
Net income (loss)............... (472) (353) (150) 192 578 285 369
Net income (loss) applicable to
common stock.................. (472) (353) (225) 117 311 18 282
Pro forma net income applicable
to common stock(2)............ -- -- -- -- 519 157 449
Pro forma earnings per
share(2)...................... -- -- -- -- .09 .03 .07
Shares used in computing pro
forma earnings per share(2)... -- -- -- -- 5,690 5,407 6,232
OPERATING DATA:
Procedures serviced:
Medical surgical.............. 5,036 8,242 8,494 9,656 19,509 8,736 12,690
Aesthetic elective............ 0 0 660 5,497 20,131 7,935 20,219
Physicians served
in-office(3).................. 450 674 760 1,161 2,046 1,538 2,503
Mobile field units in
service(4).................... 23 42 44 55 79 61 126
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED(5)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................................. $1,432 $ 23,252
Working capital....................................................... 2,345 24,165
Total assets.......................................................... 8,931 30,751
Total debt and capital lease obligations.............................. 3,813 457
Convertible preferred stock........................................... 2 --
Total shareholders' equity............................................ 2,758 24,578
</TABLE>
- ---------------
(1) Operating expenses include salaries and benefits expense, selling, general
and administrative expense and provision for uncollectible accounts.
(2) Adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered hereby at an assumed offering price of $12.00 per share, the
application of a portion of the estimated net proceeds therefrom to repay
indebtedness and the conversion of the outstanding Convertible Preferred
Stock into shares of Common Stock as if each had occurred on January 1,
1995. See "Use of Proceeds."
(3) Number of physicians who have used the Company's services to perform an
office-based procedure during the last six months of the period.
(4) Number of mobile field units in service is as of end of period.
(5) "As Adjusted" amounts reflect the sale of 2,000,000 shares of Common Stock
offered hereby at an assumed offering price of $12.00 per share and the
application of a portion of the estimated net proceeds therefrom to repay
indebtedness. See "Use of Proceeds."
5
<PAGE> 9
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the risk factors set forth below
in evaluating an investment in the shares of Common Stock offered hereby.
UNCERTAINTY OF MARKET ACCEPTANCE
There can be no assurance that any of the Company's existing or future
services will gain or maintain market acceptance among physicians, patients and
third-party payors. The Company believes that market acceptance of office-based
procedures, including those performed using the Company's services, depends upon
various factors including: (i) the Company's ability to provide evidence to the
medical community of the efficacy of office-based procedures and the
corresponding benefits to payors, physicians and patients, (ii) the willingness
of physicians to perform and patients to undergo procedures in the physician's
office which have traditionally been performed in a hospital or outpatient
facility, (iii) the willingness of physicians to perform and patients to undergo
procedures under local rather than under general anesthesia, (iv) the
willingness of physicians to utilize the Company's services rather than perform
office-based procedures utilizing their employees and medical equipment, and (v)
the continued availability of third-party reimbursement for certain procedures
performed using the Company's services.
ACQUISITION, OBSOLESCENCE AND REGULATION OF ADVANCED TECHNOLOGY
The Company's future success will depend in large part on the Company's
ability to provide advanced medical technology to physicians. The medical device
industry is characterized by rapid and significant technological change. The
acquisition of medical technology requires substantial expenditures, and there
can be no assurance that the Company will be successful in identifying,
acquiring and receiving timely delivery of technology for which sufficient
demand will exist and that such technology will not become obsolete during its
anticipated product life cycle. Currently, there are alternative technologies to
those offered by the Company. Such technologies may gain broader market
acceptance, which could have a material adverse effect on the Company's
operating results or financial condition. There can be no assurance that the
Company's strategy to obtain medical technology through relationships with
medical equipment manufacturers and distributors will be successful or, if
successful, that such relationships can be maintained. In addition, the medical
equipment utilized by the Company requires approval by the Food and Drug
Administration (the "FDA"), and there can be no assurance that such medical
equipment will receive or retain FDA approval for desired current and future
applications. The loss of any FDA approval for such equipment could have a
material adverse effect on the Company's operating results or financial
condition, as the Company would be unable to utilize such equipment in the
provision of its services. Furthermore, the medical equipment industry has been
characterized by extensive litigation regarding patents and other intellectual
property rights. There can be no assurance that manufacturers or distributors of
medical equipment utilized by the Company will obtain or retain patents or other
intellectual property rights related to the equipment used by the Company. See
"-- Regulation of and Change in the Health Care Industry" and
"Business -- Business Strategy -- Establishing Strategic Alliances with Medical
Equipment Manufacturers."
INABILITY TO MANAGE GROWTH
The Company has recently experienced, and may continue to experience,
growth in its geographic area of operations, the breadth of services it provides
and the number of its employees. During 1996, the Company has expanded into five
new markets, introduced four new services and increased its employee base by
approximately 40%. To accommodate this recent growth, compete effectively and
manage any future growth, the Company will be required to continue to implement
and improve operational, financial and management information systems,
procedures and controls on a timely basis and to expand, train, and manage its
work force, the failure of any of which could have a material adverse effect on
the Company's operating results or financial condition. In 1995, the Company
began implementation of a new management information system and expects to
continue such implementation through 1997. The Company's future success will
depend, in
6
<PAGE> 10
part, on the successful implementation of the Company's management information
system. See "Business -- Information Systems."
UNCERTAINTY OF ACQUISITIONS
The Company's strategy has included and will continue to include growth
through acquisitions. The market for potential acquisitions is primarily limited
to those entities renting medical equipment used to facilitate aesthetic
elective services. There can be no assurance that the Company will be able to
successfully identify, complete or integrate any acquisition. In addition, there
can be no assurance that any future acquisition will not have a material adverse
effect upon the Company's operating results or financial condition, particularly
during the period in which the operations of the acquired business are being
integrated into the Company. In order to successfully integrate acquired
operations the Company will need to establish relationships with new or existing
physicians and will be reliant on local management who may have important
relationships with local physicians. As a result, it may be necessary for the
Company to give a significant amount of autonomy to local managers. In addition,
the Company will be required to comply with laws and regulations of states that
differ from those in which the Company currently operates, and may face
competitors with greater knowledge of such local markets. Furthermore, the
Company's ability to make acquisitions may depend upon its ability to obtain
financing, and there can be no assurance that financing will be available to the
Company on acceptable terms, or at all. The Company continually assesses
potential acquisition candidates. The Company currently has no agreement or
understanding with respect to any future acquisitions. See "Business -- Business
Strategy."
COMPETITION
The market for aesthetic elective services is highly competitive due to:
(i) low barriers to entry, (ii) low capital requirements, and (iii) high
profitability. Currently, the Company believes its competition is primarily
comprised of small, locally based equipment rental companies. In the future, the
Company may face competition from groups that have consolidated other
competitive operations. Further, the Company believes that the heightened
interest in aesthetic procedures among physicians and patients, the development
of advanced technologies used for aesthetic procedures and the industry practice
of requiring immediate cash payment for such services will create increased
competition in this segment. Competition in the provision of medical surgical
services may also increase because these services are becoming more accepted by
physicians, patients and third-party payors and because the medical equipment
used in providing such services is readily available from various sources. The
Company competes with companies that offer medical equipment to physicians'
offices on either a rental or a fee-for-service basis, and with hospitals and
surgery centers that provide comparable surgical services. In addition, other
health care providers may enter the market for the provision of temporary
office-based surgical services. The Company also competes with other providers
in the health care industry for access to technology, relationships with
third-party payors and relationships with physicians. Any of these competitors
may have greater financial and other resources than the Company. It is also
possible that competitors of the Company could obtain exclusive rights to
technology that the Company currently offers or expects to offer. The health
care industry is highly competitive and is subject to continuing changes in the
manner in which health care services are provided and the manner in which
providers are selected and paid. The Company believes that the trend toward
managed care could increase the competition to obtain contracts with managed
care organizations and other third-party payors. There can be no assurance that
competition will not adversely effect the Company's operating results or its
ability to maintain or increase net revenues. As a consequence of the foregoing,
the Company may not be able to execute its business strategies or may be
required to significantly alter such strategies, either of which actions could
have a material adverse effect upon the Company's operating results or financial
condition. See "Business -- Business Strategy" and "Business -- Competition."
REIMBURSEMENT RISK
The Company generally receives payment directly from the patient for its
aesthetic elective services at the time of the service. In those instances where
the patient is unable to pay at the time of the service, the Company will
invoice the patient. If the invoice is not paid, the account is subject to
write-off as an uncollectible account. The Company relies almost exclusively on
third party payors for payment for its medical surgical services. If the claim
is invoiced to a noncontracted payor, (i.e., a noncontracted managed
7
<PAGE> 11
care plan or an indemnity plan), the claim is subject to denial by the payor.
Denial of reimbursement may occur, among other reasons, because of the claim
examiner's lack of understanding regarding the Company's services or the lack of
a contractual arrangement with a managed care company. To the extent any third
party payor ultimately fails to recognize or accept the Company's services as
being reimbursable, the Company may not be able to collect fees for its
services. In addition, the health care industry is experiencing a trend toward
cost containment, and third-party payors are seeking to reduce the cost and
control the utilization of health care services and to negotiate reduced payment
schedules with service providers. Reduced payment schedules could result in
lower revenues for the Company. There can be no assurance that the Company will
be able to negotiate satisfactory arrangements with managed care organizations
or other third-party payors under such conditions, or at all. See
"Business -- Business Strategy -- Continuing the Development of Managed Care
Contracts."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance is substantially dependent upon the
continued services of its senior management and other key personnel. Because the
Company has a relatively small number of employees, its dependence on retaining
its employees is particularly significant. The Company's success will depend, in
part, on its ability to attract and retain qualified management and professional
personnel. Competition for such personnel in the health care industry is
intense. In addition, there can be no assurance that the Company's current
employees will continue to work for the Company. The loss of the services of one
or more of the Company's key employees could adversely affect the Company's
operating results or financial condition. Further, the Company's growth in
revenues has resulted, to a significant degree, from the hiring and training of
new field personnel. The Company's continued growth will depend, in part, on its
ability to attract and retain high quality field and other personnel. The
Company may need to grant additional stock options to key employees and to
provide similar or other forms of incentive compensation to attract and retain
key personnel. See "Management."
REGULATION OF AND CHANGE IN THE HEALTH CARE INDUSTRY
The health care industry is subject to extensive federal and state
regulation. The Company's services generally are not directly subject to health
care rules or regulations, although such rules and regulations apply to the
equipment provided to physicians by the Company and to the medical personnel
utilizing the Company's services and products and therefore may indirectly
affect the Company's business. In addition, promulgation of new laws and
regulations, or changes in or reinterpretations of existing laws or regulations,
may directly or indirectly affect the Company's business, operating results or
financial condition. Further, the Company's services involve the handling of
chemical and biological substances, thereby subjecting the Company to certain
labor and environmental regulations. See "-- Hazardous Materials." There can be
no assurance that a review of the Company's operations by courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of the Company.
The manufacturers of medical equipment utilized by the Company are subject
to extensive regulation by the FDA. Failure of such manufacturers to obtain FDA
approval for new technologies which the Company wishes to offer may adversely
affect the Company's plans for future expansion. In addition, failure of medical
equipment manufacturers to comply with FDA regulations could result in the loss
of approval by the FDA of medical equipment utilized by the Company, which could
adversely affect the Company's operating results or financial condition.
Subject to certain statutory exceptions, physicians who have a financial
relationship with an entity providing health care services are prohibited by
federal law (the "Stark II Legislation") from referring or admitting patients to
that entity for the furnishing of certain designated services reimbursable under
Medicare or Medicaid, as well as certain other federally assisted state health
care programs. Possible sanctions for violations of the Stark II Legislation
include civil monetary penalties, exclusion from the Medicare and Medicaid
programs, and forfeiture of all amounts collected in violation of such
prohibition. Federal law generally prohibits activities and arrangements which
are designed to provide kickbacks or to induce the referral of business under
Medicare and Medicaid programs (the "Fraud and Abuse Statutes"). Violations of
anti-kickback legislation are felonies punishable by monetary fines, civil and
criminal penalties and exclusion from participation in Medicare or Medicaid
programs. Several states in which the Company operates prohibit
8
<PAGE> 12
the corporate practice of medicine except by professional medical corporations
or associations. Several states in which the Company operates also prohibit
physicians from splitting fees with non-physicians. Although the Company has
attempted to structure its business relations with physician groups to comply
with the Stark II Legislation, the Fraud and Abuse Statutes, and the state
corporate-practice-of-medicine and fee-splitting laws, there can be no assurance
that such laws will ultimately be interpreted in a manner consistent with the
Company's practices or that other laws or regulations will not be enacted in the
future which could have a material adverse effect on the Company's operating
results or financial condition.
While the Company does not currently derive any of its net revenues from
Medicare or Medicaid programs, and therefore it is not subject to such federal
legislation, there can be no assurance that in the future that: (i) future
legislation may not be expanded to include health care services other than those
subject to Medicare or Medicaid reimbursement, (ii) the Company will not derive
net revenues from Medicare or Medicaid reimbursements, or (iii) that managed
care providers with which the Company has contracts will not contract with
Medicare or Medicaid.
Certain of the states in which the Company currently operates or may
operate in the future have laws which prohibit physicians who have financial
relationships with an entity that provides health care services from referring
patients to that entity and that prohibit arrangements which provide
remuneration to physicians in order to induce the referral of business. Possible
sanctions for violation of these laws include civil monetary penalties,
forfeiture of amounts collected in violation of such laws and the requirement
that the Company discontinue the prohibited activity. Although the Company
believes it has structured its existing business relations with physician groups
to comply with these laws, there can be no assurance that such laws will be
interpreted in a manner consistent with the Company's practices. Such laws in
states where the Company may conduct operations in the future could prohibit the
Company from structuring its business relations with physician groups in the
same manner in which it conducts its current operations. Accordingly, such
prohibitions could adversely effect the future growth of the Company.
In addition, there can be no assurance that the regulatory environment in
which the Company operates will not change significantly in the future, which
change could adversely affect the Company's operations, financial condition,
business opportunities or future expansion. As consolidation among physician
provider groups continues and provider networks continue to be created,
purchasing decisions may shift to persons with whom the Company has not had
prior contact. There can be no assurance that the Company will be able to
maintain its physician, payor or manufacturer relationships under such
circumstances. See "-- Risk of Acquiring Advanced Technology," "-- Competition"
and "Business -- Government Regulation."
POTENTIAL EXPOSURE TO LIABILITY
Physicians, hospitals and other providers in the health care industry are
subject to lawsuits which may allege medical malpractice or other claims. Many
of these lawsuits result in substantial defense costs and judgments or
settlements. The Company does not engage in the practice of medicine, nor does
it control the practice of medicine by physicians utilizing its services or
their compliance with regulatory requirements directly applicable to such
physicians or physician groups. However, the services provided by the Company to
physicians could give rise to liability claims. The primary sources of potential
liability include actions by technicians in the set-up, monitoring and removal
of Company equipment, and the establishment by the Company of protocols
regarding the use of its equipment, instruments and disposables. The Company
maintains professional and general liability insurance in amounts deemed
appropriate by management. Although the Company has to date not been a party to
any material litigation, including litigation relating to the practice of
medicine, there can be no assurance that the Company will not become involved in
such litigation in the future, that any claim or claims arising from such
litigation will not exceed the Company's insurance coverage or that such
coverage will continue to be available. See "Business -- Insurance."
HAZARDOUS MATERIALS
The Company's services involve the handling of chemical and biological
substances, some of which may be considered contaminated, hazardous or toxic.
The Company is subject to state and federal laws that regulate labor and
environmental matters such as the handling and disposal of regulated medical
wastes, the release of pollutants and contaminants into the air and water, and
the protection of employees who may be
9
<PAGE> 13
exposed to blood or other potentially infectious material. In particular, the
Company is subject to Occupational Safety and Health Administration regulations
governing bloodborne and airborne pathogens and hazard communications. Further,
the use and operation of lasers is subject to state regulation. The Company
believes it is in substantial compliance with all applicable material labor and
environmental laws. However, there can be no assurance that there will be no
environmental matters for which the Company might be liable in the future. In
addition, future regulatory action, as well as compliance with future laws
governing the handling and disposition of hazardous materials may require the
Company to incur costs that could have a material adverse effect on the
Company's financial condition and results of operations.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
Following the consummation of the Offering, the directors and executive
officers of the Company will beneficially own approximately 45.7% of the
outstanding shares of Common Stock of the Company. Although such directors and
executive officers do not have any arrangements or understandings among
themselves with respect to the voting of the shares of Common Stock beneficially
owned by them, acting together such persons may be able to effectively control
the Company and direct its affairs and business, including making determinations
with respect to a change in control of the Company, future issuance of Common
Stock or other securities by the Company, declaration of dividends on the Common
Stock and the election of directors. Such control by such existing shareholders
could have the effect of delaying, deferring or preventing a change of control
of the Company which could deprive the Company's shareholders of the opportunity
to sell their shares of Common Stock at prices higher than prevailing market
prices. See "Principal Shareholders."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and may continue to do so in the future. Quarterly
revenues and operating results will depend upon, among other factors: (i)
seasonal demand for the Company's services, (ii) the timing of new service
introductions by the Company, (iii) the timing of regulatory and third-party
reimbursement approvals, (iv) the timing of acquisitions or entry into new
markets, and (v) the timing of expenditures for medical equipment. Accordingly,
period-to-period comparisons of the Company's revenues and operating results
should not be relied upon as an indication of future performance, and the
results of any quarterly period may not be indicative of the results for a full
year. See "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market for the
Common Stock will develop or be sustained after the Offering. The initial public
offering price of the Common Stock will be determined by negotiations between
the Company and the Underwriters and may not be indicative of the market price
of the Common Stock after the Offering. From time to time after the Offering,
there may be significant volatility in the market price for the Common Stock.
Quarterly operating results of the Company, changes in general conditions in the
economy or the health care industry, or other developments affecting the Company
or its competitors, could cause the market price of the Common Stock to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and that have often been unrelated to the
operating performance of such companies. Any fluctuations that occur in the
equity markets following consummation of the Offering may adversely affect the
market price of the Common Stock. See "Underwriting."
ADVERSE IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sale of shares of Common Stock (including shares issued upon the exercise
of outstanding options and warrants) in the public market after the Offering, or
the perception that such sales could occur, could adversely affect the market
price of the Common Stock. Such sales also might make it more difficult for the
Company to sell equity or equity-related securities in the future at times and
prices that the Company deems appropriate. Upon consummation of the Offering,
the Company will have 5,623,596 shares of Common Stock outstanding. The
2,000,000 shares offered hereby will be freely tradable without restriction,
unless purchased by an affiliate of the Company. The remaining 3,623,596 shares
are restricted securities (the "Restricted Shares") that may be sold only if
registered under the Securities Act of 1933, as amended (the "Securities
10
<PAGE> 14
Act"), or sold in accordance with an applicable exemption from registration,
such as Rule 144 promulgated under the Securities Act ("Rule 144"). Of these
shares, less than 2% will be available for sale upon the effective date of the
Registration Statement (the "Effective Date") of which this Prospectus is a
part. Beginning 180 days after the Effective Date, the remainder of these
Restricted Shares will become eligible for sale under Rule 144 or Rule 701
promulgated under the Securities Act ("Rule 701") upon the expiration of
agreements not to sell such shares (the "Lock-up Agreements"). In addition,
348,103 shares subject to currently vested stock options and warrants will
become eligible for sale in the public market upon the expiration of the Lock-up
Agreements. Further, the holders of 1,713,198 shares of Common Stock have the
right to demand that the Company register shares of Common Stock under the
Securities Act, subject to certain conditions. Pursuant to the Lock-up
Agreements, such persons have agreed not to exercise such rights for a period of
one year following the Effective Date, without the prior written consent of Bear
Stearns & Co., Inc. See "Underwriting" and "Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS
Concurrent with the completion of the Offering, the Company's Restated and
Amended Articles of Incorporation and Restated and Amended Bylaws will provide
for the Board of Directors to be divided into three classes of as equal size as
possible, with the term of each class expiring in consecutive years with
approximately one-third of the Board of Directors being elected each year.
Holders of Common Stock will not be entitled to vote cumulatively for directors,
but directors will be permitted to be removed with or without cause by the
affirmative vote of at least two-thirds of the outstanding shares of stock of
the Company entitled to vote thereon. The Company's Restated and Amended
Articles of Incorporation and Restated and Amended Bylaws will also provide that
the Company's Bylaws may be adopted, amended, or repealed only by the Board of
Directors and that the number of directors shall be fixed from time to time by
resolution of the Board of Directors. In addition, a calling of a special
meeting by the shareholders of the Company will require the written request of
holders of at least 50% of all the outstanding shares of the Company entitled to
vote. Shareholders of the Company entitled to take action at annual or special
meetings of the shareholders may take action by written consent only with the
unanimous written consent of all the shareholders entitled to vote thereon.
Concurrent with the completion of the Offering, the Company's Restated and
Amended Articles of Incorporation and Restated and Amended Bylaws will also
authorize shares of Preferred Stock with respect to which the Board of Directors
will have the power to fix the rights, preferences, privileges, and restrictions
without any further vote or action by the shareholder. The provisions of the
Company's Restated and Amended Articles of Incorporation and Restated and
Amended Bylaws may have the effect of delaying, deferring or preventing a change
in control of the Company, which could deprive the Company's shareholders of the
opportunity to sell their shares of Common Stock at prices higher than
prevailing market prices. Such provisions could also limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. See "Description of Capital Stock -- Certain Anti-Takeover Provisions."
BROAD DISCRETION WITH RESPECT TO ALLOCATION OF NET PROCEEDS
The Company expects to use a portion of the net proceeds of the Offering to
make capital expenditures, including the acquisition of medical equipment and to
hire additional personnel. The Company has not yet identified the specific uses
for such net proceeds and will, therefore, retain broad discretion as to the
allocation of a significant portion of the net proceeds of the Offering. Pending
such uses, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment-grade securities. See "Use of Proceeds."
SUBSTANTIAL DILUTION AND ABSENCE OF DIVIDENDS
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value equal to $7.67
per share of Common Stock as a result of the Offering. In the event the Company
issues additional Common Stock in the future, including shares that may be
issued in connection with future acquisitions or upon the exercise of
outstanding options or warrants, purchasers of Common Stock in the Offering may
experience further dilution in the net tangible book value per share of the
Common Stock of the Company. See "Dilution." Certain of the Company's debt
agreements prohibit it from paying cash dividends on its Common Stock. The
Company has never paid any cash dividends on its Common Stock and it does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
See "Dividend Policy."
11
<PAGE> 15
THE COMPANY
The Company was incorporated under Texas law in August 1989. The Company's
principal executive offices are located at 2445 Gateway Drive, Suite 150,
Irving, Texas 75063. The Company's telephone number is (214) 580-8999.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be $21,820,000 ($25,168,000 if the Underwriters'
over-allotment option is exercised in full), assuming an initial public offering
price of $12.00 per share and after deducting underwriting discounts and
commissions, and estimated Offering expenses payable by the Company.
The Company intends to use approximately $3.4 million of the net proceeds
to repay indebtedness under the Company's term loans and revolving credit
facility, which loans bear interest at rates ranging from 0.5% to 1.5% over the
prime rate (which rates ranged from 8.75% to 9.75% as of June 30, 1996) and have
maturity dates ranging from May 30, 1997 to May 15, 2000. The proceeds of such
loans were used to retire indebtedness of the Company and acquire medical
equipment. See "Certain Transactions." The Company anticipates that it will also
use approximately $5.9 million of the net proceeds of the Offering to acquire
additional medical equipment during the remainder of 1996 and 1997. In addition,
the Company estimates that it will use approximately $3.5 million of the net
proceeds of the Offering to employ and train additional corporate and field
personnel. Due to the timing of possible acquisitions, the availability of new
technology and the results of Company operations, there can be no assurance as
to the amount and timing of all such expenditures. In the event such
contingencies cause a deviation in these planned expenditures, the redirected
proceeds and the remaining net proceeds will be used for working capital and
general corporate purposes, including possible acquisitions. Various factors,
including but not limited to the terms of strategic alliances currently in
negotiation, products currently awaiting FDA approvals, and other business
factors may affect the nature of all of the Company's capital expenditures. The
Company currently has no agreement or understanding with respect to any future
acquisitions. Pending such uses, the Company intends to invest the net proceeds
of the Offering in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company does not anticipate paying cash dividends on its Common Stock in the
foreseeable future and intends to continue its present policy of retaining
earnings for use in the operations of the Company.
12
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996,
after giving effect to the conversion of all outstanding shares of Convertible
Preferred Stock into Common Stock on a 1.561 to 1 basis upon consummation of the
Offering, was $2,573,677 or $0.71 per share of Common Stock. Pro forma net
tangible book value per share is determined by dividing the Company's total net
tangible book value (total tangible assets less total liabilities) by the pro
forma number of shares of Common Stock outstanding after giving effect to such
conversion. Without taking into account any other changes in such pro forma net
tangible book value after June 30, 1996, other than to give effect to the sale
of 2,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $12.00 per share and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
June 30, 1996 would have been $24,393,677 million or $4.33 per share. This
represents an immediate increase in pro forma net tangible book value of $3.62
per share to existing shareholders and an immediate dilution of $7.67 per share
to new investors purchasing Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).................. $12.00
------
Pro forma net tangible book value per share before the Offering... $ 0.71
------
Increase per share attributable to the Offering................... 3.62
------
Pro forma net tangible book value per share after the Offering...... 4.33
------
Dilution per share to new investors(2).............................. $ 7.67
======
</TABLE>
- ---------------
(1) Assumed initial offering price before deduction of underwriting discounts
and commissions and estimated expenses of the Offering to be paid by the
Company.
(2) As of June 30, 1996, there were options outstanding to purchase a total of
902,315 shares of Common Stock (60,106 of which are exercisable at the
initial offering price, assumed to be $12.00) at a weighted average exercise
price of $2.68 per share and warrants outstanding to purchase a total of
49,328 shares of Common Stock at a weighted average exercise price of $1.69
per share. To the extent that any of such options and warrants are
exercised, there will be further dilution to new investors. See
"Management -- Incentive Plan."
The following table summarizes, as of June 30, 1996, the difference between
the existing shareholders and the new investors with respect to the number of
shares of Common Stock purchased (or to be purchased) from the Company, the
total consideration paid (or to be paid) and the average price per share paid
(or to be paid) by the existing shareholders and the new investors, including
net proceeds from the Offering:
<TABLE>
<CAPTION>
PRO FORMA
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION(2) AVERAGE
------------------------ -------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............. 3,632,069 64.4% $ 3,393,807 12.4% $ 0.93
New investors...................... 2,000,000 35.6 24,000,000 87.6 12.00
--------- ----- ----------- -----
Total.................... 5,632,069 100.0% $27,393,807 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Assumes no exercise of outstanding options and warrants. See
"Management -- Incentive Plan."
(2) Gives effect to the conversion of the Convertible Preferred Stock into
Common Stock upon consummation of the Offering.
13
<PAGE> 17
CAPITALIZATION
The following table sets forth: (i) the total capitalization of the Company
as of June 30, 1996, (ii) the pro forma capitalization of the Company as of June
30, 1996, reflecting the conversion of the outstanding shares of Convertible
Preferred Stock into Common Stock, and (iii) such pro forma capitalization as
adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $12.00 per share
and the application of a portion of the estimated net proceeds therefrom to
repay approximately $3.4 million of indebtedness.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt (including current portion of long-term
debt)(1)............................................... $ 700 $ 700 $ --
Long-term debt (excluding current portion)(1)............ 2,655 2,655 --
------ -------
Total debt..................................... 3,356 3,356 --
------ -------
Shareholders' equity:
Preferred Stock, par value $0.002; authorized:
2,000,000 shares actual, 5,000,000 shares pro forma
and pro forma as adjusted; issued and outstanding:
797,500 actual, no shares pro forma and pro forma as
adjusted(2)......................................... 2 -- --
Common Stock, par value $0.002; authorized 10,000,000
shares actual, 30,000,000 shares pro forma and pro
forma as adjusted; issued and outstanding: 2,387,172
shares actual, 3,632,069 shares pro forma and
5,632,069 shares pro forma as adjusted(3)........... 5 7 11
Capital in excess of par value......................... 2,918 2,918 24,734
Accumulated deficit.................................... (157) (157) (157)
Treasury shares at cost, 17,230 shares of Common
Stock............................................... (9) (9) (9)
------ ------- -------
Total shareholders' equity..................... 2,758 2,758 24,578
------ ------- -------
Total capitalization........................... $6,114 $6,114 $24,578
====== ======= =======
</TABLE>
- ---------------
(1) Excludes capital lease obligations.
(2) Includes 435,000 shares of Series A Convertible Preferred Stock issued and
outstanding and 362,500 shares of Series B Convertible Preferred Stock
issued and outstanding.
(3) Excludes 902,315 shares of Common Stock issuable upon the exercise of
outstanding stock options granted under the Incentive Plan, (60,106 of which
are exercisable at the initial offering price, assumed to be $12.00) at a
weighted average exercise price of $2.68 per share, 294,436 shares of Common
Stock reserved for future option grants or rewards under the Incentive Plan
and 49,328 shares of Common Stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $1.69 per share. See
"Management -- Incentive Plan" and "Description of Capital
Stock -- Warrants."
14
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company for the periods and at the dates indicated. The Company's statement of
operations data for each of the years in the four year period ended December 31,
1995 and its balance sheet data as of December 31, 1992, 1993, 1994 and 1995 are
derived from the Company's financial statements which have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants. The
Company's statement of operations data for the year ended December 31, 1991 and
the balance sheet data as of December 31, 1991, as well as the Company's
statement of operations data for each of the six months ended June 30, 1995 and
1996, and its balance sheet data as of June 30, 1995 and 1996, are derived from
the Company's unaudited financial statements, which in the opinion of management
reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the information set forth therein. Results
for the six months ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the full fiscal year. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and related notes included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues........................................... $1,827 $3,148 $3,720 $5,262 $11,177 $4,854 $8,395
Costs and Expenses:
Salaries and benefits................................ 980 1,358 1,643 2,005 3,721 1,686 2,749
Selling, general, and administrative................. 601 1,089 1,214 1,817 3,620 1,539 2,801
Depreciation and amortization........................ 193 283 333 293 719 265 653
Provision for uncollectible accounts................. 400 605 551 781 1,885 743 1,423
------ ------ ------ ------ ------- ------ ------
Total costs and expenses....................... 2,174 3,335 3,741 4,896 9,945 4,233 7,625
------ ------ ------ ------ ------- ------ ------
Operating income (loss)........................ (347) (187) (21) 365 1,232 621 770
Other (income) expense:
Interest income and other, net....................... (1) (3) (2) (6) 12 10 (12)
Interest expense..................................... 126 143 158 179 247 131 151
------ ------ ------ ------ ------- ------ ------
Income (loss) before income taxes.............. (472) (327) (177) 192 973 480 632
Income tax expense (benefit)........................... -- 26 (26) -- 395 195 263
------ ------ ------ ------ ------- ------ ------
Net income (loss).............................. $(472) $(353) $(150) $192 $578 $285 $369
====== ====== ====== ====== ======= ====== ======
Net income (loss) applicable to common stock........... $(472) $(353) $(225) $117 $311 $18 $282
====== ====== ====== ====== ======= ====== ======
Earnings (loss) per share.............................. $(.20) $(.14) $(.09) $.04 $.10 $.01 $.08
====== ====== ====== ====== ======= ====== ======
Weighted average number of common shares and common
share equivalents.................................... 2,355 2,518 2,529 2,611 3,011 2,728 3,553
Dividends declared on convertible preferred stock...... $0 $0 $75 $75 $87 $87 $87
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $ 12 $ 34 $ 101 $ 109 $ 1,409 $ 65 $ 1,432
Working capital...................................... 123 191 121 126 1,913 50 2,345
Total assets......................................... 839 1,382 1,544 2,698 6,443 4,098 8,931
Total debt and capital lease obligations............. 1,077 855 1,101 1,566 2,354 1,825 3,813
Convertible preferred stock.......................... -- 1 1 1 2 1 2
Retained earnings (deficit).......................... (793) (1,146) (1,297) (1,105) (526) (819) (157)
Total shareholders' equity........................... (548) 70 (154) 123 2,431 792 2,758
</TABLE>
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and the notes thereto that appear elsewhere in this
Prospectus.
GENERAL
The Company commenced operations in Oklahoma in August 1989 by providing
medical surgical services to gynecologists in their offices. The Company's
initial focus was to develop contracts with managed care organizations and other
third-party payors and to expand into new markets. By the end of 1991, the
Company had operations in 14 states. The Company continued to expand its range
of services, and introduced during 1993 its second business line by offering
aesthetic elective services. Currently, the Company provides medical surgical
and aesthetic elective services in 40 states and Canada to a network of
approximately 2,500 physicians.
The Company has completed the following three acquisitions: (i) in October
1995, the Company acquired the assets of Mobile Surgical Services of Central
Florida, Inc., a company that offered medical equipment rental services in
central Florida; (ii) in March 1996, the Company acquired the assets of Maasai
Mobile Surgical Services, Inc., a company that offered medical equipment rental
services throughout Utah, Colorado, Washington, Arizona, Nevada and Oregon; and
(iii) in June 1996, the Company acquired the assets of Mobile Laser Services,
Inc., a company that offered medical equipment rental services in Illinois. All
of such acquisitions were accounted for under the purchase method and,
accordingly, are included in the Company's consolidated financial statements
from their respective dates of acquisition. See Note 14 of the Notes to
Consolidated Financial Statements.
The following table sets forth certain information regarding the Company's
net revenues generated from its medical surgical and aesthetic elective
services.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
-------------------------------------------------- ENDED
1991 1992 1993 1994 1995 JUNE 30, 1996
------ ------ ------ ------ ------ -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Medical Surgical Services:
Net revenues.................... $1,827 $3,148 $3,565 $4,189 $7,148 $ 4,416
Percentage of total net
revenues..................... 100% 100% 95.8% 79.6% 64.0% 52.6%
Aesthetic Elective Services:
Net revenues.................... -- -- $82 $863 $3,653 $ 3,783
Percentage of total net
revenues..................... -- -- 2.2% 16.4% 32.7% 45.1%
Other:
Net revenues.................... -- -- $73 $210 $376 $196
Percentage of total net
revenues..................... -- -- 2.0% 4.0% 3.3% 2.3%
</TABLE>
The net revenues generated by aesthetic elective procedures are derived
primarily from charges that are typically collected directly from the patient at
the time of service. The collection of such charges by the Company at the time
of service allows the Company to receive payment and to monitor the collection
of its charges thereby minimizing the likelihood of uncollected charges. In
addition, charges for aesthetic elective procedures generally are not subject to
reimbursement review by third-party payors. The charges for medical surgical
services may have a co-pay or deductible portion which is generally collected
from the patient at the time of service. The amount of co-pay or deductible
typically represents 20% or less of the total charges for a medical surgical
procedure, and although such co-pay or deductible portion for a medical surgical
procedure is collected directly from the patient, the Company has historically
experienced a higher percentage of uncollectible charges from patients who
undergo medical surgical procedures. A charge that becomes uncollectible from a
patient, whether such patient has undergone an aesthetic elective or a medical
surgical procedure, is written off as a bad debt. The remainder of the Company's
charges for a medical surgical procedure are submitted to third party payors,
such as managed care payors or indemnity carriers, for reimbursement directly to
the Company.
16
<PAGE> 20
The Company, as a courtesy to the patient, will submit the claim to the
patient's insurance company on the patient's behalf. When the insurance company
pays the claim, the money is applied against the patient's account. If the
insurance company denies the claim, an appeal will be filed with the insurance
company and a statement will be sent to the patient informing them of such
denial and subsequent appeal. If the insurance company denies the claim for a
second time, the patient will be sent a statement requesting payment in full.
The Company's policy is to collect the balance due from the patient and assist
the patient, upon request, in further appeal to the insurance company. If the
patient is unwilling to pay the balance, or if the Company is not able to locate
the patient, the account will be written off as a bad debt and the account
considered for referral to a collection agency.
The charges that the Company submits for reimbursement to a third party
payor are subject to reimbursement review, and potentially may be denied by such
third party payor. Although the Company has no basis for determining in advance
which specific claims may be denied, the Company does anticipate, based upon
historical experience with denied reimbursements, that a portion of its claims
will be subject to review and denied by non-contracted third-party payors. The
Company records the estimated expense of such denials as a Provision for
Uncollectible Accounts. Further, the Company only recognizes revenue when
collection is probable. Because charges for medical surgical procedures are
subject to reimbursement review and to uncollectibility from patients, the
Company has historically experienced a higher percentage of uncollectible
accounts on charges for medical surgical procedures. However, the Company has
not witnessed a significant trend with regard to the Provision for Uncollectible
Accounts for either aesthetic elective or medical surgical procedure charges.
The Company records a Provision for Uncollectible Accounts based upon current
trends in collections and write-offs experienced by the Company, on a market by
market basis.
The Company is currently developing new processes to reduce the likelihood
of denials of reimbursements. These processes include a more comprehensive
pre-certification and insurance verification policy. The Company is implementing
a new wide-area network information system to enhance controls over the
Company's pre-certification and verification processes, as well as to provide
for more timely feedback to Company collectors and field personnel, in order to
allow them to contact patients and third-party payors in a more timely fashion
should a denial occur.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data
expressed as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -------------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and benefits expense.......... 44.2 38.1 33.3 34.7 32.7
Selling, general and administrative
expense.............................. 32.6 34.5 32.4 31.7 33.4
Depreciation and amortization.......... 9.0 5.6 6.4 5.5 7.8
Provision for uncollectible
accounts............................. 14.8 14.8 16.9 15.3 16.9
Operating income (loss)................ (0.6) 6.9 11.0 12.8 9.2
Interest expense....................... 4.2 3.3 2.3 2.9 1.7
Income tax expense (benefit)........... (0.7) -- 3.5 4.0 3.1
Net income (loss)...................... (4.0) 3.7 5.2 5.9 4.4
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NET REVENUES. Net revenues increased from $4.9 million to $8.4 million, an
increase of $3.5 million or 73%. This increase was attributable to the growth in
total procedure volume, which increased from 16,671 for the six months ended
June 30, 1995, to 32,909 for the six months ended June 30, 1996, an increase of
16,238 or 97%. Medical surgical procedures increased from 8,736 for the six
months ended June 30, 1995, to 12,690 for the six months ended June 30, 1996, an
increase of 3,954 or 45%, which contributed to 24% of the total
17
<PAGE> 21
increase in procedure volume. Aesthetic elective procedures increased from 7,935
for the six months ended June 30, 1995, to 20,219 for the six months ended June
30, 1996, an increase of 12,284 or 155%, which contributed to 76% of the total
increase in procedure volume.
The average net revenue per case decreased from $291 for the six months
ended June 30, 1995, to $255 for the six months ended June 30, 1996, a decrease
of $36 per case or 12%. This decrease was attributable to a change in case mix
with aesthetic elective procedures, which had a lower average net revenue per
case of $187, increasing as a percentage of total procedures from 48% for the
six months ended June 30, 1995, to 61% for the six months ended June 30, 1996.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense increased from
$1.7 million for the six months ended June 30, 1995, to $2.7 million for the six
months ended June 30, 1996, an increase of $1.0 million or 63%. This increase
was due to the hiring of additional field and corporate personnel to support the
Company's growth in procedure volume. Total employees for the Company increased
from 77 on June 30, 1995, to 113 on June 30, 1996, an increase of 47%. Salaries
and benefits expense as a percentage of net revenues decreased from 34.7% to
32.7%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased from $1.5 million for the six months ended June
30, 1995, to $2.8 million for the six months ended June 30, 1996, an increase of
$1.3 million or 82%. This increase was primarily due to an increase in operating
lease expense from $175,000 for the six months ended June 30, 1995, to $654,000
for the six months ended June 30, 1996, an increase of $479,000 or 274%. This
was related to a laser manufacturer revenue sharing arrangement whereby the
manufacturer receives a fixed percentage of revenues generated using lasers
covered by such agreement. The Company had in service 13 such shared lasers at
the end of June 30, 1996 compared to 7 such shared lasers at the end of June 30,
1995. In addition, vehicle expense increased from $246,000 for the six months
ended June 30, 1995 to $535,000 for the six months ended June 30, 1996, an
increase of $289,000 or 117%. This increase resulted from the increase in field
personnel from 55 as of June 30, 1995, to 79 as of June 30, 1996, each of whom
is supplied with a van for the delivery of equipment to physicians' offices.
Repair and maintenance expense increased from $72,000 for the six months
ended June 30, 1995 to $260,000 for the six months ended June 30, 1996, an
increase of $188,000 or 261%. This increase was due primarily to annual service
contracts on pulsed dye lasers.
Communications expense increased from $185,000 for the six months ended
June 30, 1995 to $281,000 for the six months ended June 30, 1996, an increase of
$96,000 or 52%. This increase was related to the hiring of additional field
personnel. Selling, general and administrative expense as a percentage of net
revenue increased from 31.7% to 33.4% primarily as a result of increases in
operating lease expense as a percent of net revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$265,000 for the six months ended June 30, 1995, to $653,000 for the six months
ended June 30, 1996, an increase of $388,000 or 146%. This increase was due to
the addition of $2.6 million in capital equipment which is depreciated over
three years with no residual value, utilizing the straight line method during
the six months ended June 30, 1996.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts
increased from $743,000 for the six months ended June 30, 1995, to $1.4 million
for the six months ended June 30, 1996, an increase of $680,000 or 91%. This
increase was primarily due to the increase in revenues. As a percentage of net
revenue, provision for uncollectible accounts increased from 15.3% to 16.9%.
This increase was primarily due to an increase in provisions relating to medical
surgical revenues.
OPERATING INCOME (LOSS). Operating income increased from $621,000 for the
six months ended June 30, 1995, to $770,000 for the six months ended June 30,
1996, an increase of $149,000 or 24%. As a percentage of net revenues, operating
income decreased from 12.8% for the six months ended June 30, 1995, to 9.2% for
the six months ended June 30, 1996. This decrease was primarily due to an
increase in selling, general and administrative expense, provision for
uncollectible accounts and depreciation of new capital as a percentage of net
revenues.
18
<PAGE> 22
INTEREST EXPENSE. Interest expense increased from $131,000 for the six
months ended June 30, 1995, to $151,000 for the six months ended June 30, 1996,
an increase of $20,000 or 15%. The Company's average debt balance increased from
$1.7 million for the six months ended June 30, 1995, to $3.1 million for the six
months ended June 30, 1996.
INCOME TAX PROVISION (BENEFIT). Income tax provision increased from
$195,000 for the six months ended June 30, 1995, to $263,000 for the six months
ended June 30, 1996, an increase of $68,000 or 35%. The income tax provision
increased primarily as a result of income before income taxes increasing from
$480,000 for the six months ended June 30, 1995, to $632,000 for the six months
ended June 30, 1996. The Company's effective tax rate increased from 40.6% for
the six months ended June 30, 1995, to 41.6% for the six months ended June 30,
1996.
NET INCOME (LOSS). As a result of the items discussed above, the Company's
net income increased from $285,000 for the six months ended June 30, 1995, to
$369,000 for the six months ended June 30, 1996.
YEARS ENDED DECEMBER 31, 1995 AND 1994
NET REVENUES. Net revenues increased from $5.3 million for the year ended
December 31, 1994, to $11.2 million for the year ended December 31, 1995, an
increase of $5.9 million or 112%. This increase was attributable to growth in
procedure volume, which increased from 15,153 for the year ended December 31,
1994, to 39,640 for the year ended December 31, 1995, an increase of 24,487 or
162%. Medical surgical procedures increased from 9,656 for the year ended
December 31, 1994, to 19,509 for the year ended December 31, 1995, an increase
of 9,853 or 102%, which contributed to 40% of the total increase in procedure
volume. Aesthetic elective procedures increased from 5,497 for the year ended
December 31, 1994, to 20,131 for the year ended December 31, 1995, an increase
of 14,634 or 266%.
The average net revenue per case decreased from $347 for the year ended
December 31, 1994, to $282 per case for the year ended December 31, 1995, a
decrease of $65 or 19%. This decrease was attributable to a change in case mix
to include a larger percentage of aesthetic elective procedures. The average net
revenue per case for aesthetic elective procedures was $181 during 1995,
compared to average net revenue per case for medical surgical procedures of
$366.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense increased from
$2.0 million for the year ended December 31, 1994, to $3.7 million for the year
ended December 31, 1995, an increase of $1.7 million or 86%. This increase was
primarily attributable to the hiring of additional employees to support the
growth and capacity in the Company's procedure volume, the introduction of two
new procedures, and an increase in total number of employees from 50 as of
December 31, 1994, to 81 at December 31, 1995, an increase of 62%. Salaries and
benefits expense as a percentage of net revenues decreased from 38.1% to 33.3%
due to increases in net revenues exceeding the increases in salaries and
benefits expense.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased from $1.8 million for the year ended December
31, 1994, to $3.6 million for the year ended December 31, 1995, an increase of
$1.8 million or 99%. A portion of the increase was due to an increase in
operating lease expense from $159,000 for the year ended December 31, 1994, to
$599,000 for the year ended December 31, 1995, an increase of $440,000 or 277%,
which was attributable to a laser manufacturer revenue sharing arrangement.
There were nine lasers subject to such agreement as of December 31, 1995. In
1994, the Company did not have any lasers subject to such agreement.
Vehicle expense increased from $306,000 for the year ended December 31,
1994 to $641,000 for the year ended December 31, 1995, an increase of $335,000
or 109%. This increase resulted from the increase in field personnel from 34 as
of December 31, 1994, to 66 as of December 31, 1995, each of whom is supplied a
van for the delivery of equipment to physicians' offices.
Communications expense increased from $246,000 for the year ended December
31, 1994 to $426,000 for the year ended December 31, 1995, an increase of
$180,000 or 73%. This increase was due to the hiring of additional field
personnel. Selling, general and administrative expense as a percentage of net
revenues decreased slightly from 34.5% for the year ended December 31, 1994, to
32.4% for the year ended
19
<PAGE> 23
December 31, 1995, due to increases in net revenues exceeding the increases in
selling, general, and administrative expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$293,000 for the year ended December 31, 1994, to $719,000 for the year ended
December 31, 1995, an increase of $426,000 or 145%, resulting primarily from the
addition of approximately $2.0 million in new medical equipment which is
depreciated over three years, utilizing the straight-line method, during the
year ended December 31, 1995.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts
increased from $781,000 for the year ended December 31, 1994, to $1.9 million
for the year ended December 31, 1995, an increase of $1.1 million or 141%. This
increase was primarily due to the increase in revenues. Additionally, a new
medical surgical procedure was introduced in 1995 that did not receive immediate
payor acceptance. As a percentage of net revenue, provision for uncollectible
accounts increased from 14.8% for the year ended December 31, 1994, to 16.9% for
the year ended December 31, 1995.
OPERATING INCOME (LOSS). Operating income increased from $365,000 for the
year ended December 31, 1994, to $1.2 million for the year ended December 31,
1995, an increase of $867,000 or 237%. As a percentage of net revenues,
operating income increased from 6.9% for the year ended December 31, 1994, to
11.0% for the year ended December 31, 1995. This increase was primarily the
result of the Company's ability to increase net revenue per employee during
1995.
INTEREST EXPENSE. Interest expense increased from $179,000 for the year
ended December 31, 1994, to $247,000 for the year ended December 31, 1995, an
increase of $68,000 or 38%. This increase was due to an increase in the average
debt outstanding from $1.3 million for the year ended December 31, 1994, to $2.0
million for the year ended December 31, 1995.
INCOME TAX PROVISION (BENEFIT). Income tax provision was $395,000 for the
year ended December 31, 1995. The Company did not record an income tax provision
for the year ended December 31, 1994. The Company's effective tax rate increased
to 40.6% for the year ended December 31, 1995, due to the utilization of the net
operating loss carryforward during 1994.
NET INCOME. As a result of the items discussed above, the Company's net
income increased from $192,000 for the year ended December 31, 1994, to $578,000
for the year ended December 31, 1995.
YEARS ENDED DECEMBER 31, 1994 AND 1993
NET REVENUES. Net revenues increased from $3.7 million for the year ended
December 31, 1993, to $5.3 million for the year ended December 31, 1994, an
increase of $1.6 million or 41%. This increase was attributable to growth in
procedure volume, which increased from 9,154 for the year ended December 31,
1993, to 15,153 for the year ended December 31, 1994, an increase of 5,999 or
66%. Medical surgical procedures increased from 8,494 for the year ended
December 31, 1993, to 9,656 for the year ended December 31, 1994, an increase of
1,162 or 14%, which contributed to 19% of the total increase in procedure
volume. Aesthetic elective procedures increased from 660 for the year ended
December 31, 1993, to 5,497 for the year ended December 31, 1994, an increase of
4,837 or 733%.
Average net revenue per case decreased from $406 for the year ended
December 31, 1993, to $347 for the year ended December 31, 1994, a decrease of
$59 or 15%. This decrease was attributable to a change in case mix to include a
larger percentage of aesthetic elective procedures. The average net revenue per
case for aesthetic elective procedures was $133 during the year ended December
31, 1994, compared to average net revenue per case for medical surgical
procedures of $448.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense increased from
$1.6 million for the year ended December 31, 1993, to $2.0 million for the year
ended December 31, 1994, an increase of $362,000 or 22%. This increase was due
to an increase in the number of employees from 41 as of December 31, 1993, to 50
as of December 31, 1994, an increase of 22% to support the growth in the
Company's procedure volume. Salaries and benefits expense as a percentage of net
revenues decreased from 44.2% to 38.1% due to increases in net revenues
exceeding the increases in salaries and benefits expense.
20
<PAGE> 24
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administration expenses increased from $1.2 million for the year ended December
31, 1993, to $1.8 million for the year ended December 31, 1994, an increase of
$603,000 or 50%. This increase was primarily due to an increase in operating
lease expense from $29,000 for the year ended December 31, 1993 to $159,000 for
the year ended December 31, 1994, an increase of $130,000 or 448% which was
attributable to five operating leases of Q-switched yag lasers in 1994.
Vehicle expense increased from $226,000 for the year ended December 31,
1993 to $306,000 for the year ended December 31, 1994, an increase of $80,000 or
35%. This increase resulted from the increase in field personnel, each of whom
is supplied a van for the delivery of equipment to physicians' offices,
The remaining $393,000 increase in selling, general and administrative
expenses was due to increases in several expense components which supported the
growth in procedure volume. Selling, general and administrative expenses as a
percentage of net revenues increased from 32.6% for the year ended December 31,
1993, to 34.5% for the year ended December 31, 1994, primarily as a result of
increases in professional fees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased from
$333,000 for the year ended December 31, 1993, to $293,000 for the year ended
December 31, 1994, a decrease of $40,000 or 12%. This decrease was the result of
several units becoming fully depreciated during 1994, which was partially offset
by the addition of $744,000 in new medical equipment which is depreciated over
three years with no residual value, utilizing the straight line method, during
the year ended December 31, 1994.
PROVISIONS FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts
increased from $551,000 for the year ended December 31, 1993, to $781,000 for
the year ended December 31, 1994, an increase of $230,000 or 42%. This increase
was primarily due to the increase in revenues. As a percentage of net revenue,
provision for uncollectible accounts was 14.8% for the years ended December 31,
1993 and 1994, respectively.
OPERATING INCOME (LOSS). Operating income improved from an operating loss
of $21,000 for the year ended December 31, 1993, to operating income of $365,000
for the year ended December 31, 1994, an increase of $386,000. As a percentage
of net revenue, operating income (loss) increased from (0.6%) for the year ended
December 31, 1993, to 6.9% for the year ended December 31, 1994. This increase
was primarily the result of the Company's ability to increase net revenue per
employee during 1994.
INTEREST EXPENSE. Interest expense increased from $158,000 for the year
ended December 31, 1993, to $179,000 for the year ended December 31, 1994, an
increase of $21,000 or 13%. This increase was primarily due to the addition of
$600,000 of capital leases for medical equipment.
NET INCOME (LOSS). As a result of the items discussed above, the Company's
net income improved from a net loss of $150,000 for the year ended December 31,
1993, to net income of $192,000 for the year ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through 1993, the Company's operating expenses
significantly exceeded its net revenues, resulting in an accumulated retained
deficit of approximately $1.3 million as of December 31, 1993. Since 1993, the
Company has recorded positive earnings, which have reduced the accumulated
retained deficit to $526,383 as of December 31, 1995 and to $157,238 as of June
30, 1996. The Company has funded its operations primarily through the private
placement of equity securities, bank borrowings and cash provided by operations.
The majority of the equity capital raised by the Company has been raised from
the private placement of $2.2 million of equity securities. In July 1992, the
Company raised $750,000 through the sale of Series A Convertible Preferred
Stock. The sale of the Series A Convertible Preferred Stock was pursuant to the
terms of the Series A Preferred Stock Purchase Agreement, dated July 10, 1992
between the Company and Mapleleaf Capital Ltd. (the "Series A Agreement"). The
Company, at various times, has not been in compliance with certain covenants of
the Series A Agreement, including the timely issuance of its year-end audited
consolidated financial statements, the timely issuance of a budgeted operating
forecast and a loan to an employee which exceeds the designated limit. The
Company has obtained appropriate waivers from the Series A Preferred Stock
shareholder with respect to these matters. The Company obtained a $2.0 million
21
<PAGE> 25
credit facility from NationsBank in June, 1995. Such facility is composed of
several tranches which bear interest rates ranging from prime plus 0.5% to prime
plus 1.5%. The net proceeds from such facility were used to retire outstanding
debt and to purchase medical equipment. The Company's facility with NationsBank
of Texas, N.A. ("NationsBank") was increased to $4.3 million in March, 1996. See
"Certain Transactions." As of June 30, 1996, there was approximately $3.4
million outstanding under such facility. Under the terms of the credit agreement
regarding this facility, the Company is to provide NationsBank with annual
audited financial statements by May 31 for the prior fiscal year. The Company
has not complied with this covenant and has obtained a waiver from NationsBank
which is in effect until January 1, 1997.
The Company generated cash from its operations of $13,000, $274,000 and
$917,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and
$469,000 and $595,000 for the six months ended June 30, 1995 and 1996,
respectively. The Company's accounts receivable balance increased $141,000,
$634,000, and $1,182,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $630,000 and $830,000 for the six months ended June 30, 1995
and 1996, respectively. These increases were due primarily to increases in net
revenues during such periods. The Company's days of accounts receivable
outstanding remained fairly consistent for the periods presented. The increase
in accounts receivable has reduced operating cash flow available to the Company
during the reported periods. For its investing activities, the Company consumed
$56,000, $126,000 and $1.9 million for the years ended December 31, 1993, 1994
and 1995, respectively, and $884,000 and $2.0 million for the six months ended
June 30, 1995 and 1996, respectively, primarily for the acquisition of medical
equipment. Capital expenditures were $36,000, $130,000 and $1.9 million for the
years ended December 31, 1993, 1994 and 1995, respectively, and $891,000 and
$1.5 million for the six months ended June 30, 1995 and 1996, respectively. Net
cash provided by (used in) financing activities were $90,000, ($136,000) and
$2.3 million for the years ended December 31, 1993, 1994 and 1995, respectively,
and $378,000 and $1.4 million for the six months ended June 30, 1995 and 1996,
respectively. The cash provided from financing activities in 1995 was primarily
provided by the proceeds from bank borrowings and the sale of 362,500 shares of
Series B Convertible Preferred Stock pursuant to the Series B Stock Purchase
Agreement dated November 17, 1995 between the Company and various investors (the
"Series B Agreement"). The Company, at various times, has not been in compliance
with certain covenants of the Series B Agreement, including the timely issuance
of its year-end audited consolidated financial statements, the timely issuance
of a budgeted operating forecast, and a loan to an employee which exceeds the
designated limit. The Company has obtained appropriate waivers from all Series B
Preferred Stock shareholders with respect to these matters.
The Company estimates that its total capital expenditures will be
approximately $3.7 million in 1996 and approximately $4.7 million in 1997. The
Company believes that the net proceeds from the Offering and cash provided by
operating activities will be sufficient to fund its operations through 1998.
However, there can be no assurance that the Company will not require additional
financing in the near future, and that if needed, it will be available on terms
satisfactory to the Company, or at all.
22
<PAGE> 26
BUSINESS
INTRODUCTION
Medical Alliance provides a complete range of services used to create
temporary surgical sites in physician offices in 40 states and Canada and
believes it is a leading national provider of such services. The Company's
services allow physicians to transfer an increasing number of established
surgical procedures from a hospital or outpatient setting to the physician's
office. These services include:
- Providing on-site technical personnel and medical equipment on a
scheduled basis;
- Monitoring and documenting preoperative, intraoperative and postoperative
procedures;
- Returning the physician's office to its pre-procedure condition;
- Establishing procedural safety and quality assurance protocols for
office-based procedures;
- Facilitating physician training and qualification; and
- Physician credentialing pursuant to contracts with managed care
organizations.
The Company's services benefit payors, physicians and patients by lowering costs
for surgical procedures, increasing physician productivity, broadening access to
advanced medical technologies and improving patient satisfaction.
The Company is a leader in facilitating the migration of established
surgical procedures and the latest advanced medical technologies from hospitals
and outpatient surgery centers to a lower-cost setting, the physician's office.
An increasing number of minimally invasive procedures are being performed with
local anesthesia in physicians' offices using technologically advanced medical
equipment. The Company has over 100 managed care contracts that in the aggregate
cover approximately 16 million lives. Managed care contracts are made directly
between the Company and managed care organizations, and typically have
automatically renewable one-year terms. The Company has served approximately
2,500 physicians during the six months ended June 30, 1996, and currently,
physicians perform approximately 6,000 procedures monthly using the Company's
services.
The Company provides its services along two primary business lines: medical
surgical and aesthetic elective services. The Company's medical surgical
services allow physicians to perform approximately 25 different office-based
surgical procedures across numerous specialties, including gynecology, podiatry,
urology and otolaryngology. The Company's aesthetic elective services are
utilized primarily by plastic surgeons and dermatologists for laser procedures
such as skin resurfacing, vascular and pigmented lesion treatment, and tattoo
removal. The Company is generally reimbursed for providing its medical surgical
services by third-party payors, including through contracts with managed care
organizations, and is paid directly by patients for any required copayments and
deductibles. For providing its aesthetic elective services, the Company is paid
directly by patients, generally at the time of service. The Company derived
approximately 64% and 33% of its net revenues in 1995 from the provision of
medical surgical and aesthetic elective services, respectively. None of the
Company's net revenues is derived from Medicare or Medicaid reimbursement.
The Company markets its services directly to physicians and managed care
organizations. If a managed care organization decides to enter into a contract
with the Company, a formal agreement is negotiated stipulating each party's
responsibilities and a structure for financial reimbursement. If a physician
decides to utilize the Company's services, the physician will enter into a
contract with the Company certifying as to the physician's credentials and
training in the use of the technology. The contract will also define the
relative responsibilities of the Company and the physician. Generally, the
Company does not require the physician to exclusively utilize the Company's
services.
In utilizing the Company's services, a physician will schedule an
office-based procedure for a specified date and time. If appropriate, the
Company will verify a patient's insurance coverage and obtain any necessary
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<PAGE> 27
precertification from the third-party payor. Prior to arrival of the patient,
the Company's field technician will create a temporary surgical setting in the
physician's office that meets the Company's preoperative protocol and will
configure the transportable medical equipment in accordance with the Company's
procedure guidelines. Prior to performing the procedure, the physician and/or
his or her staff is required to inspect the temporary surgical setting, test and
accept all medical equipment, and record such acceptance in the field
technician's delivery log. After the physician has finished using the Company's
services, the field technician returns the physician's office to its
pre-procedure condition.
The physician will charge a professional fee to the patient for aesthetic
elective procedures or bill the patient's third-party payor for medical surgical
procedures. Primarily, the Company will collect its fee from the patient at the
time of service for aesthetic elective procedures and bill the patient's
third-party payor for medical surgical procedure, less any co-pay or deductible.
MARKET OVERVIEW
Medical Surgical
The continued increase in health care costs at a rate significantly higher
than that of overall inflation has caused managed care companies, indemnity
insurers, government agencies and other payors to employ a variety of strategies
designed to reduce the cost and control the utilization of health care services.
In particular, payors have created incentives for health care providers to
deliver high-quality health care services in lower cost settings. Initially,
numerous surgical, diagnostic and other medical procedures that were
traditionally performed in a hospital were transferred to an outpatient setting,
predominantly the outpatient section of a hospital or an ambulatory surgery
center. In continuation of this trend, many established procedures that are
performed in an outpatient setting can now be transferred to the physician's
office because such procedures can be performed at a lower cost and without the
risk of general anesthesia while maintaining the quality of care. The transfer
of such procedures to the physician's office has continued to accelerate as a
result of: (i) the introduction of advanced medical technology that allows
physicians to perform a broader array of office-based procedures, (ii) the
development of training programs and clinical protocols for office-based
procedures, and (iii) the patient's desire to undergo procedures in a more
comfortable setting, with reduced risk, pain and recovery time. The migration of
such procedures to the physician's office benefits payors, providers and
patients through lower procedure costs (as compared to similar procedures
performed in a hospital or outpatient surgery center), increased provider
productivity, broader access by physicians and patients to advanced technologies
and treatments, and an increased level of patient satisfaction.
According to MDI, total surgical procedures in the United States have
increased by 12.4% from 25.8 million procedures in 1990 to 29.0 million
procedures in 1994. Over this period, the number of surgeries performed in an
outpatient setting as a percentage of total surgeries performed annually in the
United States has increased. The volume of outpatient surgical procedures has
grown by 71.8% over this period, from 11.0 million procedures, or approximately
43% of total surgeries in 1990, to 18.9 million procedures, or approximately 65%
of total surgeries in 1994. Furthermore, the prevalence of surgical procedures
occurring in a physician's office has increased, representing approximately 12%
of total outpatient procedures performed in 1994 as compared to approximately 6%
in 1990. The Company believes that a broader array of procedures, including more
complex surgeries, is currently being performed in an outpatient setting than
was performed in a similar setting in 1990 and believes that the migration of
outpatient procedures to a physician's office will continue.
Aesthetic Elective
The Company believes that the number of aesthetic elective procedures
performed annually in the United States will continue to grow, primarily due to
the development of new technologies for cosmetic procedures, increased public
awareness, shorter recovery times and the aging of the "baby boom" generation.
According to the AACS Survey, approximately 2.7 million cosmetic procedures were
performed in the United States in 1994. The Company believes that a majority of
such procedures are or can be performed in a physician's office. According to
the ASPRS Survey, patients between the ages of 35 and 50 represented 41% of the
cosmetic procedures performed in the United States in 1994, and the number of
people who say they approve
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<PAGE> 28
of cosmetic surgery, either for themselves or others, has increased 50% in the
last decade. According to the ASPRS Survey, approximately 36% of the cosmetic
procedures performed in 1994 were performed in a physician's office. The Company
believes that the vast majority of the aesthetic procedures are performed in an
outpatient setting and that such procedures will increasingly be transferred to
physician's office. The benefits derived from performing aesthetic procedures in
an office-based setting are similar to those associated with medical surgical
procedures, and include lower procedure costs, increased provider productivity,
broader access by physicians and patients to advanced technologies and
treatments, and an increased level of patient satisfaction.
BUSINESS STRATEGY
The Company's goal is to enhance its position as a provider of services to
the emerging market for physician office-based procedures. The Company intends
to achieve its goal by employing four primary strategies:
Increasing Utilization of the Company's Services in Existing Markets
The Company plans to expand by facilitating the transfer of an increasing
percentage of outpatient procedures to a physician's office where the Company's
services may be utilized. The Company intends to achieve such expansion through:
(i) marketing efforts designed to cause physicians who currently use the
Company's services to transfer more outpatient procedures performed by them to
their offices, (ii) the increase in the number of physicians who utilize the
Company's services, either through ongoing marketing efforts or the acquisition
of mobile medical equipment providers that maintain relationships with
physicians, (iii) the provision of a full range of applicable services to all
physicians served by the Company, and (iv) the introduction of new services and
technologies which will enable additional procedures to be performed in a
physician's office. In addition, the Company plans to increase the services
which are eligible for reimbursement under its existing managed care contracts
and to assist in the establishment of incentives and/or mandates by payors for
their network physicians to perform office-based procedures using the Company's
services.
Expanding the Company's Operations into New Markets
The Company employs a two-phase strategy to enter new markets. In the
initial phase, the Company offers aesthetic elective services (which are paid
for by patients generally at the time of service) to physicians who utilize such
services and seeks to develop relationships with local managed care
organizations for the provision of medical surgical services. This initial phase
may include acquisitions. In the second phase, the Company negotiates managed
care contracts and introduces its medical surgical services to such managed care
payors' system of physicians and seeks to increase the number of physicians
using its medical surgical services. In some cases, the Company will also seek
to capitalize on its managed care relationships in existing markets by gaining
access to such payors' covered lives in markets not currently served by the
Company. This two-phase expansion strategy allows the Company to utilize a
single infrastructure to support both business lines and use cash flow generated
from aesthetic elective services to offset the relatively higher costs
associated with establishing reimbursement of medical surgical services under
third-party payor contracts.
Continuing the Development of Managed Care Contracts
The Company is designated as a preferred provider for medical surgical
services in over 100 payor contracts, including contracts with health plans
owned by United HealthCare Corporation, Prudential Healthcare, CIGNA Healthcare
and Blue Cross Blue Shield entities in six states, which contracts cover in
aggregate approximately 16 million lives. The Company plans to establish
additional contractual relationships with managed care organizations and other
third-party payors as a preferred or mandated provider to physicians of
office-based surgical services. As a preferred provider, the Company negotiates
a pre-determined fee schedule for its services and obtains enhanced access to
the payor's physician network in order to market its services directly to such
physicians. The Company believes that payors contract with the Company because
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<PAGE> 29
the Company's services provide a turn-key solution that assists payors in
transferring established surgical procedures to a lower cost setting while
maintaining the quality of care.
Establishing Strategic Alliances with Medical Equipment Manufacturers
The Company believes manufacturers often encounter significant challenges
in selling sophisticated medical equipment to physicians. Physicians are
generally reluctant to purchase such medical equipment because: (i) physicians
generally are not able to ensure sufficient procedure volume to recover the cost
of acquiring, using and maintaining the equipment, (ii) physicians generally do
not want to assume the risk of technological obsolescence, and (iii) such
equipment is generally available to them through hospitals, outpatient surgery
centers and mobile medical equipment providers. As a result, manufacturers are
considering new opportunities for distribution of their medical equipment along
non-traditional lines, such as through services offered by the Company.
The Company seeks to establish strategic alliances with manufacturers of
medical equipment. From the Company's perspective, such strategic alliances are
beneficial as they generally provide the Company with preferential access to new
technology and products at limited costs and risks as the research and
development cost thereof are typically borne by the manufacturers. These
strategic relationships also benefit the manufacturers as it provides the
manufacturers a distribution channel through which they can market their
products directly to physicians and third party payors, thereby shortening the
period of market acceptance (by third party payors, physicians and patients),
and provide the manufacturers the opportunity to recover their costs of
development and participate in the revenues generated by the use of such
products through revenue sharing arrangements with the Company.
The Company currently has three strategic alliance agreements with
manufacturers of medical equipment, the terms of which range from fixed fee per
month agreements with thirty day cancellation policies and no further liability,
to revenue sharing with a certain percentage of the revenues going to the
manufacturer and subsequently paying down a predetermined purchase price until
such price is satisfied. Certain agreements provide for the manufacturer to
provide all repairs and maintenance on the equipment during the alliance period.
All such agreements provide the Company with cancellation options. The loss of
any of these agreements would not have a material adverse effect upon the
Company's operating results or financial conditions.
SERVICES PROVIDED BY THE COMPANY
The Company offers a complete range of services used to create temporary
surgical sites in physicians' offices. The Company facilitates the migration of
established outpatient procedures and advanced medical technologies to
physicians' offices by providing a broad array of services which enables
physicians to provide high quality, cost-effective medical care in their
offices. The Company's services include the following:
On-Site Technical Personnel
The Company provides on-site technical personnel who create the temporary
surgical setting in a physician's office, assist the physician in the set-up and
operation of medical equipment, and are present during, and document relevant
aspects of, the office-based procedure. The Company provides training to its
field technicians, including intensive classroom instruction and hands-on
training covering various technical and clinical aspects of office-based
procedures as well as the Company's surgical services. In addition, the Company
provides continuing education to its technical personnel in the form of training
programs covering advanced medical technology and current and new procedures.
Provision of On-Site Medical Technology
The Company provides medical technology using mobile field units that
include all of the medical equipment and related instruments, accessories and
disposable supplies utilized by the Company's network physicians to perform
certain office-based procedures. Mobile field units are composed of such
equipment and are delivered to the physician's office by a field technician on a
scheduled basis. The Company has organized
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<PAGE> 30
its mobile field units into the three configurations listed below, the first two
of which are used to provide medical surgical services and the third of which is
used to provide aesthetic elective services:
Mobile Surgical Unit ("MSU"). The MSU may be configured utilizing the
following technologies: CO(2) laser, flashlamp pulsed dye laser,
electrosurgical generator, hospital grade smoke evacuator and related
instrumentation and accessories. The equipment delivered in the MSU is used
to perform procedures in gynecology, podiatry, urology and otolaryngology.
As of June 30, 1996, the Company had 49 MSUs in service.
Mobile Endoscopy Unit ("MEU"). The MEU may be configured utilizing the
following technologies: medical digital camera system, video monitor,
printer and recorder, CO(2) and fluid sufflation, related instrumentation
and accessories, and one of the following endoscopes: hysteroscope,
laparoscope or arthroscope. The equipment delivered in the MEU is used to
perform procedures in gynecology and podiatry. As of June 30, 1996, the
Company had 13 MEUs in service.
Mobile Aesthetic Laser Unit ("MALU"). The MALU may be configured utilizing
the following technologies: Q-switched Nd: YAG laser, flashlamp pulsed dye
laser, ultrapulse CO(2) laser and related instrumentation and accessories.
The equipment delivered in the MALU is used to perform procedures in
plastic surgery and dermatology. As of June 30, 1996, the Company had 64
MALUs in service.
In utilizing the Company's services, a physician will schedule an
office-based procedure for a specified date and time. If appropriate, the
Company will verify a patient's insurance coverage and obtain any necessary
precertification from the third-party payor. Prior to arrival of the patient, a
field technician will create a temporary surgical setting in the physician's
office that meets the Company's preoperative protocol and will configure the
transportable medical equipment in accordance with the Company's procedure
guidelines. Prior to performing the procedure, the physician and/or his or her
staff is required to inspect the temporary surgical setting, test and accept all
medical equipment, and record such acceptance in the field technician's delivery
log. Following the patient recovery period in the physician's office, the field
technician returns the physician's office to its pre-procedure condition.
Procedure Monitoring and Documentation
The Company's on-site technical personnel are present during, and document
relevant aspects of, the office-based procedures, including patient billing
data, and information regarding disposables consumed, sterilization procedures
performed and adherence to the Company's established guidelines and standards,
including preoperative, intraoperative and postoperative instructions.
Establishment of Procedural Safety and Quality Assurance Protocols
The Company has established procedural safety and quality assurance
protocols and standards for the use of its surgical services in physicians'
offices that are set forth in its Alternate Site Quality Protocol, Standards and
Guidelines. The Company utilizes this manual to assist managed care
organizations in documenting the Company's operations to satisfy requirements
for receiving accreditation under the National Committee for Quality Assurance
(NCQA) and other accrediting organizations. The Company's standard field
operating procedures include Occupational Safety and Health Administration
safety procedures incorporating the use of personal protective equipment and
sterilization of equipment, and provide step-by-step preoperative,
intraoperative and postoperative instructions. The Company recognized that there
was an absence of documented office-based procedures and clinical protocols in
the physician marketplace, as well as methods for measuring and documenting
compliance therewith. Accordingly, the Company created its Optimal In-Office
Surgical Suite Guidelines manual for its physicians who utilize the Company's
services, which includes guidelines, standards and regulations and a
comprehensive self-assessment checklist for surgeries performed in the
physician's office without general anesthesia. The standards established by the
Company serve as guidelines to assist physicians in satisfying quality
requirements set by managed care organizations and accrediting authorities, as
well as in complying with applicable government regulations and manufacturers'
specifications.
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Physician Training Seminars
The Company conducts seminars to train physicians and their staff in the
use of medical equipment and related technology provided by the Company through
its services and receives a fee from physicians for attending such seminars.
Since 1993, approximately 2,200 physicians have participated in over 100 of the
Company's seminars. The Company developed and introduced its physician training
seminars in response to the high demand for physician training created by the
introduction of new medical technology. The Company retains highly qualified
physician faculty to conduct these seminars, which present such topics as
medical laser physics and safety, light and tissue interaction, clinical
applications and treatment parameters, procedure demonstrations, as well as to
conduct hands-on laboratory sessions. Physician participants in the Company's
seminars generally receive a peer reference manual, video tapes, patient
awareness and market information, and a certificate that documents that the
participant has completed the Company's training seminar.
Physician Credentialing
The Company performs physician credentialing, including on behalf of
managed-care payors, utilizing standards established by its Medical Director
which are based upon standards generally recognized by the medical profession.
The Company's services are offered only to those practitioners who have provided
documentation of certified training and/or competence relevant to the procedures
to be performed, including use of the technology provided in conjunction with
such services. For certain procedures, the Company requires physicians to
maintain hospital or surgery privileges relative to such procedures, including
the use of any technology for performance thereof. Physician credentialing
information is maintained by the Company and reviewed periodically by the
Medical Director and other key personnel.
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PROCEDURES
The following tables set forth certain information regarding medical
surgical and aesthetic elective procedures which are or may be performed in the
physician's office utilizing the Company's services.
Medical Surgical Procedures
The Company facilitated a total of 19,509 and 12,690 medical surgical
procedures for the year ended December 31, 1995, and for the six months ended
June 30, 1996, respectively. The Company's services are used by physicians to
perform approximately 25 different office-based medical surgical procedures,
including the procedures listed in the table below:
<TABLE>
<CAPTION>
DESCRIPTION/APPLICATION OF
PROCEDURES PERFORMED
PROCEDURE BY SPECIALTY UTILIZING COMPANY SERVICES
- ------------------------------------------------- ------------------------------------------------------------
<S> <C>
GASTROENTEROLOGY:
- -----------------
Flexible Sigmoidoscopy Endoscopic colon rectal screening.
GYNECOLOGY:
- -----------
Colposcopy with loop electrode excision of |
cervix | Laser or electrosurgical assisted cervical procedures to
| remove abnormal cells and/or to collect pathology.
Conization of cervix: loop electrode excision |
|
Laser ablation of cervix |
Cystourethroscopy Diagnostic endoscopy of bladder.
Hysteroscopy, diagnostic | Endoscopy of uterus to diagnose and
| treat causes of abnormal uterine bleeding.
Hysteroscopy, surgical |
Laparoscopy, diagnostic Endoscopy of abdomen to diagnose causes of pelvic pain and
infertility.
Treatment of vaginal lesions |
| Laser destruction of genital lesions and warts.
Treatment of vulva lesions |
PODIATRY:
- ---------
Endoscopic decompression for intermetarsal |
nerve entrapment | Endoscopic treatment for mortons neuroma.
|
Endoscopic plantar fasciotomy | Surgical release of the plantar fascia (tendon) to relieve
| chronic heel pain.
PODIATRY/DERMATOLOGY:
- ---------------------
|
Treatment of warts and skin lesions | Laser destruction of warts, including the non-invasive
| removal of planters warts.
DERMATOLOGY/PLASTIC SURGERY:
- ----------------------------
Treatment of cutaneous vascular lesions Laser destruction of surface lesions created or fed by blood
vessels such as port wine birthmarks.
UROLOGY:
- --------
Treatment of condyloma lesions Laser destruction of genital lesions and warts.
OTOLARYNGOLOGY:
- ---------------
Laser assisted uvulapalatoplasty, uvulectomy
and palatopharyngoplasty Laser assisted procedure to reshape and reduce uvula to
reduce snoring and treat sleep apnea.
</TABLE>
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<PAGE> 33
Aesthetic Elective Procedures
The Company facilitated a total of 20,131 and 20,219 aesthetic elective
procedures for the year ended December 31, 1995, and for the six months ended
June 30, 1996, respectively. The Company's services are used by physicians to
perform approximately seven different office-based aesthetic elective
procedures, including the procedures listed in the table below:
<TABLE>
<CAPTION>
DESCRIPTION/APPLICATION OF PROCEDURES
PROCEDURE PERFORMED UTILIZING COMPANY SERVICES
- --------------------------------------------------- -------------------------------------------------------------
<S> <C>
Laser Treatment of Tattoos Utilization of a laser to remove or fade tattoos.
Laser Treatment of Pigmented Lesions (brown spots Utilization of a laser to remove or fade brown spots of the
of the skin) skin.
Laser Treatment of Facial Telangiectasia (spider
veins of the face) Utilization of a laser to treat spider veins of the face.
Laser Treatment of Vascular Birthmarks (hemangiomas Utilization of a laser to treat hemangiomas and port wine
and port wine birthmarks) birthmarks.
Laser Treatment of Stretch Marks Utilization of a laser to treat stretch marks.
Laser Skin Resurfacing of Facial Wrinkles and Acne Utilization of a laser to remove facial wrinkles and acne
Scarring scars.
Laser Blepharoplasty (eyelid surgery) Utilization of a laser for eyelid surgery.
</TABLE>
Future Services
The Company maintains an ongoing program to develop and introduce new
medical surgical and aesthetic elective services to its network of physicians
and managed care payors. The Company actively coordinates the development of new
medical surgical services with its managed care payors in order to facilitate
the transfer of an increasing number of procedures from a hospital or outpatient
setting to the physician's office. The Company anticipates that by the end of
1998 it will expand its medical surgical services to include treatment of
abnormal uterine bleeding and enlarged prostate (benign prostatic hyperplasia).
Within aesthetic elective services, the Company anticipates that it will
commence offering services for laser-based hair removal in 1997 and anticipates
introducing services for the treatment of leg spider veins by the end of 1997.
REIMBURSEMENT AND PAYMENT
For its services, the Company charges fees that are payable by either the
patient, a managed care organization or an indemnity insurance company. For
medical surgical services rendered by the Company pursuant to a contract with a
managed care organization, the Company bills the managed care payor based upon a
pre-determined fee schedule. For medical surgical services that are reimbursed
under an indemnity plan, the Company generally bills and collects 20% of the
Company's charges from the patient at the time services are rendered and bills
the patient's insurance indemnity carrier for the remaining balance. For
aesthetic elective services, generally the Company charges on a per-case basis
and its fees are payable by the patient, generally at the time the services are
rendered. The Company believes that its per-case billing practices for such
services are preferred by physicians over the flat rate rental fee that many of
its competitors charge. None of the Company's net revenues is derived from
Medicare or Medicaid reimbursement.
SALES AND MARKETING
The Company currently operates in 40 states and Canada. The Company has
divided its service area into four regions ("Regions") encompassing an aggregate
of 19 districts ("Districts"). The Company maintains an office in each District.
Each Region is managed by a Regional Vice President who is responsible for
meeting the Company's sales and operational objectives within his or her
Region(s). The Company anticipates that as
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<PAGE> 34
it enters new markets, additional Regions will be created and additional
Regional Vice Presidents will be hired.
Within each District, the Company employs a District Manager, a District
Representative and one or more field technicians. The District Manager is
responsible for physician recruitment, managed care contract development,
operations management, customer service and personnel development. District
Representatives are designated to oversee the marketing and development of a
particular product line or specialty focus within their respective designated
geographic area. Field technicians specialize in a particular clinical and/or
technical area within their respective designated geographic area and are
assigned mobile field units for use in their assigned specialties.
The Company actively seeks to increase the number of physicians who use the
Company's services through its marketing efforts. The Company employs a variety
of marketing methods to identify qualified physicians in a community who are
performing procedures utilizing services and/or technology similar to those
offered by the Company. The Company also exhibits at local and national medical
conferences to gain exposure to target markets. In addition, through its
physician training seminars, the Company is able to educate physicians on the
services provided by the Company.
The Company also pursues the development of relationships with managed care
organizations. The Company seeks to enter into agreements which enable the
Company to be reimbursed for medical surgical services performed on plan
members. In addition, the Company seeks the support of medical directors and
utilization departments within contracted managed care organizations in order to
establish policies which provide incentives and/or mandate physician use of the
Company's surgical services. The Company's efforts to gain such support include
the demonstration of quality, cost effectiveness and clinical appropriateness of
the Company's medical surgical services for selected procedures.
SUPPLIERS OF MEDICAL TECHNOLOGY
In conjunction with its other services, the Company offers a wide range of
medical technology for use in performing office-based procedures. Such medical
technology is obtained directly from manufacturers and distributors of medical
equipment. Prior to obtaining any medical equipment, the Company performs
extensive research on existing and developing medical technology in order to
determine the optimal equipment to acquire. In order to enhance its access to
medical technology, the Company seeks to establish strategic alliances with
manufacturers and distributors of medical equipment generally during the
development stage of a selected product. Such strategic alliances may include
agreements based upon per-procedure or other revenue sharing arrangements. In
certain circumstances, the Company may seek to become the exclusive mobile
provider for a certain technology.
INFORMATION SYSTEMS
In 1995 the Company began implementation of an information system that
includes a wide area network to link its Districts to its corporate office and
information databases. The system is decentralized and allows for data
acquisition by field personnel within each District and maintenance of all data
captured at a central corporate database that is accessible on a real-time
basis. The Company has completed the first three of six implementation phases
which included the installation of a network driven by multiple file servers, an
in-house voice mail system and software to link the Districts to the corporate
billing and collection system. The last three phases of implementation include
the integration of the Company's general ledger and financial reporting systems,
the implementation of voice activated software and the installation of cellular
equipped portable computers to all field personnel. The Company anticipates
completion of the implementation of this system by the end of 1997.
GOVERNMENT REGULATION
The health care industry is subject to extensive federal and state
regulation. The Company's services generally are not directly subject to health
care rules or regulations, although such rules and regulations apply to the
equipment provided to physicians by the Company and to the medical personnel
utilizing the
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<PAGE> 35
Company's services and products and therefore may indirectly affect the
Company's business. In addition, promulgation of new laws and regulations, or
changes in or reinterpretations of existing laws or regulations, may directly or
indirectly affect the Company's business, operating results or financial
condition. Further, the Company's services involve the handling of chemical and
biological substances, thereby subjecting the Company to certain labor and
environmental regulations. There can be no assurance that a review of the
Company's operations by courts or regulatory authorities will not result in a
determination that could adversely affect the operations of the Company.
The manufacturers of medical equipment utilized by the Company are subject
to extensive regulation by the FDA. Failure of such manufacturers to obtain FDA
approval for new technologies which the Company wishes to offer may adversely
affect the Company's plans for future expansion. In addition, failure of medical
equipment manufacturers to comply with FDA regulations could result in the loss
of approval by the FDA of medical equipment utilized by the Company, which could
adversely affect the Company's operating results or financial condition.
Subject to certain statutory exceptions, physicians who have a financial
relationship with an entity providing health care services are prohibited by
federal law (the "Stark II Legislation") from referring or admitting patients to
that entity for the furnishing of certain designated services reimbursable under
Medicare or Medicaid, as well as certain other federally assisted state health
care programs. Possible sanctions for violations of the Stark II Legislation
include civil monetary penalties, exclusion from the Medicare and Medicaid
programs, and forfeiture of all amounts collected in violation of such
prohibition. Federal law generally prohibits activities and arrangements which
are designed to provide kickbacks or to induce the referral of business under
Medicare and Medicaid programs (the "Fraud and Abuse Statutes"). Violations of
anti-kickback legislation are felonies punishable by monetary fines, civil and
criminal penalties and exclusion from participation in Medicare or Medicaid
programs. Several states in which the Company operates prohibit the corporate
practice of medicine except by professional medical corporations or
associations. Several states in which the Company operates also prohibit
physicians from splitting fees with non-physicians. Although the Company has
attempted to structure its business relations with physician groups to comply
with the Stark II Legislation, the Fraud and Abuse Statutes, and the state
corporate-practice-of-medicine and fee-splitting laws, there can be no assurance
that such laws will ultimately be interpreted in a manner consistent with the
Company's practices or that other laws or regulations will not be enacted in the
future which could have a material adverse effect on the Company's operating
results or financial condition.
While the Company does not currently derive any of its net revenues from
Medicare or Medicaid programs, and therefore it is not subject to such federal
legislation, there can be no assurance that in the future that: (i) future
legislation may not be expanded to include health care services other than those
subject to Medicare or Medicaid reimbursement, (ii) the Company will not derive
net revenues from Medicare or Medicaid reimbursements, or (iii) that managed
care providers with which the Company has contracts will not contract with
Medicare or Medicaid.
Certain of the states in which the Company currently operates or may
operate in the future have laws which prohibit physicians who have financial
relationships with an entity that provides health care services from referring
patients to that entity and that prohibit arrangements which provide
remuneration to physicians in order to induce the referral of business. Possible
sanctions for violation of these laws include civil monetary penalties,
forfeiture of amounts collected in violation of such laws and the requirement
that the Company discontinue the prohibited activity. Although the Company
believes it has structured its existing business relations with physician groups
to comply with these laws, there can be no assurance that such laws will be
interpreted in a manner consistent with the Company's practices. Such laws in
states where the Company may conduct operations in the future could prohibit the
Company from structuring its business relations with physician groups in the
same manner in which it conducts its current operations. Accordingly, such
prohibitions could adversely effect the future growth of the Company.
The Company's services involve the handling of chemical and biological
substances, some of which may be considered contaminated, hazardous or toxic.
The Company is subject to state and federal laws that regulate labor and
environmental matters such as the handling and disposal of regulated medical
wastes, the
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<PAGE> 36
release of pollutants and contaminants into the air and water, and the
protection of employees who may be exposed to blood or other potentially
infectious material. In particular, the Company is subject to Occupational
Safety and Health Administration regulations governing bloodborne and airborne
pathogens and hazard communications. Further, the use and operation of lasers is
subject to state regulation. The Company believes it is in substantial
compliance with all applicable material labor and environmental laws. However,
there can be no assurance that there will be no environmental matters for which
the Company might be liable in the future. In addition, future regulatory
action, as well as compliance with future laws governing the handling and
disposition of hazardous materials may require the Company to incur costs that
could have a material adverse effect on the Company's financial condition and
results of operations.
COMPETITION
The Company competes with companies that offer medical equipment to
physicians' offices on either a rental or a fee-for-service basis and with
hospitals and surgery centers that provide comparable surgical services. The
Company also competes with other providers in the health care industry for
access to technology, relationships with third-party payors and relationships
with physicians. The Company believes the trend toward managed care could
increase the competition to obtain contracts with third-party payors. The health
care industry is highly competitive and is subject to continuing changes in the
manner in which such services are provided and the manner in which providers are
selected and paid. Some of the Company's competitors have substantially greater
financial and other resources than the Company. In addition, competitors of the
Company could obtain exclusive rights to provide mobile surgical services for
products that the Company currently offers or expects to offer.
The market for aesthetic elective services is highly competitive. The
Company believes that the heightened interest in aesthetic procedures among
physicians and patients, the development of advanced medical technologies to
perform aesthetic procedures and the industry practice of requiring immediate
cash payment for such services will create increased competition in this
segment. Competition in the provision of medical surgical services may also
increase because these services are becoming more accepted by physicians,
patients and third-party payors and the medical equipment used in providing such
services is readily available from various sources.
The Company believes that competition in the provision of services to
create temporary office-based surgical settings is based on the price, quality,
breadth and availability of services. The Company considers its comprehensive
high quality services, trained on-site technical personnel, "per case" billing
for certain services and strategic relationships with payors and medical device
manufacturers to be important factors in enabling it to compete effectively. The
Company believes that it is the only national provider of medical surgical
services for use in performing office-based procedures that has developed
contracts with managed care organizations.
INSURANCE
The Company maintains professional, general and product liability insurance
in amounts deemed appropriate by management. The Company carries an aggregate of
$10 million of general and public liability insurance coverage, which covers
premises, operations and product liability, and a $1 million professional
liability insurance policy.
PROPERTIES
The Company leases 15 offices within its service area that range in size
from approximately 100 to 400 square feet under agreements with varying terms
and renewal options, and annual rent ranging from $2,220 to $5,400. The Company
currently leases approximately 10,000 square feet for its corporate executive
offices located in Irving, Texas. The lease agreement for its corporate
headquarters stipulates annual rental payments that increase from $124,525 to
$134,487, during the term of the lease, and expires in 2002.
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<PAGE> 37
EMPLOYEES
As of June 30, 1996, the Company had 113 employees, including 78 employees
in field operations. The Company anticipates hiring additional employees
following consummation of the Offering, primarily in field operations. None of
the Company's employees is represented by a union and the Company believes that
it maintains good relations with its employees.
LEGAL PROCEEDINGS
To date, the Company has not been involved in any material claim or legal
proceeding relating to the use of its surgical services or otherwise. In the
future, the Company may become involved from time to time in various legal
proceedings and claims incident to the normal conduct of its business. See "Risk
Factors."
34
<PAGE> 38
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
directors, executive officers and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Paul R. Herchman(1)(2)..................... 40 Chairman of the Board, Chief Executive
Officer and President
David A. Kallenberger, M.D. ............... 47 Medical Director and Director
Kevin D. O'Brien........................... 39 Senior Vice President, Sales, Marketing and
Operations
Michael G. Wallace......................... 31 Senior Vice President, Chief Financial
Officer and Treasurer
Leo Lopez.................................. 51 Director
Thomas A. Montgomery....................... 39 Director
Morris G. Moreland(1)(2)................... 64 Director
Leon Pritzker.............................. 73 Director
Jim Silcock(1)(2).......................... 46 Director
Mark Novy.................................. 30 Controller and Secretary
Clyde Hutchinson........................... 31 Regional Vice President of Sales and
Operations
Jay Farris................................. 36 Vice President, Business Development
Mark Rubino................................ 30 Regional Vice President of Sales and
Operations
Rona P. McGarvey........................... 47 Director of Patient Accounts
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
EXECUTIVE OFFICERS
The executive officers of the Company are elected annually by the Board of
Directors of the Company (the "Board") and serve at the discretion of the Board.
PAUL R. HERCHMAN is a co-founder of the Company and has served as Chairman
of the Board, Chief Executive Officer and President since its inception in 1989.
In addition, Mr. Herchman is a member of the Audit and Compensation Committees.
From 1986 to 1989, Mr. Herchman was a sales representative for Sun Medical,
Inc., a distributor of medical equipment. Prior thereto, Mr. Herchman served in
sales positions with Chesebrough-Ponds USA Co. in its Hospital Products
Division, from 1984 to 1986, and with Johnson & Johnson in its Ortho
Pharmaceutical Division, from 1982 to 1984. Mr. Herchman received a Bachelor of
Science degree from Texas Tech University.
KEVIN D. O'BRIEN has served as Senior Vice President, Sales, Marketing and
Operations of the Company since September 1992. From the Company's inception in
1989 to December 1990, Mr. O'Brien served as a District Manager of the Company,
and from January 1991 to September 1992 as a Regional Vice President of Sales
and Operations. Mr. O'Brien co-founded Dental Plan of America, Inc., a prepaid
dental health plan based in Oklahoma, and served as its marketing director from
1983 to 1984. From 1982 to 1983, Mr. O'Brien was a sales representative in the
patient care division of Procter & Gamble Co. Mr. O'Brien received a Bachelor of
Science degree from the University of Texas at Dallas.
MICHAEL G. WALLACE has served as the Treasurer of the Company since April
1993, as Senior Vice President since November 1995 and as the Chief Financial
Officer since June 1996. From April 1993 to November 1995, Mr. Wallace also
served as Vice President of Finance. From June 1991 to April 1993, Mr. Wallace
served as Senior Accountant for Medical Care America, Inc., an owner-operator of
outpatient surgery centers, and as a Regional Accountant for Medical Care
America, Inc., from January 1990 to June 1991. From 1988 to 1990, Mr. Wallace
served as an accountant for Woodland Investment Company. Mr. Wallace has also
served as a director of Global Healthnet, Inc., a software service company in
the health
35
<PAGE> 39
care industry, since March 1996. Mr. Wallace is a Certified Public Accountant
and received a Bachelor of Business Administration degree from Southwest Texas
State University.
BOARD OF DIRECTORS
In addition to Paul R. Herchman the Board includes:
DAVID A. KALLENBERGER, M.D. is a co-founder of the Company and has served
as a director and as the Medical Director since its inception in 1989. Dr.
Kallenberger is a practicing physician specializing in obstetrics and
gynecology, and has been practicing at Integris Baptist Medical Center in
Oklahoma City, Oklahoma since 1981. Dr. Kallenberger serves as a Clinical
Professor in the Department of Obstetrics/Gynecology at the University of the
Oklahoma Health Science Center and as the Program Director of the Henry G.
Bennett Fertility Institute at Integris Baptist Medical Center. Dr. Kallenberger
received his Medical Doctorate degree from The University of Oklahoma.
LEO LOPEZ, a director of the Company since 1994, has served as the
President and Chief Executive Officer of Eligibility Services, Inc., a company
that provides business management and information management services to the
health care industry, since 1989. Prior thereto, Mr. Lopez served as Vice
President of Donaldson, Lufkin & Jenrette Securities Corporation from 1988 to
1990 in the Public Finance Group in Dallas, Texas and from 1986 to 1988 in the
Healthcare Finance Group in New York, New York. Mr. Lopez received a Bachelor of
Science Degree in Business Administration from Washington University and a
Masters of Health Administration degree from the Washington University School of
Medicine.
THOMAS A. MONTGOMERY, is a co-founder of the Company and has served as a
director of the Company since 1989. Mr. Montgomery is a partner of Montgomery,
Jessup & Co., L.L.P., an accounting firm. From December 1982 to December 1990,
Mr. Montgomery served in various capacities with Arthur Andersen & Co., and as
the Senior Tax Manager of the Enterprise Group since 1985. Mr. Montgomery
received a Bachelor of Business Administration degree from Texas Tech University
and a Master of Science degree from Texas Tech University.
MORRIS G. MORELAND, a director of the Company since 1991 and a member of
the Audit and Compensation Committees, has served as Vice President and Chief
Financial Officer of Satana Corporation ("Satana"), an investment company. Mr.
Moreland is a Certified Public Accountant and received a Bachelor of Business
Administration degree from West Texas A & M University.
LEON PRITZKER, a director of the Company since 1989, has been self-employed
as a management consultant since 1990. From 1985 to 1990, Mr. Pritzker served as
the Executive Vice President of Campbell Taggart, Inc. From 1967 to 1984, Mr.
Pritzker served in various capacities with Anheuser-Busch Companies, Inc., most
recently as Director, Management Systems Group. Mr. Pritzker is a fellow of the
American Statistical Association. Mr. Pritzker received a Bachelor of Science
degree from College of the City of New York and a Master of Arts degree from the
University of Pennsylvania.
JIM SILCOCK, a director of the Company since February 1996 and a member of
the Audit and Compensation Committees, has served as a general partner of
Mapleleaf Capital Ltd., and as a general partner of Sunwestern Associates III, a
general partner of Sunwestern Investment Fund III, a venture capital fund, since
1988 and as a general partner of T.V.P. Associates Limited the general partner
of Texas Venture Partners, a venture capital fund, since 1984. Mr. Silcock
received a Bachelor of Arts from Dartmouth College and a Master of Business
Administration from the Amos Tuck School of Business Administration at Dartmouth
College.
KEY EMPLOYEES
MARK NOVY has served as Controller and Secretary of the Company since May
1995. Prior to joining the Company, from July 1988 to April 1995, Mr. Novy
served as a Senior Accountant, and most recently as the Financial Analyst and
Market Chief Financial Officer of the Northeast Market for Columbia/HCA
HealthCare Corporation, Ambulatory Surgery Division. Mr. Novy is a Certified
Public Accountant and received a Bachelor of Business Administration degree from
the University of Texas at Arlington.
36
<PAGE> 40
CLYDE HUTCHINSON has served as a Regional Vice President of Sales and
Operations of the Company since January 1993. Prior thereto, Mr. Hutchinson
served as a District Manager of the Company from August 1990 to December 1992.
Mr. Hutchinson received a Bachelor of Science degree from Mississippi State
University.
JAY FARRIS has served as Vice President, Business Development since July
1996. Prior thereto, Mr. Farris served as a Regional Vice President of Sales and
Operations since January 1991. Prior thereto, Mr. Farris served as District
Manager of the Company from March 1990 to January 1991. Mr. Farris received a
Bachelor of Science degree from the University of Oklahoma.
MARK RUBINO has served as a Regional Vice President of Sales and Operations
of the Company since November 1995. Prior thereto, Mr. Rubino served as District
Manager of the Company from April 1991 to November 1995. Mr. Rubino received a
Bachelor of Science degree from Elizabeth Town College.
RONA P. MCGARVEY has served as Director of Patient Accounts of the Company
since June 1996. Prior to joining the Company in June 1996, Ms. McGarvey served
as Business System Analyst with Columbia/HCA HealthCare Corporation, Ambulatory
Surgery Division, in Dallas, Texas from October 1994 to May 1996. Ms. McGarvey
served as Information System Analyst for Medical Care International in Dallas,
Texas from March 1990 to October 1994, as Regional Office Coordinator for
Medivision, Inc., Houston, Texas from 1986 to 1990, and as Business Office
Manager at National Medical Care in The Woodlands, Texas from 1984 to 1986. Ms.
McGarvey received a Bachelor of Business in Education degree from Youngstown
State University.
TERM OF OFFICE FOR DIRECTORS; CLASSIFIED BOARD
Directors are elected by the Company's shareholders and serve until their
successors are elected and qualified. Upon consummation of the Offering, the
Board will be divided into three classes: Class A, Class B and Class C.
Directors will serve for staggered three-year terms, except with respect to the
initial terms of Class A and Class B directors which will expire at the annual
meetings of shareholders in 1997 and 1998, respectively. Directors for each
class will be elected at the annual meeting of shareholders held in the year in
which the term for such class expires and will serve thereafter for three years,
or until their earlier death, resignation or removal, or until their successors
are elected and qualified. Upon consummation of the Offering, the Class A
Directors will be Leon Pritzker and Morris G. Moreland; the Class B Directors
will be Jim Silcock and Thomas A. Montgomery; and the Class C Directors will be
Paul R. Herchman, David A. Kallenberger, M.D. and Leo Lopez.
BOARD COMMITTEES
The Company has established an Audit Committee and a Compensation
Committee. The Audit Committee makes recommendations to the Board regarding the
appointment of independent auditors, reviews the plan and scope of any audit of
the Company's financial statements and reviews the Company's significant
accounting policies and related matters. The Compensation Committee makes
recommendations to the Board regarding the compensation of executive officers
and the administration of the Incentive Plan.
COMPENSATION OF DIRECTORS
Upon consummation of the Offering, it will be the policy of the Company
that directors who are not employees of the Company ("Independent Directors")
will receive $500 for each Board meeting attended. All directors of the Company
will be reimbursed for travel, lodging and other out-of-pocket expenses in
connection with their attendance at Board and committee meetings. Under the
terms of the Incentive Plan, so long as the Company is a reporting company
subject to the terms of the Securities Exchange Act of 1934, as amended,
Independent Directors will receive an option to purchase 2,500 shares of Common
Stock upon his or her initial election to the Board and an option to purchase
1,500 shares of Common Stock at each annual meeting of the shareholders
thereafter while he or she continues to serve as a director of the Company. Such
options will be non-qualified stock options, will have an exercise price equal
to the fair market value of the Common Stock at the date of grant, will become
exercisable one-third on the date of grant and one-third each on the second and
third anniversaries thereof, and will expire ten years from the date of grant.
As of June 30, 1996, the current Independent Directors and their affiliated
entities have been granted options to purchase a total of 29,659 shares of
Common Stock at exercise prices ranging from $1.28 to $2.56 per share pursuant
to the Incentive Plan. See "-- Incentive Plan."
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<PAGE> 41
COMPENSATION COMMITTEE, INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Compensation Committee made recommendations to the Board
regarding compensation of the Company's executive officers and the Board
approved all of such recommendations. The Compensation Committee was comprised
of Paul R. Herchman and Morris G. Moreland during 1995. Other than Mr. Herchman,
no officer, former officer or employee served on the Compensation Committee. No
executive officer of the Company served as a member of the compensation
committee or similar committee or board of directors of any other entity which
an executive officer thereof served on the Compensation Committee or Board.
On November 17, 1995, the Company entered into a Preferred Stock Purchase
Agreement (the "Series B Purchase Agreement") with various investors, pursuant
to which the Company issued an aggregate of 362,500 shares of Series B
Convertible Preferred Stock (the "Series B Preferred") to such investors at a
purchase price of $4.00 per share ($1.45 million in the aggregate). In such
offering, Morris G. Moreland and Satana, of which Mr. Moreland is a director,
acquired an aggregate of 163,662 shares of Series B Preferred, and Mapleleaf
Capital, Ltd., Sunwestern Investment Fund III and Sunwestern Cayman 1988
Partners, affiliated entities of Jim Silcock, acquired an aggregate of 171,067
shares of Series B Preferred. For a description of the Series B Preferred, see
Note 6 of the Notes to Consolidated Financial Statements.
On July 27, 1995, the Company granted Paul R. Herchman a warrant to
purchase up to 15,610 shares of Common Stock at an exercise price of $2.56 per
share, which warrant vested upon the date of grant and expires in September
1999. This warrant was granted to Mr. Herchman in consideration for his personal
guaranty of the obligations of the Company under its revolving credit facility
and term loans with NationsBank of Texas, N.A. (the "NationsBank Loans"). A
portion of the net proceeds from the Offering will be used to repay such
indebtedness in full. See "Use of Proceeds."
In connection with the issuance and amendment of a promissory note by the
Company to Satana, the Company issued to Satana in January 1991 and July 1992, a
warrant to purchase up to an aggregate of 468,300 shares of Common Stock
exercisable as follows: 93,660 shares at $0.64 per share on or before July 10,
1995, and 374,640 shares at $1.28 per share on or before December 31, 1997.
During 1994, Satana exercised a portion of the warrant to acquire 93,660 shares
of Common Stock at a discounted price of $0.53 per share. The Company recorded
interest expense of approximately $10,000 as a result of this transaction.
During the year ended December 31, 1995, the holder exercised the warrant to
acquire 374,640 shares of common stock in exchange for the outstanding debt owed
to Satana Corporation and the put feature. The difference between the carrying
value of the debt instrument, which approximated fair value, and the exercise
price of the warrants has been accounted for as a reduction of capital in excess
of par value and has been deducted from net income for purposes of computing net
income applicable to common stock. See Notes 4 and 7 to Consolidated Financial
Statements.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Upon consummation of the Offering, the Company's Articles of Incorporation
will provide that, to the fullest extent permitted by Texas law, no director
shall be liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director and each director will be indemnified to
the maximum extent permitted by such law. By virtue of these provisions, a
director of the Company will not be personally liable for monetary damages for a
breach of such director's fiduciary duty except for liability for (i) breach of
the duty of loyalty to the Company or to its shareholders, (ii) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) dividends or stock repurchases or redemptions that are
unlawful under the Texas Business Corporation Act (the "TBCA") and (iv) any
transaction from which such director receives an improper personal benefit. In
addition, the Company's Articles of Incorporation will provide that if the TBCA
is amended to authorize the further elimination or limitation of the liability
of a director, then the liability of the directors will be eliminated or limited
to the fullest extent permitted by the TBCA, as amended.
The Company intends to enter into indemnification agreements with each of
the Company's directors and executive officers. The indemnification agreements
will require, among other things, that the Company indemnify its directors and
executive officers to the fullest extent permitted by law and advance to the
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<PAGE> 42
directors and executive officers all related expenses, subject to reimbursement
if it is subsequently determined that indemnification is not permitted. The
Company will also be required to indemnify and advance all expenses incurred by
directors and executive officers seeking to enforce their rights under the
indemnification agreements. Although the form of indemnification agreement
offers substantially the same scope of coverage afforded by provisions in the
Company's Articles of Incorporation and Bylaws, it provides greater assurance to
directors and executive officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board or by the shareholders to eliminate the rights it provides.
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth certain information
regarding compensation paid or accrued for services rendered to the Company for
the year ended December 31, 1995 to the Company's Chief Executive Officer and
each of the Company's other executive officers whose total annual salary and
bonuses earned during the year ended December 31, 1995, exceeded $100,000
(collectively referred to herein as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
1995 ANNUAL COMPENSATION -------------------------
--------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(1) COMPENSATION
- ---------------------------------------- -------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Paul R. Herchman........................ $132,000 $77,000 -- 48,391 $5,700(2)
Chairman of the Board, Chief Executive
Officer and President
Kevin D. O'Brien........................ 105,000 51,000 -- 46,830 --
Senior Vice President, Sales,
Marketing and Operations
</TABLE>
- ---------------
(1) Represents shares of Common Stock underlying stock options granted to the
Named Executive Officers during 1995 pursuant to the Incentive Plan.
(2) Represents a $350 per month automobile allowance paid to Mr. Herchman, and
$1,500 of annual premiums on a life insurance policy, of which Mr.
Herchman's spouse is the beneficiary, paid by the Company on Mr. Herchman's
behalf.
The following table sets forth certain information with respect to options
granted to the Named Executive Officers during the year ended December 31, 1995.
The Company has not granted any stock appreciation rights.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUES AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME GRANTED IN 1995 SHARE(1) DATE(2) 5% 10%
- ----------------------------- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Herchman............. 46,830 15% $2.56 09/16/99 $588,653 $764,734
1,561 1 2.56 08/15/97 16,656 18,670
Kevin D. O'Brien............. 46,830 16 2.56 09/16/99 588,653 764,734
</TABLE>
- ---------------
(1) Options were granted at an exercise price equal to the fair market value of
the Common Stock on the date of grant, as determined by the Board.
(2) Most of the options granted to the Named Executive Officers are subject to
vesting and, accordingly, may expire before the dates indicated.
(3) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and
do not represent the Company's estimate or projection of future Common
Stock prices.
39
<PAGE> 43
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31,
1995. No stock options were exercised by the Named Executive Officers during
1995.
AGGREGATE OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1995 DECEMBER 31, 1995(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul R. Herchman........................ 18,732 46,830 $ 178,784 $ 441,960
Kevin D. O'Brien........................ 87,416 46,830 936,992 441,960
</TABLE>
- ---------------
(1) These values assume a valuation of $12.00 per share (the mid-point of the
estimated public offering price range) at December 31, 1995. Value is
calculated based on the difference between the option exercise price and
$12.00 multiplied by the number of shares of Common Stock underlying the
option.
INCENTIVE PLAN
The Incentive Plan, which amended and restated the Company's previous stock
compensation plan, became effective on December 31, 1994. The Incentive Plan
authorizes the issuance of incentive and non-qualified stock options and
restricted stock awards to directors, key employees and advisors of the Company.
The Incentive Plan is administered by the Compensation Committee or such other
committee comprised of at least two nonemployee directors as may be appointed by
the Board. The committee generally has the authority to fix the terms and number
of options and restricted stock awards to be granted and to determine the
employees or other persons who will receive awards; provided that Independent
Directors receive non-qualified stock options under the Incentive Plan
automatically upon election as a director and upon each annual meeting of the
Shareholders thereafter while he or she continues to serve as a director of the
Company. The aggregate number of shares of Common Stock for which options may be
granted or for which restricted stock grants may be made under the Incentive
Plan is 1,324,290, subject to adjustment for stock splits and other capital
adjustments. See "-- Compensation of Directors."
Each option granted pursuant to the Incentive Plan is exercisable at any
time upon or after vesting and expires on the date determined by the committee,
but in no event will any option expire later than ten years from the date of
grant. With respect to a participant who is an employee or advisor, each option
expires within three months after the date the participant ceases to be an
employee or advisor, unless the participant is terminated for "cause," dies or
becomes permanently disabled, or unless the option is a non-qualified stock
option and the committee determines to extend the term of the option. If a
participant ceases to be an employee or advisor due to death or permanent
disability, or a nonemployee director ceases to serve as a director due to
death, the participant or his legal representative may exercise all vested
options during the following 12-month period (or if the option is a
non-qualified stock option, such longer period as the committee may determine),
provided that no options may be exercised after the expiration of the initial
term. If the employee, advisor or nonemployee director is terminated for
"cause," the option will automatically expire. The exercise price of each
incentive stock option granted will be determined by the committee, but shall
not be less than 100% of the fair market value of the Common Stock at the time
such incentive stock option is granted. The maximum aggregate fair market value
of Common Stock, determined at the time an incentive stock option is granted,
with respect to which incentive stock options are exercisable for the first time
by any participant during any calendar year, may not exceed $100,000. The price
at which shares of Common Stock may be acquired pursuant to the exercise of a
non-qualified stock option will be determined by the committee. Options are not
transferable other than by will or the laws of descent or distribution, pursuant
to a qualified domestic relations order, or if permitted by the committee,
non-qualified stock options may be transferred to a member of a participant's
immediate family, and may be exercised during the lifetime of the optionee only
by the optionee or the optionee's authorized representative. A vesting schedule
for the options is indicated in each option agreement as determined by the
committee. The committee has agreed that if Messrs. Herchman, O'Brien or Wallace
are terminated without cause, that all non-vested options held by such
terminated executive officer shall be immediately exercisable.
Shares of Common Stock awarded under restricted stock grants are subject to
restrictions prohibiting their sale, assignment, transfer or encumbrance for a
period of time specified by the committee and will revert
40
<PAGE> 44
to the Company if the participant's relationship with the Company terminates
during such period of restriction, unless such termination is due to the death,
disability or retirement of the participant. Upon the death or disability of a
participant, the restrictions pertaining to the shares of Common Stock terminate
and the stock is no longer subject to forfeiture. Upon the retirement of a
participant, the restrictions pertaining to the shares of Common Stock shall
continue for the original period, unless shortened by the committee, and the
stock is no longer subject to forfeiture. A vesting schedule in the restricted
stock agreement indicates the restriction period and the rate at which the
restrictions lapse.
The Company has outstanding options to purchase in the aggregate 902,315
shares of Common Stock under the Incentive Plan, 348,103 of which are vested and
exercisable. The Company expects that options will continue to be granted to
eligible persons as part of the Company's incentive-based compensation program.
EMPLOYMENT AGREEMENTS
The Company has entered into an Employment Agreement with Paul Herchman,
dated as of January 1, 1994, as amended (the "Herchman Agreement"). The Herchman
Agreement may be terminated by the Company upon 12 months prior notice and may
be terminated by Mr. Herchman upon three months prior notice. The Herchman
Agreement provides that Mr. Herchman receive a base salary of $145,200 per year
and is eligible to receive bonuses based upon the Company's financial
performance. The Herchman Agreement requires Mr. Herchman to maintain the
confidentiality of the Company's proprietary information during his employment
and thereafter and prohibits Mr. Herchman from competing with the Company during
his employment and for a period of one year thereafter.
The Company has entered into an Employment Agreement with Kevin O'Brien,
dated as of January 1, 1995, as amended (the "O'Brien Agreement"). The O'Brien
Agreement provides that Mr. O'Brien will receive a base salary of $115,500 per
year and is eligible to receive bonuses based upon the Company's performance.
The O'Brien Agreement is terminable by the Company with 6 months prior notice
and may be terminated by Mr. O'Brien upon 3 months prior notice. The O'Brien
Agreement requires Mr. O'Brien to maintain the confidentiality of the Company's
proprietary information during his employment and for a period of four years
thereafter and prohibits Mr. O'Brien from competing with the Company during his
employment and for a period of one year thereafter.
The Company has entered into an Employment Agreement with Michael G.
Wallace, dated as of January 1, 1995, as amended (the "Wallace Agreement"). The
Wallace Agreement provides that Mr. Wallace will receive a base salary of
$84,000 per year and is eligible to receive bonuses based upon the Company's
performance. The Wallace Agreement is terminable by the Company with 6 months
prior notice and may be terminated by Mr. Wallace upon 3 months prior notice.
The Wallace Agreement requires Mr. Wallace to maintain the confidentiality of
the Company's proprietary information during his employment and for a period of
four years thereafter and prohibits Mr. Wallace from competing with the Company
during his employment and for a period of one year thereafter.
CERTAIN TRANSACTIONS
On November 17, 1995, the Company entered into a Preferred Stock Purchase
Agreement with various investors, pursuant to which the Company issued an
aggregate of 362,500 shares of Series B Convertible Preferred Stock to such
investors at a purchase price of $4.00 per share ($1.45 million in the
aggregate). In such offering, Morris G. Moreland and Satana, of which Mr.
Moreland is a director, acquired an aggregate of 163,662 shares of Series B
Preferred, and Mapleleaf Capital, Ltd., Sunwestern Investment Fund III and
Sunwestern Cayman 1988 Partners, affiliated entities of Jim Silcock, acquired an
aggregate of 171,067 shares of Series B Preferred. For a description of the
Series B Preferred, see Note 6 of the Notes to Consolidated Financial
Statements.
On July 27, 1995, the Company granted Paul R. Herchman a warrant to
purchase up to 15,610 shares of Common Stock at an exercise price of $2.56 per
share, which warrant vested upon the date of grant and expires in September
1999. This warrant was granted to Mr. Herchman in consideration for his personal
guaranty of the obligations of the Company under its revolving credit facility
and term loans with NationsBank of Texas, N.A. A portion of the net proceeds
from the Offering will be used to repay such indebtedness in full. See "Use of
Proceeds."
41
<PAGE> 45
A warrant to purchase up to 374,640 shares of common stock at $1.28 per
share was granted to Satana on January 17, 1991 as part of the note agreement
(see Note 4). This warrant includes a put feature, whereby the holder of the
shares acquired via the exercise of the warrant could require the Company to
redeem the shares based on a formula price. The Satana note was modified in July
1992, at which time Satana was granted a warrant to purchase an additional
93,660 shares of the Company's common stock at $.64 per share. During the year
ended December 31, 1994, the holder exercised the $.64 per share warrant to
purchase 93,660 shares of common stock at a price of $0.53 per share. The
Company recorded interest expense of approximately $10,000 as a result of this
transaction. During the year ended December 31, 1995, the holder exercised the
warrant to acquire 374,640 shares of common stock in exchange for the
outstanding debt owed to Satana Corporation and the put feature. The difference
between the carrying value of the debt instrument, which approximated fair
value, and the exercise price of the warrants has been accounted for as a
reduction of capital in excess of par value and has been deducted from net
income for purposes of computing net income applicable to common stock. See
Notes 4 and 7 to Consolidated Financial Statements.
On November 26, 1991, MJ Capital Corporation ("MJ Corporation") loaned the
Company $35,000 (the "MJ Corporation Loan") bearing interest at a rate of 16%
per annum. In February of 1992, an additional $10,000 was advanced to the
Company and on December 31, 1992 the balance, including $8,392 of accrued
interest, was consolidated into the MJ Corporation Loan. On May 12, 1993,
Montgomery, Jessup and Company L.L.P. ("MJC") loaned the Company $13,000 bearing
an interest rate of 16% per annum with an additional loan of $2,500 in May of
1993 (the "MJC Loan"). On September 30, 1993, MJ Corporation and MJ Partners
became partners of MJ Capital Partners, L.P. ("MJ Partners"). In connection
therewith, MJ Corporation contributed the MJ Corporation Loan to MJ Partners and
MJC contributed the MJC Loan, together with $8,961 of fees due to MJC for
accounting services rendered, to MJ Partners, all of which amounts were
consolidated into the MJ Partners Note described below.
On September 5, 1991, MJ Partners loaned the Company $95,000 evidenced by a
promissory note (the "MJ Partners Note") bearing interest at a rate of 16% per
annum. In addition to the consolidation of the MJ Corporation Loan and MJC Loan,
during 1991, 1992, 1993 and 1994, MJ Partners loaned the Company additional
amounts under the MJ Partners Note of $78,000, $50,000, $190,000 and $57,500,
respectively, and rolled an aggregate of $46,148 of accrued interest back into
the MJ Partners Note during such period. The MJ Partners Note was paid on June
29, 1995 with proceeds from the NationsBank Loans.
The Company issued the following warrants to certain partners of MJ
Partners in connection with additional advances under the MJ Partners Note, all
of which warrants expire on March 31, 1997: (i) On August 15, 1993, the Company
granted to Columbia General Corporation warrants to purchase up to 23,416 shares
of Common Stock exercisable as follows: 11,708 shares immediately with the
remaining 11,708 shares on or after August 16, 1994 at an exercise price of
$1.28 per share; (ii) On October 17, 1993, the Company granted to Robert
Matthews warrants to purchase up to 2,810 shares of Common Stock exercisable as
follows: 1,405 shares immediately with the remaining 1,405 shares on or after
October 18, 1994 at an exercise price of $1.28 per share; (iii) On May 31, 1994,
the Company granted Thomas H. Montgomery warrants to purchase up to 4,214 shares
of Common Stock exercisable as follows: 2,107 shares immediately and the
remaining 2,107 shares on or after May 31, 1995, at an exercise price of $1.28
per share; (iv) On August 1, 1994, the Company granted to Mr. Montgomery
warrants to purchase up to 1,404 shares of Common Stock exercisable as follows:
702 shares immediately and the remaining 702 shares on or after August 1, 1995,
at an exercise price of $1.28 per share, which remaining portion was canceled in
connection with the repayment of the MJ Partners Note; (v) On August 15, 1994,
the Company granted to Mr. Montgomery warrants to purchase up to 2,810 shares of
Common Stock exercisable as follows: 1,405 shares immediately and the remaining
1,405 shares on or after August 15, 1995, at an exercise price of $1.28 per
share, which remaining portion was canceled in connection with the repayment of
the MJ Partners Note; and (vi) On August 31, 1994, the Company granted to Shelly
Burks warrants to purchase up to 2,342 shares of Common Stock exercisable as
follows: 1,171 shares immediately and the remaining 1,171 shares on or after
August 31, 1995, at an exercise price of $1.28 per share, which remaining
portion was canceled in connection with the repayment of the MJ Partners Note.
Mr. Montgomery, a Director of the Company, is the President of MJ
Corporation and the general partner of MJC and MJ Partners.
42
<PAGE> 46
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1996, and as adjusted to reflect
the sale of the shares of Common Stock offered hereby, by (i) all persons who
are beneficial owners of 5% or more of the Common Stock, (ii) each director of
the Company, (iii) each Named Executive Officer and (iv) all executive officers
and directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES -------------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING(2)
- -------------------------------------------- --------------------- --------------- -----------------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS
Paul R. Herchman(3)......................... 501,827 13.7% 8.9%
Kevin D. O'Brien(4)......................... 104,119 2.8 1.8
DIRECTORS
David A. Kallenberger, M.D.(5).............. 192,003 5.3 3.4
Leo Lopez(6)................................ 1,561 * *
Thomas A. Montgomery(7)..................... 211,125 5.8 3.7
Morris G. Moreland(8)....................... 583,957 16.1 10.4
Leon Pritzker(9)............................ 80,454 2.2 1.4
Jim Silcock(10)............................. 949,193 26.2 16.9
All executive officers and directors as a
group (9 persons)(11)..................... 2,660,100 69.6 45.7
OTHER 5% SHAREHOLDERS
Mapleleaf Capital, Ltd.(12)................. 738,330 20.4 13.1
Satana Corporation(13)...................... 492,645 13.6 8.8
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options or warrants that are currently
exercisable or exercisable within 60 days are deemed to be outstanding and
to be beneficially owned by the person or entity holding such options. Data
in this table gives effect to the conversion of the outstanding shares of
Convertible Preferred Stock into Common Stock upon consummation of the
Offering.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
300,000 shares from the Company is not exercised.
(3) Includes 18,732 shares underlying currently exercisable options to purchase
Common Stock and 15,610 shares underlying currently exercisable warrants to
purchase Common Stock. The business address of Mr. Herchman is 2445 Gateway
Drive, Suite 150, Irving, Texas 75063.
(4) Includes 87,416 shares underlying currently exercisable options to purchase
Common Stock.
(5) Includes 24,976 shares underlying currently exercisable options to purchase
Common Stock. The business address of Dr. Kallenberger is 3433 N.W. 56th
Street, Suite 310, Oklahoma City, Oklahoma 73112.
(6) Includes 1,561 shares underlying a currently exercisable option to purchase
Common Stock.
(7) Includes 23,415 shares underlying currently exercisable options to purchase
Common Stock, 5,151 shares underlying currently exercisable warrants to
purchase Common Stock, 7,805 shares of Common Stock held by Mr.
Montgomery's spouse's profit sharing plan and 15,610 shares of Common Stock
held by MJC's profit sharing plan, of which Mr. Montgomery is a partner. As
a partner of MJC, Mr. Montgomery may be deemed to be the indirect
beneficial owner of the shares beneficially owned by MJC by virtue of his
authority to make investment decisions regarding the voting and disposition
of such shares. The business address of Mr. Montgomery is 5220 Spring
Valley, Suite 600, Dallas, Texas 75240.
43
<PAGE> 47
(8) Includes the shares of Common Stock beneficially owned by Satana, of which
Mr. Moreland is an executive officer. As an executive officer of Satana,
Mr. Moreland may be deemed to the indirect beneficial owner of the shares
beneficially owned by Satana by virtue of his authority to make investment
decisions regarding the voting and disposition of such shares. Mr. Moreland
disclaims beneficial ownership of the shares beneficially owned by Satana.
The business address of Mr. Moreland is National Plaza 2, Suite 102,
Amarillo, Texas 79101.
(9) Includes 1,561 shares underlying a currently exercisable option to purchase
Common Stock.
(10) Includes the shares beneficially owned by Mapleleaf Capital, Ltd., 109,649
shares beneficially owned by Sunwestern Cayman 1988 Partners, 101,214
shares beneficially owned by Sunwestern Investment Fund III, all of which
are affiliates of Mr. Silcock. Mr. Silcock may be deemed to the indirect
beneficial owner the shares beneficially owned by such entities by virtue
of his authority to make investment decisions regarding the voting and
disposition of such shares. Mr. Silcock disclaims beneficial ownership of
the shares owned by Mapleleaf Capital, Ltd., Sunwestern Cayman 1988
Partners and Sunwestern Investment Fund III. The business address of Mr.
Silcock is 12221 Merit Drive, Suite 935, Dallas, Texas 75251.
(11) Includes the shares referenced in footnotes (3) - (10), 18,690 additional
shares and 17,171 additional shares underlying currently exercisable
options to purchase Common Stock.
(12) Includes 1,561 shares underlying a currently exercisable option to purchase
Common Stock. The business address of Mapleleaf Capital, Ltd. is 12221
Merit Drive, Suite 935, Dallas, Texas 75251.
(13) Includes 1,561 shares underlying a currently exercisable option to purchase
Common Stock. The business address of Satana Corporation is National Plaza
2, Suite 102, Amarillo, Texas 79101.
44
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
GENERAL
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 10,000,000 shares of Common Stock, par value $0.002 per
share, and 2,000,000 shares of Preferred Stock, par value $0.002 per share,
issuable in Series. Simultaneously upon consummation of the Offering, the
Articles of Incorporation of the Company will be amended to authorize 30,000,000
shares of Common Stock, par value $0.002 per share, and 5,000,000 shares of
Preferred Stock, par value $0.002 per share. Upon the consummation of the
Offering, there will be 5,623,596 shares of Common Stock outstanding (5,923,596
shares if the Underwriters over-allotment option is exercised in full) and no
shares of Preferred Stock outstanding. On August 2, 1996, the Board of Directors
approved a 1.561 to 1 stock split, effected through a stock dividend. The
description of capital stock has been retroactively adjusted to give effect for
this dividend.
COMMON STOCK
As of the date of this Prospectus, there are 2,378,699 shares of Common
Stock outstanding held by 58 record holders. Each holder of Common Stock is
entitled to one vote per share held of record in the election of Directors and
for all other matters submitted to a vote of the shareholders. Except as
otherwise required by Texas law, a majority vote is sufficient for any act of
the shareholders. Upon consummation of the Offering, there will be no cumulative
voting rights applicable to any shares of Common Stock. All shares of Common
Stock are entitled to participate pro rata in distributions and in such
dividends as may be declared by the Board out of funds legally available
therefor, subject to any preferential dividend and the setting aside of sinking
funds or redemption accounts of outstanding shares of Preferred Stock, if any.
Subject to the prior rights of creditors, all shares of Common Stock are
entitled in the event of liquidation, dissolution or winding up of the Company
to participate ratably in the distribution of all the remaining assets of the
Company after distribution in full of preferential amounts, if any, to be
distributed to holders of Preferred Stock. Holders of Common Stock have no
preemptive rights or right to convert their shares into other securities. The
outstanding shares of Common Stock are and the shares of Common Stock to be
outstanding upon the completion of the Offering will be fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of any series
of Preferred Stock which the Company may issue in the future.
PREFERRED STOCK
Upon consummation of the Offering, the Board may, without further action by
the Company's shareholders, authorize, from time to time, issuance of up to
5,000,000 shares of Preferred Stock in series and may, at the time of issuance,
determine the powers, rights, preferences and limitations of any such series.
Satisfaction of any dividend preferences on outstanding shares of Preferred
Stock would reduce the amount of funds available for the payment of dividends on
Common Stock. Holders of Preferred Stock would be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding up of
the Company before any payment is made to the holders of Common Stock. Although
there is no current intention to do so, the Board may, without shareholder
approval, issue shares of a class or series of Preferred Stock with voting and
conversion rights which could adversely affect the voting power or dividend
rights of the holders of Common Stock and may have the effect of delaying,
deferring or preventing a change in control of the Company.
The Company has authorized the issuance of 435,000 shares of Series A
Convertible Preferred Stock and 362,500 shares of Series B Convertible Preferred
Stock. Immediately prior to the consummation of the Offering, there were 435,000
shares of Series A Convertible Preferred Stock outstanding held by one holder of
record and 362,500 shares of Series B Convertible Preferred Stock outstanding
held by 16 holders of record. See Notes 5 and 6 of the Notes to Consolidated
Financial Statements for a description of the Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock, respectively. Concurrently with
the consummation of the Offering, all of the outstanding shares of Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock will be
converted into shares of Common Stock on a 1.561 to 1 basis. Upon consummation
of the Offering, no shares of Preferred Stock will be outstanding.
45
<PAGE> 49
WARRANTS
As of June 30, 1996, there were warrants outstanding to purchase 49,328
shares of Common Stock at a weighted average exercise price of $1.69 per share.
The warrants were issued in connection with the issuance of debt instruments by
the Company. All of the warrants are currently exercisable. Warrants covering
33,718 shares will expire by their terms in March 1997, and warrants covering
15,610 shares will expire by their terms in September 1999.
REGISTRATION RIGHTS
The Company has entered into the Series A Convertible Preferred Stock
Purchase Agreement (the "Series A Preferred Stock Agreement") and a Series B
Convertible Stock Purchase Agreement (the "Series B Preferred Stock Agreement")
which give certain rights to the holders of the equivalent of 1,244,898 shares
of Common Stock to demand that the Company register shares of Common Stock under
the Securities Act, subject to certain conditions. In order for the holders
("Series A Rights Holders") of Series A Preferred Stock or of Common Stock
converted from Series A Preferred Stock to effect a demand for registration, the
Series A Preferred Stock Agreement requires that the holders of at least 50% of
all such shares request the registration of at least 45% of the total shares of
Common Stock that are issued or issuable upon conversion of the Series A
Preferred Stock. In order for the holders ("Series B Rights Holders") of Series
B Preferred Stock or of Common Stock converted from Series B Preferred Stock to
effect a demand for registration, the Series B Preferred Stock Agreement
requires that the holders of at least 40% of all such shares request the
registration of at least 45% of the total shares of Common Stock that are issued
or issuable upon conversion of the Series B Preferred Stock. An unlimited number
of demands may be made; however, the Company has an obligation to complete only
two registrations at the demand of the Series A Rights Holders and only two
registrations at the demand of the Series B Rights Holders. The expenses of the
first such registration on behalf of each of the Series A Rights Holders and
Series B Rights Holders will be borne by the Company; the expenses of subsequent
registrations will be borne by the respective selling shareholders. In addition,
once the Company is eligible to effect a registration of its securities under
Form S-3, each group of Series A Rights Holders and Series B Rights Holders may
effect a demand for registration on Form S-3 if the holders of 25% of such
rights holders' shares request such registration. An unlimited number of demands
for registration on Form S-3 may be made; however, the Company has an obligation
to complete only one such registration during any one fiscal year. All rights
holders have waived such rights with respect to the Offering and have agreed not
to demand registration of any of their shares for a period of one year following
the Effective Date pursuant to the Lock-up Agreements.
In addition to demand registration rights, each group of rights holders has
unlimited "piggyback" registration rights pursuant to which the rights holders
will have the right to request that the Company register their respective shares
under the Securities Act at the expense of the Company (excluding all
underwriting discounts, selling commissions and applicable stock transfer
taxes), unless in connection with an underwritten public offering, the principal
underwriter reasonably and in good faith recommends that the respective rights
holders' shares be excluded from the offering. All rights holders have waived
such rights with respect to the Offering and have agreed not to demand
registration of any of their shares for a period of one year following the
Effective Date pursuant to the Lock-up Agreements.
Satana and Morris G. Moreland have registration rights equivalent to those
of the Series A Rights Holders with respect to 421,470 shares and 46,830 shares
of Common Stock held by Satana and Morris G. Moreland, respectively. Satana and
Morris G. Moreland have waived their registration rights in connection with the
Offering and has agreed not to demand registration of any of its shares for a
period of one year following the Effective Date pursuant to the Lock-up
Agreements.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a shareholder may consider to be in the
best interests of the Company or its shareholders, including those attempts that
may
46
<PAGE> 50
result in a premium over the then current market price for the Common Stock.
Concurrent with the completion of the Offering, the Company's Restated and
Amended Articles of Incorporation and Restated and Amended Bylaws will provide
for the Board of Directors to be divided into three classes of as equal size as
possible, with the term of each class expiring in consecutive years with
approximately one-third of the Board of Directors being elected each year.
Holders of Common Stock will not be entitled to vote cumulatively for directors,
but directors will be permitted to be removed with or without cause by the
affirmative vote of at least two-thirds of the outstanding shares of stock of
the Company entitled to vote thereon. The Company's Restated and Amended
Articles of Incorporation and Restated and Amended Bylaws will also provide that
the Company's Bylaws may be adopted, amended, or repealed only by the Board of
Directors and that the number of directors shall be fixed from time to time by
resolution of the Board of Directors. In addition, a calling of a special
meeting by the shareholders of the Company will require the written request of
holders of at least 50% of all the outstanding shares of the Company entitled to
vote. Shareholders of the Company entitled to take action at annual or special
meetings of the shareholders may take action by written consent only with the
unanimous written consent of all the shareholders entitled to vote thereon.
Concurrent with the completion of the Offering, the Company's Restated and
Amended Articles of Incorporation and Restated and Amended Bylaws will also
authorize shares of Preferred Stock with respect to which the Board of Directors
will have the power to fix the rights, preferences, privileges, and restrictions
without any further vote or action by the stockholder. The provisions of the
Company's Restated and Amended Articles of Incorporation and Restated and
Amended Bylaws may have the effect of delaying, deferring or preventing a change
in control of the Company, which could deprive the Company's shareholders of the
opportunity to sell their shares of Common Stock at prices higher than
prevailing market prices. Such provisions could also limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. These provisions, in addition to the existence of authorized but unissued
capital stock, may have the effect, either alone or in combination with each
other, of making more difficult or discouraging an acquisition of the Company or
other change in control deemed undesirable by the Board. See "Description of
Capital Stock -- Preferred Stock."
TRANSFER AGENT AND REGISTRAR
Upon consummation of the Offering, the transfer agent and registrar for the
Common Stock will be ChaseMellon Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the Offering. Future sales of
substantial amounts of Common Stock in the public market could adversely affect
market prices prevailing from time to time and could impair the Company's
ability to raise capital through sale of its equity securities. Sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price and
the ability of the Company to raise equity capital in the future.
Upon completion of the Offering, the Company will have outstanding
5,623,596 shares of Common Stock. Of these shares, the 2,000,000 shares of
Common Stock offered hereby will be tradeable without restriction under the
Securities Act, except for any shares acquired by an "affiliate" of the Company
(as that term is defined in the Securities Act and regulations promulgated
thereunder). The remaining 3,623,596 shares are "restricted securities" within
the meaning of Rule 144 and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. The beneficial owners of more than 98% of the
Restricted Shares have entered into Lock-up Agreements which provide that, with
certain limited exceptions, the shareholder will not offer, sell, contract to
sell, grant an option to purchase, make a short sale or otherwise dispose of or
engage in any hedging or other transaction that is designed or reasonably
expected to lead to a disposition of any shares of Common Stock or any option or
warrant to purchase shares of Common Stock or any securities exchangeable for or
convertible into shares of Common Stock for a period of 180 days after the
Effective Date without the prior written consent of Bear, Stearns & Co. Inc. The
remainder, less than 2% of the Restricted Shares, will be available for
47
<PAGE> 51
sale upon the Effective Date. Beginning 180 days after the Effective Date, the
remainder of the Restricted Shares will become eligible for sale under Rule 144
or Rule 701 upon the expiration of the Lock-up Agreements. In addition, 348,103
shares subject to currently vested stock options and warrants will become
eligible for sale in the public market upon the expiration of the Lock-up
Agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years, including an
affiliate of the Company, is entitled to sell, within any three month period, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (approximately 56,321 shares immediately
after the Offering) or (ii) an amount equal to the average weekly reported
volume of trading in the Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed an affiliate of the Company and who has beneficially owned
Restricted Shares for at least three years is entitled to sell such shares under
Rule 144 without regard to these volume or other limitations. Restricted Shares
properly sold in reliance on Rule 144 are thereafter freely tradeable without
restrictions or registration under the Securities Act, unless thereafter held by
an affiliate of the Company. In addition, Rule 701 permits any employee, officer
or director of or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract to sell such shares without
having to comply with the holding period requirements of Rule 144 and, in the
case of non-affiliates, without having to comply with the public information,
volume limitation or notice provisions of Rule 144.
The Company anticipates that it will file a registration statement on Form
S-8 under the Securities Act to register all of the shares of Common Stock
issued or reserved for future issuance under the Incentive Plan. Subject to the
Lockup Agreements, upon filing of such registration statement, shares purchased
upon the exercise of options covered thereby would generally be available for
resale in the public market, subject to Rule 144 volume limitations applicable
to affiliates of the Company.
Pursuant to the Registration Rights Agreements, the holders of the
Convertible Preferred Stock have been accorded the right to require the Company,
at the Company's expense, to register up to all of their 1,244,898 shares of
Common Stock under the Securities Act. Satana and Morris G. Moreland have
registration rights equivalent to those of the Series A Rights Holders with
respect to 421,470 shares and 46,830 shares of Common Stock held by Satana and
Morris G. Moreland, respectively. See "Description of Capital
Stock -- Registration Rights." Pursuant to the Lock-up Agreements, such persons
have agreed not to exercise such registration rights for a period of one year
following the Effective Date, without the prior written consent of Bear, Stearns
& Co. Inc.
48
<PAGE> 52
UNDERWRITING
Subject to certain terms and conditions contained in the Underwriting
Agreement (the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom Bear, Stearns & Co. Inc. and Equitable Securities
Corporation are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company an aggregate of 2,000,000 shares
of Common Stock. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Bear, Stearns & Co. Inc. .................................................
Equitable Securities Corporation..........................................
---------
Total........................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
Prior to the Offering, there has been no established public trading market
for the Common Stock. The initial price to the public for the Common Stock
offered hereby has been determined in negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations have
been the history of and the prospects for the industry in which the Company
competes, an assessment of the Company's management, the past and present
operations of the Company, the historical results of operations of the Company,
the prospects for future earnings of the Company, the general condition of the
securities markets at the time of the Offering, and the recent market prices of
securities of generally comparable companies. There can be no assurance that an
active trading market will develop for the Common Stock or that the Common Stock
will trade in the public market subsequent to the Offering at or above the
initial offering price.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Act, or to contribute to payments
that the Underwriters may be required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public initially at the price set forth
on the cover page of this Prospectus and to certain dealers (who may include the
Underwriters) at such price less a concession not to exceed $ per
share. The Underwriters may allow, and such dealers may allow, discounts not in
excess of $ per share to any Underwriter and certain other dealers.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 300,000 solely additional shares of Common Stock at the initial
public offering price, less underwriting discounts and commissions to cover
overallotments. Such option may be exercised at any time until 30 days after the
date of the final Prospectus relating to the Offering. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriters' initial commitment as indicated in the
preceding table.
The holders of over 98% of the outstanding capital stock of the Company,
including all of the Company's directors and executive officers, have agreed not
to offer, pledge, issue, sell, contract to sell, grant any option to purchase or
otherwise dispose (or announce any offer, sale, grant of any option to purchase
or other
49
<PAGE> 53
disposition) of any shares of Common Stock, or any securities convertible into,
or exercisable or exchangeable for, shares of Common Stock for a period of 180
days after the date of the final Prospectus relating to the Offering, without
the prior written consent of Bear, Stearns & Co. Inc. In addition, holders of
the Company's Convertible Preferred Stock have agreed not to exercise certain
rights to have their shares of Company Common Stock registered under the
Securities Act for a period of the year following the Effective Date, without
the prior written consent of Bear, Stearns & Co. Inc. See "Shares Eligible for
Future Sale."
The Underwriters do not intend to sell shares of Common Stock to any
account over which they exercise discretionary authority.
Julie E. Silcock, a Senior Managing Director of Bear, Stearns & Co. Inc.,
is the wife of Jim Silcock, a general partner of Mapleleaf Capital, Ltd. and a
director of the Company. Mapleleaf Capital, Ltd., together with its affiliates,
is the largest holder of the Company's Common Stock. Ms. Silcock may be deemed
to beneficially own certain shares of the Company's Common Stock held by
Mapleleaf Capital, Ltd. and its affiliates due to her marital relationship with
Mr. Silcock. See "Principal Shareholders."
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other legal matters will be passed upon for the Company by Jackson &
Walker, L.L.P., Dallas, Texas. A partner of Jackson & Walker, L.L.P.
beneficially owns 10,927 shares of Common Stock of the Company. Certain legal
matters in connection with the issuance of the shares of Common Stock offered
hereby will be passed upon for the Underwriters by Winstead Sechrest & Minick
P.C., Dallas, Texas.
EXPERTS
The consolidated financial statements and financial statement schedule of
Medical Alliance, Inc. and its subsidiaries at December 31, 1994 and 1995, and
for each of the years in the three-year period ended December 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Coopers & Lybrand L.L.P., independent accountants and are included herein and
elsewhere in the Registration Statement in reliance upon such reports and
schedule given upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus constitutes a part of the Registration Statement
and does not contain all of the information set forth in the Registration
Statement or the exhibits and schedules thereto, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
and schedules thereto. Statements made in this Prospectus concerning the
provisions of any documents to which reference is made are not necessarily
complete and, in the case of documents filed as exhibits to the Registration
Statement, reference is made to the copy of the documents so filed for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits and schedules thereto filed with the Commission may be
inspected and copied at the public reference facility maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 75 Park
Place, Room 1228, New York, New York 10007 and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60621-2511. The Commission
maintains a web site that contains reports, proxy statements and other
information filed with the Commission; the address of this site is
http://www.sec.gov. Copies of such material may also be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549.
50
<PAGE> 54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
Report of Independent Accountants.................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996....... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 and 1996.............................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996........... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the six months ended June 30, 1995 and 1996.......................... F-6
Consolidated Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Medical Alliance, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Medical
Alliance, Inc. and Subsidiaries (the "Company"), as of December 31, 1994 and
1995 and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Medical Alliance, Inc. and Subsidiaries as of December 31, 1994 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
July 17, 1996, except for Note 17 as to
which the date is September 9, 1996
F-2
<PAGE> 56
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
----------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
---------- ---------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 93,656 $1,385,654 $ 1,404,985
Restricted cash......................................... 15,035 22,854 26,900
Accounts receivable, less allowance for doubtful
accounts of $449,881, $1,113,314 and $1,514,926,
respectively.......................................... 1,386,714 2,568,686 3,399,029
Prepaid expenses and other current assets............... 124,665 230,322 440,512
----------- ----------- -----------
Total current assets............................. 1,620,070 4,207,516 5,271,426
----------- ----------- -----------
Property and equipment, net............................... 809,354 2,192,791 3,474,655
----------- ----------- -----------
Other assets:
Deferred income taxes................................... 256,972 -- --
Intangible assets, net of amortization of approximately
$44,000, $3,000 and $23,000, respectively............. 11,526 43,056 184,536
----------- ----------- -----------
Total other assets............................... 268,498 43,056 184,536
----------- ----------- -----------
Total assets..................................... $2,697,922 $6,443,363 $ 8,930,617
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 241,951 $ 316,367 $ 562,026
Accrued expenses........................................ 343,766 801,555 1,147,328
Current maturities of:
Long-term debt........................................ 275,875 366,667 700,452
Capital lease obligations............................. 209,826 284,633 317,894
Deferred income taxes................................... 256,972 365,616 41,780
Deferred revenue........................................ 165,907 159,337 156,842
----------- ----------- -----------
Total current liabilities........................ 1,494,297 2,294,175 2,926,322
Long-term debt, net of current maturities................. 688,912 1,443,819 2,655,335
Capital lease obligations, net of current maturities...... 391,280 258,296 138,922
Deferred income taxes..................................... -- 16,547 451,825
----------- ----------- -----------
Total liabilities................................ 2,574,489 4,012,837 6,172,404
----------- ----------- -----------
Stockholders' equity:
Series A convertible preferred stock, $0.002 par value,
2,000,000 shares authorized; 435,000 shares issued and
outstanding; aggregate liquidation preferences of
$928,500, $893,500 and $893,500, respectively, no
shares pro forma...................................... 870 870 870 --
Series B convertible preferred stock, $0.002 par value,
362,500 shares authorized, issued and outstanding;
aggregate liquidation preferences of $0, $1,450,000
and $1,450,000, respectively, no shares pro forma..... -- 725 725 --
Common stock, $0.002 par value, 10,000,000 shares
authorized and 1,894,024, 2,339,421 and 2,387,172
shares issued and outstanding, respectively, 3,632,069
shares pro forma...................................... 3,788 4,678 4,774 7,264
Capital in excess of par value.......................... 1,232,257 2,959,586 2,918,032 2,917,137
Accumulated deficit..................................... (1,104,532) (526,383) (157,238) (157,238)
Treasury stock at cost, 17,230 shares................... (8,950) (8,950) (8,950) (8,950)
----------- ----------- ----------- -----------
Total stockholders' equity....................... 123,433 2,430,526 2,758,213 2,758,213
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity....... $2,697,922 $6,443,363 $ 8,930,617
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 57
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- --------------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue...................... $3,720,268 $5,261,763 $11,177,138 $4,854,109 $8,395,480
---------- ---------- ----------- ---------- ----------
Costs and expenses:
Salaries and benefits.......... 1,643,306 2,005,262 3,721,169 1,686,252 2,748,810
Selling, general and
administrative.............. 1,214,320 1,816,859 3,620,394 1,539,224 2,800,838
Depreciation and
amortization................ 333,090 293,093 718,767 264,573 652,710
Provision for uncollectible
accounts.................... 550,521 781,176 1,884,709 743,196 1,422,737
---------- ---------- ----------- ---------- ----------
Total costs and
expenses............. 3,741,237 4,896,390 9,945,039 4,233,245 7,625,095
---------- ---------- ----------- ---------- ----------
Operating income
(loss)............... (20,969) 365,373 1,232,099 620,864 770,385
---------- ---------- ----------- ---------- ----------
Other (income) expense:
Interest income and other,
net......................... (1,860) (5,528) 11,953 9,644 (12,110)
Interest expense............... 157,846 178,722 246,655 130,735 150,658
---------- ---------- ----------- ---------- ----------
Total other expense.... 155,986 173,194 258,608 140,379 138,548
---------- ---------- ----------- ---------- ----------
Income (loss) before income
taxes.......................... (176,955) 192,179 973,491 480,485 631,837
Provision (benefit) for income
taxes.......................... (26,474) -- 395,342 195,129 262,692
---------- ---------- ----------- ---------- ----------
Net income (loss)................ (150,481) 192,179 578,149 285,356 369,145
---------- ---------- ----------- ---------- ----------
Less preferred stock dividend.... (75,000) (75,000) (87,000) (87,000) (87,000)
Less charge for cancelation of
put feature described in Note
7.............................. -- -- (180,000) (180,000) --
---------- ---------- ----------- ---------- ----------
Net income (loss) applicable to
common stock................... $ (225,481) $ 117,179 $ 311,149 $ 18,356 $ 282,145
========== ========== =========== ========== ==========
Net income (loss) per share...... $ (.09) $ .04 $ .10 $ .01 $ .08
========== ========== =========== ========== ==========
Weighted average number of common
shares and common share
equivalents (in thousands)..... 2,529 2,611 3,011 2,728 3,553
---------- ---------- ----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 58
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK CAPITAL IN
---------------- ---------------- ------------------ EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
------- ------ ------- ------ --------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993.................. 375,000 $750 1,776,949 $3,554 $1,221,111 $(1,146,230)
Issuance of common stock for note
receivable.............................. 23,415 47 1,453
Series A preferred stock dividend......... (75,000)
Net loss.................................. (150,481)
------- ---- ------- ---- --------- ------ ---------- -----------
Balance at December 31, 1993................ 375,000 750 1,800,364 3,601 1,147,564 (1,296,711)
Issuance of common stock (Satana warrants
exercised).............................. 93,660 187 59,813
Issuance of preferred stock for cash
(Mapleleaf Capital warrants
exercised).............................. 60,000 120 99,880
Series A preferred stock dividend......... (75,000)
Net income................................ 192,179
------- ---- ------- ---- --------- ------ ---------- -----------
Balance at December 31, 1994................ 435,000 870 1,894,024 3,788 1,232,257 (1,104,532)
Issuance of preferred stock................. 362,500 $725 1,439,207
Exercise of warrant in exchange for debt
payable to Satana Corporation........... 374,640 749 479,251
Charge for cancelation of put feature
described in Note 7..................... (180,000)
Options exercised......................... 60,723 121 50,179
Issuance of common stock related to
acquisition............................. 10,034 20 25,692
Series A preferred stock dividend......... (87,000)
Net income................................ 578,149
------- ---- ------- ---- --------- ------ ---------- -----------
Balance at December 31, 1995................ 435,000 870 362,500 725 2,339,421 4,678 2,959,586 (526,383)
Issuance of common stock (unaudited)...... 4,293 9 10,991
Options exercised (unaudited)............. 43,458 87 34,455
Series A preferred stock dividend
(unaudited)............................. (87,000)
Net income (unaudited).................... 369,145
------- ---- ------- ---- --------- ------ ---------- -----------
Balance at June 30, 1996
(unaudited)............................... 435,000 $870 362,500 $725 2,387,172 $4,774 $2,918,032 $ (157,238)
======= ==== ======= ==== ========= ====== ========== ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
TREASURY EQUITY
STOCK (DEFICIT)
-------- -------------
<S> <C> <C>
Balance at January 1, 1993.................. $(8,950) $ 70,235
Issuance of common stock for note
receivable.............................. 1,500
Series A preferred stock dividend......... (75,000)
Net loss.................................. (150,481)
------- ----------
Balance at December 31, 1993................ (8,950) (153,746)
Issuance of common stock (Satana warrants
exercised).............................. 60,000
Issuance of preferred stock for cash
(Mapleleaf Capital warrants
exercised).............................. 100,000
Series A preferred stock dividend......... (75,000)
Net income................................ 192,179
------- ----------
Balance at December 31, 1994................ (8,950) 123,433
Issuance of preferred stock................. 1,439,932
Exercise of warrant in exchange for debt
payable to Satana Corporation........... 480,000
Charge for cancelation of put feature
described in Note 7..................... (180,000)
Options exercised......................... 50,300
Issuance of common stock related to
acquisition............................. 25,712
Series A preferred stock dividend......... (87,000)
Net income................................ 578,149
------- ----------
Balance at December 31, 1995................ (8,950) 2,430,526
Issuance of common stock (unaudited)...... 11,000
Options exercised (unaudited)............. 34,542
Series A preferred stock dividend
(unaudited)............................. (87,000)
Net income (unaudited).................... 369,145
------- ----------
Balance at June 30, 1996
(unaudited)............................... $(8,950) $ 2,758,213
======= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 59
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(150,481) $ 192,179 $ 578,149 $ 285,356 $ 369,145
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Provision for uncollectible accounts................. 550,521 781,176 1,884,709 743,196 1,422,737
Depreciation and amortization........................ 350,090 293,093 718,767 264,573 652,710
Deferred income taxes................................ (26,474) -- 382,163 192,435 111,442
Changes in assets and liabilities net of effects from
acquisitions:
Accounts receivable................................ (691,573) (1,414,948) (3,066,681) (1,343,072) (2,253,080)
Prepaid expenses and other current assets.......... (66,431) 10,515 (105,657) (66,354) (210,190)
Accounts payable and accrued expenses.............. 24,330 269,872 577,794 428,789 504,432
Deferred revenue................................... 23,395 142,512 (6,570) (35,455) (2,495)
Other.............................................. -- -- (45,589) -- --
--------- ----------- ----------- ----------- -----------
Net cash provided by operating activities........ 13,377 274,399 917,085 469,468 594,701
--------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................................... (36,142) (130,231) (1,850,112) (891,172) (1,499,190)
Payment for acquisitions............................... -- -- (35,000) -- (493,840)
Change in restricted cash.............................. (19,630) 4,595 (7,819) 7,301 (4,046)
--------- ----------- ----------- ----------- -----------
Net cash used in investing activities............ (55,772) (125,636) (1,892,931) (883,871) (1,997,076)
--------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Payment of dividends on preferred stock................ -- (115,000) (122,000) (35,000) --
Repayment of capital lease obligations................. (16,134) (80,025) (244,543) (108,602) (151,113)
Repayment of long-term debt............................ (88,260) (148,833) (1,161,190) (1,023,713) (183,336)
Proceeds from issuance of preferred stock.............. -- 100,000 1,439,932 -- --
Proceeds from issuance of common stock................. -- 50,000 50,300 -- 34,542
Proceeds from issuance of long-term debt............... 205,500 57,500 2,293,819 1,575,260 1,728,635
Other.................................................. (11,303) -- 11,526 (30,000) (7,022)
--------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities..................................... 89,803 (136,358) 2,267,844 377,945 1,421,706
--------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................................ 47,408 12,405 1,291,998 (36,458) 19,331
Cash and cash equivalents at beginning of year........... 33,843 81,251 93,656 93,656 1,385,654
--------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year................. $ 81,251 $ 93,656 $ 1,385,654 $ 57,198 $ 1,404,985
========= =========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid.......................................... $ 82,467 $ 172,222 $ 247,990 $ 130,735 $ 146,374
Income taxes paid...................................... -- -- 5,000 -- 93,956
Supplemental schedule of noncash investing and financing
activities:
Issuance of note payable in payment for accounts
payable, advances and interest....................... 56,294 -- -- -- --
Issuance of common stock for note receivable........... 1,500 -- -- -- --
Preferred stock dividend declared...................... 75,000 35,000 -- 87,000 87,000
Capital lease obligations incurred..................... 85,400 613,925 186,366 186,366 65,000
Exercise of warrant in exchange for outstanding debt
and cancelation of put feature described in Note 7:
Common stock and capital in excess of par value...... -- -- 480,000 -- --
Debt................................................. -- -- 300,000 -- --
The Company has acquired businesses, as follows:
Fair value of assets acquired........................ $ 242,765 $ 351,198
Goodwill recorded.................................... 45,589 142,642
Less:
Fair value of common stock......................... (25,712) --
Cash paid.......................................... (35,000) (493,840)
----------- -----------
Liabilities assumed.................................. $ 227,642 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 60
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(INFORMATION OF AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
1. ORGANIZATION:
Medical Alliance, Inc. ("Medical Alliance") provides mobile surgical
services which allow certain minimally invasive operative procedures to be
performed in the physician's office. Medical Alliance was incorporated in Texas
in 1989 and is headquartered in Irving, Texas. Medical Alliance provides its
services throughout the United States and Canada. Medical Alliance entered into
two new lines of business in 1993 through wholly-owned subsidiaries. MAI Safety
Compliance Services, Inc. provides assistance to physician offices and other
alternate site health-care facilities to comply with O.S.H.A. standards.
Physicians Marketing Services, Inc. provides group advertising services to
physicians who utilize Medical Alliance's mobile medical services.
The accompanying consolidated financial statements include the accounts of
Medical Alliance and its wholly-owned subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated.
Interim Financial Information
The consolidated balance sheet as of June 30, 1996, the consolidated
statements of stockholders' equity for the six months then ended, and the
consolidated statements of operations and cash flows for the six months ended
June 30, 1995 and 1996, have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal, recurring
adjustments) necessary to present fairly the financial position at June 30,
1996, and the results of operations and cash flows for all periods presented
have been made. The results of operations for the interim periods are not
necessarily indicative of the operating results for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, particularly accounts
receivable, and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results may, in some instances,
differ from previously estimated amounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents -- The Company considers all investments with
initial maturities of 90 days or less at the time of purchase to be cash
equivalents. The Company maintains a significant portion of its cash balances
with one financial institution. These deposit accounts are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to a limit of $100,000 per
account. At December 31, 1995 and June 30, 1996, the Company had approximately
$1,115,000 and $1,008,000 invested in short-term U.S. government treasury
securities. As a result of the foregoing, the Company believes that credit and
market risk in such instruments is minimal.
Property and Equipment -- Property and equipment are recorded at cost.
Depreciation is provided by the straight-line method over existing useful lives
ranging from three to five years. Repairs and maintenance are charged directly
to expense as incurred. Maintenance contracts are amortized over their
respective contracted period.
Intangibles -- Debt issuance costs were amortized on a straight-line basis
over the periods of the respective debt and organization costs were amortized on
a straight-line basis over a five-year period. Goodwill is the excess of the
purchase price over the fair value of net assets acquired and is being amortized
on a straight-line basis over three years. The carrying value of goodwill is
continually reviewed for recoverability. If
F-7
<PAGE> 61
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the review indicates that goodwill will not be recoverable, as determined based
on undiscounted cash flows, the carrying value of the goodwill is reduced by the
estimated short-fall of discounted cash flows.
Income Taxes -- The Company recognizes deferred tax liabilities and assets
for the expected future tax consequences of events that have been recognized in
the Company's consolidated financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Valuation allowances, if any, are
established when necessary to reduce deferred tax assets to the amount that is
more likely than not to be realized. Income tax expense is the tax payable for
the period and the change during the period in deferred tax assets and
liabilities.
Revenue Recognition -- The Company recognizes revenue in most instances
upon completion of the surgical procedures performed with the Company's
equipment. Revenue for procedures that require two or more treatments and is
collected as a global fee, is recognized in equal amounts over the course of the
treatments. Revenue is presented net of contractual allowances and field
discounts.
Deferred Revenue -- The Company organizes certain advertising campaigns and
training seminars for physician utilizers. Revenues are recognized when the
advertising is run or seminars are held. Additionally, certain procedures
require multiple treatments and revenues received in advance are deferred until
subsequent procedures are performed.
Long Lived Assets -- Effective January 1, 1996 the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. There was no material effect from the adoption of this
Statement.
Stock-Based Compensation -- The Company has elected to account for employee
stock-based compensation as prescribed in Accounting Principles Board (APB) No.
25 as opposed to the fair value method prescribed by the Financial Accounting
Standards Board (SFAS) No. 123, "Accounting for Stock-Based Compensation."
However, pro forma disclosure as prescribed by SFAS No. 123 for all such equity
awards will be included in the annual financial statements.
Earnings Per Share -- Net income (loss) per common share is based on
reported net income (loss) less the Series A Preferred Stock dividend and the
charge for cancellation of the put feature (See Note 7). The resulting amount is
presented as income (loss) applicable to common stock. Such income (loss)
applicable to common stock in each period presented is divided by the weighted
average number of outstanding common and common equivalent shares using the
treasury stock method adjusted for the stock split described in Note 16.
Earnings per share for all common stock and common stock warrants, options and
other potentially dilutive instruments issued one year before the initial public
offering have been computed in accordance with Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") Topic 4-D. The SAB requires that
such shares issued at a price less than the per share Offering price be included
in the calculation of common stock and common stock equivalents as if such
shares were outstanding for all periods presented, even when anti-dilutive. With
respect to these shares, the Company has also used the treasury stock method
based on the Offering price as the purchase price.
F-8
<PAGE> 62
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Medical equipment............................. $ 1,048,470 $ 2,764,090 $ 4,484,444
Furniture and fixtures........................ 123,731 223,356 332,259
Transportation................................ -- 7,000 67,956
Leasehold improvements........................ 3,702 11,877 11,877
Equipment under capital leases................ 700,032 886,398 910,479
----------- ----------- -----------
1,875,935 3,892,721 5,807,015
Less accumulated depreciation and
amortization................................ (1,066,581) (1,699,930) (2,332,360)
----------- ----------- -----------
Net property and equipment.................... $ 809,354 $ 2,192,791 $ 3,474,655
=========== =========== ===========
</TABLE>
Accumulated amortization related to equipment under capital leases was
approximately $91,000, $363,000 and $502,000 at December 31, 1994, 1995 and June
30, 1996, respectively.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
--------- ---------- -----------
<S> <C> <C> <C>
Revolving bank credit agreement at prime plus
1/2%; interest payments due monthly; principal
due 1997....................................... $ -- $ 250,000 $ 250,000
Bank term loan at prime plus 1 1/2% with varying
monthly principal and interest payments; final
payment due 2000............................... -- 643,819 643,819
Bank term loan at prime plus 1 1/2%; monthly
principal and interest payments; final payment
due 1998....................................... -- 916,667 733,333
Bank term loan at prime plus 3/4%; monthly
principal and interest payments beginning in
1997; final payment due 2000................... -- -- 1,728,635
Note to MJ Capital Partners, L.P. at 16%; varying
principal and interest payments; final payment
due 1997....................................... 607,974 -- --
Subordinated note to Satana Corporation at 10%;
varying monthly principal and interest
payments; final payment due 1996............... 356,813 -- --
--------- ---------- ----------
964,787 1,810,486 3,355,787
Less current maturities.......................... (275,875) (366,667) (700,452)
--------- ---------- ----------
$ 688,912 $1,443,819 $ 2,655,335
========= ========== ==========
</TABLE>
F-9
<PAGE> 63
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Prime rate was 8 1/2% and 8 1/4% at December 31, 1995 and June 30, 1996,
respectively.
The annual principal requirements for the five years subsequent to June 30,
1996 are as follows:
<TABLE>
<S> <C> <C>
YEARS ENDING DECEMBER 31
Remaining 1996....................................................... $ 183,333
1997................................................................. 1,095,861
1998................................................................. 974,151
1999................................................................. 790,818
2000................................................................. 311,624
----------
$3,355,787
==========
</TABLE>
The bank term loans and revolving credit agreement originated in 1995, with
varying principal and interest payments through 2000. Effective March 20, 1996,
the Company and the bank modified the term loans and revolving credit agreement
which increased the term loan agreement from $1,750,000 to $3,750,000 and
increased the revolving credit agreement from $250,000 to $500,000. The loans
and revolving credit are collateralized by Company assets and a personal
guarantee of a major shareholder.
Under the terms of the bank debt, the Company is subject to certain
covenants, including restrictions on dividend payments, the redemption or
repurchase of stock and stock equivalents and limitations on indebtedness. In
addition, the loan agreement contains restrictive covenants which, among other
things, require the Company to obtain directors' and officers' liability
insurance.
As noted above the Company and the bank modified the term loan and
revolving credit agreement. The amended and restated term and revolving credit
agreement requires annual audited financial statements by May 31 for the prior
fiscal year. The Company has not complied with this covenant and has obtained a
waiver from the bank which is effective until January 1, 1997.
The note with Satana Corporation ("Satana"), which originated in 1991, was
collateralized by Company assets, and was modified in July 1992 to extend the
maturity date to December 1996. On June 28, 1995, Satana exercised a warrant to
acquire 374,640 shares of common stock in exchange for the outstanding debt owed
to Satana Corporation (Note 7).
The note with MJ Capital Partners, L.P. and MJ Capital Corporation
originated in 1991 and was collateralized by equipment and certain accounts
receivable. Additional loans have been obtained from these companies
periodically since the origination date. During 1993, MJ Capital Corporation
became a partner in MJ Capital Partners, L.P., at which time the loans from
those parties were combined into a single note. The note was paid in full in
1995.
5. SERIES A PREFERRED STOCK AND PREFERRED STOCK WARRANTS:
On July 10, 1992 the Company entered into a Preferred Stock Purchase
Agreement (the "Series A Agreement") with Mapleleaf Capital, Ltd. The Company
issued an aggregate of 375,000 shares of Series A Convertible Preferred Stock
("Series A Preferred Stock") in exchange for cash of $2.00 per share. In
connection with this transaction, the Company converted subordinated debt of
certain shareholders into shares of common stock at a conversion rate of one
share of common stock for every $2.00 of subordinated debt as described above.
The shares of Series A Preferred Stock were issued with warrants attached
to purchase up to 60,000 shares of Series A Preferred Stock. The warrants were
exercisable at $2.00 per share and expired in 1995. The warrants were exercised
on July 1, 1994 at $1.67 per share which approximated the fair value for other
trades in the Company's common stock. The Series A Preferred Stock was
convertible into common stock at a ratio
F-10
<PAGE> 64
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of 1 to 1 initially. However, upon issuance of common stock or common stock
equivalents, the conversion ratio is subject to an anti-dilution adjustment
pursuant to the Series A Agreement for all convertible preferred stock.
Effective with the stock dividend discussed in Note 16, the conversion ratio for
the Series A Preferred Stock will be 1.561 to 1 as approved by the Board of
Directors. The Series A Preferred Stock is convertible at the election of the
holder at any time, or automatically with the closing of an underwritten
qualified public offering (as defined in the Series A Agreement). If the Company
has not completed a qualified public offering on or prior to December 31, 1997,
the Company has the right, but not the obligation to repurchase all remaining
shares of Series A Preferred Stock.
The Series A Preferred Stock requires a $.20 per share annual dividend
commencing on June 30, 1993 which is cumulative if unpaid. Dividends paid for
the years ended December 31, 1993, 1994 and 1995 were $0, $115,000 and $122,000,
respectively. The Company was not in compliance with certain covenants of the
Series A Agreement including the timely issuance of its year-end audited
consolidated financial statements, the timely issuance of a budgeted operating
forecast and a loan to an employee which exceeds the designated limit. The
Company has obtained appropriate waivers from the Series A Preferred Stock
shareholder effective until January 1, 1997.
The Company has reserved 679,035 shares of common stock for the conversion
of all outstanding Series A Preferred Stock.
6. SERIES B PREFERRED STOCK:
On November 17, 1995 the Company entered into a Preferred Stock Purchase
Agreement (the "Series B Agreement") with various investors. The Company issued
an aggregate of 362,500 shares of Series B Convertible Preferred Stock ("Series
B Preferred Stock") in exchange for cash of $4.00 per share.
The Series B Preferred Stock was convertible into common stock at a ratio
of 1 to 1 initially. However, upon issuance of common stock or common stock
equivalents, the conversion ratio is subject to an anti-dilution adjustment
pursuant to the Series B Agreement for all convertible preferred stock.
Effective with the stock dividend discussed in Note 16, the conversion ratio for
the Series B Preferred Stock will be 1.561 to 1 as approved by the Board of
Directors. The Series B Preferred Stock is convertible at the election of the
holders at any time, or automatically with the closing of an underwritten
qualified public offering (as defined in the Series B Agreement). There is no
annual dividend requirement in the Series B Agreement. However, the Company was
not in compliance with certain covenants of the Series B Agreement including the
timely issuance of its year-end audited consolidated financial statements, the
timely issuance of a budgeted operating forecast, and a loan to an employee
which exceeds the designated limit. The Company has obtained appropriate waivers
from all Series B Preferred Stock shareholders effective until January 1, 1997.
The Company has reserved 565,863 shares of common stock for the conversion
of all outstanding Series B Preferred Stock.
7. COMMON STOCK AND COMMON STOCK WARRANTS:
A warrant to purchase up to 374,640 shares of common stock at $1.28 per
share was granted to Satana on January 17, 1991 as part of the note agreement
(see Note 4). This warrant includes a put feature, whereby the holder of the
shares acquired via the exercise of the warrant could require the Company to
redeem the shares based on a formula price. The Satana note was modified in July
1992, at which time Satana was granted a warrant to purchase an additional
93,660 shares of the Company's common stock at $.64 per share. During the year
ended December 31, 1994, the holder exercised the $.64 per share warrant to
purchase 93,660 shares of common stock at a price of $0.53 per share. The
Company recorded interest expense of approximately $10,000 as a result of this
transaction. During the year ended December 31, 1995, the holder exercised the
warrant to acquire 374,640 shares of common stock in exchange for the
outstanding debt owed to Satana Corporation and
F-11
<PAGE> 65
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
cancelation of the put feature. The difference between the carrying value of the
debt instrument, which approximated fair value, and the exercise price of the
warrants has been accounted for as a reduction of capital in excess of par value
and has been deducted from net income for purposes of computing net income
applicable to common stock in the accompanying statement of operations.
A warrant to purchase up to 23,415 shares of common stock at $1.28 per
share was granted to Columbia General Corporation on August 15, 1993 as part of
the restructured MJ Capital Partners note. The warrant expires on March 31,
1997.
A warrant to purchase 2,810 shares of common stock was granted in 1993 as
part of the restructured MJ Capital Partners note. The warrant expires on March
31, 1997. Warrants to purchase up to 10,771 shares of common stock at $1.28 per
share were granted in 1994 in connection with advances under the MJ Capital
Partners note. Warrants to purchase 3,278 shares of common stock at $1.28 per
share were canceled in 1995 as part of the early retirement of the MJ Capital
Partners note. The remaining warrants expire on March 31, 1997.
A warrant to purchase up to 15,610 shares of common stock at $2.56 per
share was granted in 1995 to a major stockholder in return for a personal
guarantee of the bank debt. This warrant vested immediately and expires in 1999.
The Company has reserved 49,328 shares of common stock for the conversion
of all outstanding common stock warrants as of December 31, 1995 and June 30,
1996.
The Company's debt and Series A and Series B Preferred Stock agreements
restrict the Company from making dividend payments other than the Series A
Preferred Stock dividend.
8. STOCK OPTIONS:
The Company implemented an Incentive Stock Option Plan (the "Plan") in
January of 1990. In 1994, the Company amended and restated the Plan, which
increased the number of options available for issuance to 1,168,190 shares of
the Company's common stock. In December of 1995, the Company revised the Plan
covering up to 1,324,290 shares of the Company's common stock. The options have
varying expiration dates through September 16, 1999. At December 31, 1995 and
June 30, 1996, options for 441,170 and 294,436 shares remain available for
issuance under the Plan. Options to purchase an equivalent number of shares of
the Company's common stock are as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------- -----------
<S> <C> <C>
Total outstanding at January 1, 1993.................................. 293,999 122,289
======== =======
Granted during 1993 at $1.28 per share................................ 220,882 21,074
Exercised at $.06 per share........................................... (23,415) (23,415)
Canceled during 1993 at $1.28 per share............................... (78,050) (31,220)
Outstanding at December 31, 1993
$1.28 per share..................................................... 357,470 159,222
$ .58 per share..................................................... 39,025 39,025
$ .32 per share..................................................... 16,921 16,921
-------- -------
Total outstanding at December 31, 1993................................ 413,416 215,168
======== =======
</TABLE>
F-12
<PAGE> 66
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------- -------
<S> <C> <C>
Granted during 1994 at $1.28 per share................................ 116,295 30,440
Canceled during 1994 at $1.28 per share............................... (40,586) (7,025)
Outstanding at December 31, 1994
$1.28 per share..................................................... 433,179 298,151
$ .58 per share..................................................... 39,025 39,025
$ .32 per share..................................................... 16,921 16,921
-------- -------
Total outstanding at December 31, 1994................................ 489,125 354,097
======== =======
Granted during 1995 at $2.56 per share................................ 679,035 30,440
Exercised at $1.28 per share.......................................... (21,698) (21,698)
Exercised at $.58 per share........................................... (39,025) (39,025)
Canceled during 1995 at $2.56 per share............................... (285,663) --
Canceled during 1995 at $1.28 per share............................... (22,791) (9,522)
Outstanding at December 31, 1995
$2.56 per share..................................................... 393,373 30,440
$1.28 per share..................................................... 388,689 266,931
$ .32 per share..................................................... 16,921 16,921
-------- -------
Total outstanding at December 31, 1995................................ 798,983 314,292
======== =======
Granted during 1996 at $2.56 per share................................ 159,222 --
Granted during 1996 at an assumed public offering price of $12.00 per
share............................................................... 60,099 --
Exercised at $1.28 per share.......................................... (26,537) (26,537)
Exercised at $.32 per share........................................... (16,921) (16,921)
Canceled during 1996 at $2.56 per share............................... (67,123) (31,220)
Canceled during 1996 at $1.28 per share............................... (5,464) --
Outstanding at June 30, 1996
$2.56 per share..................................................... 485,520 30,440
$1.28 per share..................................................... 356,689 317,664
Assumed public offering price of $12.00 per share................... 60,106 --
-------- -------
Total outstanding at June 30, 1996.................................... 902,315 348,103
======== =======
</TABLE>
During 1993, the Company granted 9,366 nonqualifying stock options at $1.28
each vesting immediately of which 7,805 were exercised in 1995 and the remaining
1,561 were exercised in 1996. During 1995, the Company granted 10,927
nonqualifying stock options at $2.56 each vesting immediately and expiring on
August 15, 1997.
During 1995, the Company granted 472,203 performance based stock options
under the Plan at an exercise price of $2.56 each contingent upon the Company
exceeding certain pretax earnings levels which are determined by the Board of
Directors. Although the Company achieved the earnings levels as determined by
the Board, the market value of the Company's common stock did not exceed the
exercise price of $2.56 per share. Therefore, no charge to earnings was recorded
by the Company. Approximately 195,000 of the performance based stock options
were earned in 1995, however, these options do not vest until December 31, 1997.
The remaining options were canceled during 1995.
F-13
<PAGE> 67
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES:
The income tax provision consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Current provisions:
Federal..................... $ -- $ -- $ -- $ -- $124,010
State....................... -- -- 13,179 6,505 27,240
--------- -------- -------- --------- --------
Total current....... -- -- 13,179 6,505 151,250
--------- -------- -------- --------- --------
Deferred provisions:
Federal..................... (26,474) -- 310,925 153,463 91,371
State....................... -- -- 71,238 35,161 20,071
--------- -------- -------- --------- --------
Total deferred...... (26,474) -- 382,163 188,624 111,442
--------- -------- -------- --------- --------
Total provisions
(benefit)......... $ (26,474) $ -- $395,342 $ 195,129 $262,692
========= ======== ======== ========= ========
</TABLE>
For the years ended December 31, 1993, 1994 and 1995 the Company generated
tax net operating losses. At December 31, 1995, the Company had tax net
operating loss carryforwards of approximately $799,000 which will begin to
expire in the year 2007. For the years ended December 31, 1993, 1994 and 1995
and for the six months ended June 30, 1996, the Company recognized the benefits
of tax operating carryforwards of approximately $0, $0, $39,000 and $619,000,
respectively.
The components of the net deferred tax asset (liability) as of December 31,
1994 and 1995 and June 30, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Net operating loss carryforward............... $ -- $ 238,757 $ --
Accrual to cash conversion.................... (256,972) (642,963) --
Change from cash to accrual for tax
purposes................................... -- -- (80,370)
Other......................................... -- 38,590 38,590
--------- --------- ---------
Net current asset (liability) before valuation
allowance.................................. (256,972) (365,616) (41,780)
Less valuation allowance...................... -- -- --
--------- --------- ---------
Net current asset (liability)................. $(256,972) $(365,616) $ (41,780)
========= ========= =========
Noncurrent:
Book vs. tax depreciation differences......... $ 28,793 $ (16,547) $ 36,014
Net operating loss carryforwards.............. 254,771 -- --
Change from cash to accrual for tax
purposes................................... -- -- (482,223)
Other......................................... -- -- (5,616)
--------- --------- ---------
Net noncurrent asset (liability) before
valuation allowance........................ 283,564 (16,547) (451,825)
Less valuation allowance...................... (26,592) -- --
--------- --------- ---------
Net noncurrent asset (liability).............. $ 256,972 $ (16,547) $(451,825)
========= ========= =========
</TABLE>
F-14
<PAGE> 68
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax rate varies from the federal statutory rate for
the years ended December 31, 1993, 1994, 1995 and six months ended June 30, 1995
and 1996 as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, JUNE 30,
------------------------ -------------
1993 1994 1995 1995 1996
----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Federal statutory rate........................ (34.0)% 34.0% 34.0% 34.0% 34.0%
Disallowance of meals and entertainment....... 4.6 4.6 1.8 1.5 1.8
(Reduction) addition to valuation allowance... 19.4 (37.4) -- -- --
State taxes (net of federal benefit).......... -- -- 5.7 5.7 4.9
Other......................................... (5.0) (1.2) (0.9) (0.6) 0.8
------ ------ ----- ----- -----
Effective income tax rate..................... (15.0)% 0.0% 40.6% 40.6% 41.5%
====== ====== ===== ===== =====
</TABLE>
10. LEASE COMMITMENTS:
The Company leases office space and vans under operating leases and certain
medical equipment under both capital and operating leases. The Company currently
leases office space under noncancelable operating leases which expire on various
dates through July 2002.
The Company has strategic alliances with manufacturers wherein the
manufacturer is paid a portion of the revenues generated by the Company's
equipment for certain benefits including access to the technology and periodic
equipment upgrades. These arrangements can be canceled with a 90 day notice and
are not included in the future minimum rental payments.
Future minimum rental payments under these capital and operating leases
subsequent to June 30, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
YEAR ENDING DECEMBER 31
Remaining 1996.............................................. $ 180,806 $ 486,335
1997........................................................ 285,031 818,725
1998........................................................ 36,656 568,325
1999........................................................ -- 145,288
2000........................................................ -- 131,997
Thereafter.................................................. -- 201,731
--------- ----------
Total future minimum lease payments......................... 502,493 $2,352,401
==========
Less amounts representing interest.......................... (45,677)
---------
Present value of future minimum lease payments.............. 456,816
Less current maturities..................................... (317,894)
---------
Long-term capital lease obligations......................... $ 138,922
=========
</TABLE>
Rent expense for the years ended December 31, 1993, 1994, 1995 and six
months ended June 30, 1995 and 1996 under operating leases was approximately
$103,000, $310,000, $946,000 and $302,000 and $1,257,000, respectively.
F-15
<PAGE> 69
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. CONCENTRATION OF SUPPLIERS:
The Company currently buys its laser equipment, the main component of its
services, from three suppliers. Although there are a limited number of
manufacturers of this equipment, management believes that other suppliers could
provide similar laser equipment on comparable terms.
12. RELATED PARTIES:
The Company paid Montgomery, Jessup and Co., L.L.P. ("MJ"), certified
public accountants, and affiliates of MJ Capital Partners, L.P. and MJ Capital
Corporation, approximately $62,000 in 1993, $13,000 in 1994, and $20,000 in
1995, for professional fees. The Company owed MJ and its affiliates
approximately $616,000 at December 31, 1994, for professional fees and loans. MJ
and its affiliates own 295,216 shares of the Company's common stock and 15,571
shares of Series B Preferred Stock.
Satana's Vice President owns 60,145 shares of common stock and 19,966
shares of Series B Convertible Preferred Stock. The Company had a note payable
to Satana of approximately $357,000 at December 31, 1994.
Approximately $13,000, $32,000 and $27,000 in medical supplies were
purchased from a company owned by the relative of an officer and stockholder of
the Company during 1993, 1994 and 1995, respectively.
13. EMPLOYEE BENEFITS:
Effective January 1, 1993, a tax deferred savings plan under Section 401(k)
of the Internal Revenue Code was established. The plan covers all full-time
employees who are twenty-one years of age with one year of service. Employees
may contribute to the plan up to a maximum of 20% of their salary with a maximum
contribution of $9,240 in 1995. Employees are immediately vested in their
contributions. The Company may contribute an amount as determined by the Board
of Directors. Effective January 1, 1996, the Company began matching 15% of
employee contributions.
14. ACQUISITIONS:
On October 30, 1995, the Company completed the acquisition of substantially
all of the assets of Mobile Surgical Services, Inc., a Florida laser rental
company. For cash paid of $35,000 and 10,034 shares of common stock valued at
$2.56 per share, the Company recorded assets and assumed liabilities as follows:
<TABLE>
<S> <C>
Property and equipment........................................... $ 242,765
Goodwill......................................................... 45,589
Accounts payable................................................. (227,642)
---------
$ 60,712
=========
</TABLE>
The purchase agreement contains a contingent consideration clause whereby
the Company will pay an additional $25,000 by July 31, 1996 if specific gross
revenues are generated in Florida. The acquisition has been accounted for under
the purchase method of accounting and, accordingly, the operating results of
Mobile Surgical Services, Inc. have been included in the consolidated operating
results since the date of acquisition. The pro forma effect of the acquisition
was not material to the results of operations or financial position of the
Company.
Subsequent to year end, the Company completed two acquisitions for a total
purchase price of approximately $494,000. These asset purchases were accounted
for under the purchase method of accounting resulting in the recording of
approximately $143,000 in goodwill and approximately $351,000 in property and
F-16
<PAGE> 70
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
equipment. The pro forma effect of the acquisition was not material to the
results of operations or financial position of the Company.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used in estimating fair values:
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued
Expenses
The carrying value in the balance sheet approximates fair value.
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The carrying
value in the balance sheet approximates fair value.
16. PRO FORMA FINANCIAL STATEMENT INFORMATION (UNAUDITED):
Upon the closing of the Company's initial public offering, each outstanding
share of the Company's Series A and B Preferred Stock will be converted
automatically to common stock and will be given effect for the stock split
discussed in Note 17. The pro forma effect of the conversion has been presented
as a separate column in the Company's consolidated balance sheet assuming the
conversion had occurred as of June 30, 1996. In addition, pro forma financial
information regarding the pro forma sale of common stock necessary to retire
indebtedness (e.g., approximately $3.4 million divided by the assumed IPO price
of $12 per share) as if the retirement had taken place at the beginning of 1995
is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDING ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Historical net income applicable to common stock........ $ 311,149 $ 282,145
add: Interest Adjustment assuming repayment of debt as
of January 1, 1995.................................... 182,214 129,558
---------- ----------
Pro forma net income applicable to common stock......... $ 493,363 $ 411,703
========== ==========
Incremental common shares required to repay
indebtedness.......................................... 280,000 280,000
---------- ----------
Pro forma primary shares outstanding.................... 3,293,046 3,833,301
========== ==========
Pro forma fully diluted shares outstanding.............. 3,972,081 4,512,336
========== ==========
Pro forma primary earnings per share.......... $ 0.15 $ 0.11
========== ==========
Pro forma fully diluted earnings per share.... $ 0.15 $ 0.11
========== ==========
</TABLE>
17. SUBSEQUENT EVENT:
On September 9, 1996, the Board of Directors approved and paid a 1.561 to 1
stock split, effected through a stock dividend, whereby each common stock
shareholder received an additional .561 shares for each share owned. In
connection with the split, effected through a stock dividend, common stock was
credited and capital in excess of par value was charged for the aggregate par
value of the shares that were issued. In accordance with SAB Topic 4-C, the
accompanying financial statements and related footnotes have been retroactively
adjusted to give effect for this stock split effected through a stock dividend.
F-17
<PAGE> 71
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL, OR IN WHICH THE PERSON MAKING SUCH
OFFER IS NOT AUTHORIZED TO DO SO, OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH AN OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
The Company......................... 12
Use of Proceeds..................... 12
Dividend Policy..................... 12
Dilution............................ 13
Capitalization...................... 14
Selected Consolidated Financial
Data.............................. 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 16
Business............................ 23
Management.......................... 35
Certain Transactions................ 41
Principal Shareholders.............. 43
Description of Capital Stock........ 45
Shares Eligible for Future Sale..... 47
Underwriting........................ 49
Legal Matters....................... 50
Experts............................. 50
Additional Information.............. 50
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
LOGO
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BEAR, STEARNS & CO. INC.
EQUITABLE SECURITIES CORPORATION
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses to be incurred in
connection with the issuance and distribution of the Common Stock covered by
this Registration Statement (other than underwriting discounts and commissions),
all of which will be paid by Medical Alliance, Inc. (the "Registrant"), are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee..................... $ 10,310
National Association of Securities Dealers, Inc. Filing Fee............. 3,490
Nasdaq National Market Listing Fee...................................... 30,400
Accounting Fees and Expenses............................................ 150,000
Legal Fees and Expenses................................................. 145,000
Blue Sky Fees and Expenses.............................................. 12,500
Transfer Agent Fee and Registrar........................................ 5,000
Printing and Engraving Fee Expenses..................................... 100,000
Miscellaneous........................................................... 43,300
--------
Total......................................................... $500,000
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Upon consummation of the Offering, Registrant's Articles of Incorporation
will provide that, to the fullest extent permitted by Texas law, directors and
former directors of the Registrant will not be liable to the Registrant or its
shareholders for monetary damages for breach of fiduciary duty as a director.
Texas law does not currently authorize the elimination or limitation of the
liability of a director to the extent the director is found liable for (i) any
breach of the director's duty of loyalty to the Registrant or its shareholders,
(ii) acts or omissions not in good faith that constitute a breach of duty of the
director or which involve intentional misconduct or a knowing violation of law,
(iii) transactions from which the director received an improper benefit, whether
or not the benefit resulted from an action taken within the scope of the
director's office, or (iv) acts or omissions for which the liability of a
director is expressly provided by law.
The Registrant's Articles of Incorporation and Bylaws will grant mandatory
indemnification to directors and officers of the Registrant to the fullest
extent authorized under the Texas Business Corporation Act. In general, a Texas
corporation may indemnify a director or officer who was, is or is threatened to
be made, a named defendant or respondent in a proceeding by virtue of his
position in the corporation, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, in the case of criminal proceedings, had no reasonable cause
to believe his conduct was unlawful. A Texas corporation may indemnify a
director or officer in an action brought by or in the right of the corporation
only if such director or officer was not found liable to the corporation, unless
or only to the extent that a court finds him to be fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
The Registrant intends to enter into Indemnity Agreements with its
directors and executive officers. Pursuant to such agreements, the Registrant
will, to the extent permitted by applicable law, indemnify such persons against
all expenses, judgments, fines and penalties incurred in connection with the
defense or settlement of any actions brought against them by reason of the fact
that they were directors or officers of the Registrant or assumed certain
responsibilities at the direction of the Registrant.
The Company maintains a $1 million directors and officers liability
insurance policy.
Reference is made to Section 7 of the Form of Underwriting Agreement
contained as Exhibit 1.1, which provides for indemnification of the directors
and officers of the Registrant signing the Registration Statement
II-1
<PAGE> 73
and certain controlling persons of the Registrant against certain liabilities,
including those arising under the Securities Act in certain instances by the
Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The securities sold by the Company during the last three years have not
been registered under the Securities Act. There were no underwriting discounts
or commissions on the sale of these securities. The holders of the securities
referred to below agreed to take their securities for investment and not with a
view to the distribution thereof. The certificates representing the securities
contained legends identifying certain restrictions on the transferability
thereof. The following information gives effect to the 1.561-for-1 stock split,
effected through a stock dividend prior to the consummation of the Offering, but
does not give effect to the conversion of Convertible Preferred Stock into
Common Stock effected upon consummation of the Offering.
Common Stock
The following sets forth information pertaining to sales of Common Stock by
the Company during the last three years. Exemption from registration of the
shares of Common Stock listed below is claimed under Section 4(2) of the
Securities Act and Rule 701.
<TABLE>
<CAPTION>
PURCHASER DATE SHARES CONSIDERATION
- ------------------------------------------------- ------------------- ------- -------------
<S> <C> <C> <C>
Satana Corporation............................... July 1, 1994 93,660 $ 60,000
Cheri Stephens................................... June 2, 1995 2,185 $ 2,800
Mapleleaf Capital Ltd............................ June 25, 1995 1,561 2,000
Morris G. Moreland............................... June 28, 1995 46,830 60,000
Satana Corporation............................... June 28, 1995 327,810 420,000
Russ Rickle...................................... September 21, 1995 5,017 12,856(1)
Steve Stringfellow............................... September 21, 1995 5,017 12,856(1)
Thomas A. Montgomery............................. October 1, 1995 39,025 22,500
Morris G. Moreland............................... December 13, 1995 156 200
Satana Corporation............................... December 13, 1995 1,405 1,800
Leon Pritzker.................................... December 13, 1995 1,561 2,000
David Kallenberger............................... December 13, 1995 1,561 2,000
Thomas A. Montgomery............................. December 13, 1995 1,561 2,000
Jeff Shrader..................................... December 13, 1995 11,708 15,000
John Resneder.................................... January 8, 1996 4,293 11,000(2)
Marc Johnson..................................... June 15, 1996 34,092 22,542
Todd Miller...................................... June 30, 1996 9,366 12,000
</TABLE>
- ---------------
(1) These shares were issued in consideration for the acquisition of certain
assets of Mobile Surgical Services, Inc. valued by the Company at $25,712.
(2) These shares were issued in consideration for the acquisition of certain
assets owned by Dr. Resneder valued by the Company at $11,000.
Series A Convertible Preferred Stock
On July 1, 1994 Mapleleaf Capital, Ltd. exercised a warrant to purchase
60,000 shares of Series A Preferred Stock from the Company. The purchase price
for the shares received under this warrant was $100,000. Exemption from
registration of such shares is claimed under Section 4(2) of the Securities Act.
II-2
<PAGE> 74
Series B Convertible Preferred Stock
The following sets forth information pertaining to sales of Series B
Convertible Preferred Stock by the Company during the last three years.
Exemption from registration of such shares listed below is claimed under Section
4(2) of the Securities Act.
<TABLE>
<CAPTION>
PURCHASER DATE SHARES CONSIDERATION
- --------------------------------------------------- ----------------- ------- -------------
<S> <C> <C> <C>
Satana Corporation................................. November 17, 1995 159,662 $ 638,648
Sunwestern Cayman 1988 Partners.................... November 17, 1995 70,243 280,972
Sunwestern Investment Fund III..................... November 17, 1995 64,839 259,356
Mapleleaf Capital, Ltd............................. November 17, 1995 35,985 143,940
Montgomery Jessup & Co., L.L.P..................... November 17, 1995 10,000 40,000
Morris Moreland.................................... November 17, 1995 4,000 16,000
DLJSC F.B.O. Michael Wallace, IRA.................. November 17, 1995 3,750 15,000
Sid Bonner......................................... November 17, 1995 3,071 12,284
Thomas A. Montgomery............................... November 17, 1995 2,500 10,000
Clyde Hutchinson................................... November 17, 1995 2,000 8,000
Marc Johnson....................................... November 17, 1995 2,000 8,000
Hazelle Blair...................................... November 17, 1995 1,000 4,000
Lloyd Jones........................................ November 17, 1995 1,000 4,000
Bart Tucker........................................ November 17, 1995 1,000 4,000
Jay Farris......................................... November 17, 1995 750 3,000
Kevin O'Brien...................................... November 17, 1995 700 2,800
</TABLE>
Warrants
The following sets forth information pertaining to the issuance of warrants
by the Company during the last three years. These transactions were effected
without registration of such warrants, or the underlying shares of Common Stock
or Preferred Stock, in reliance upon the exemption provided by Section 4(2) of
the Securities Act.
The Company issued the following warrants to partners of MJ Partners in
connection with additional advances under the MJ Partners Note, all of which
warrants expire on March 31, 1997: (i) On August 15, 1993, the Company granted
to Columbia General Corporation warrants to purchase up to 23,416 shares of
Common Stock exercisable as follows: 11,708 shares immediately with the
remaining 11,708 shares on or after August 16, 1994 at an exercise price of
$1.28 per share; (ii) On October 17, 1993, the Company granted to Robert
Matthews warrants to purchase up to 2,810 shares of Common Stock exercisable as
follows: 1,405 shares immediately with the remaining 1,405 shares on or after
October 18, 1994 at an exercise price of $1.28 per share; (iii) On May 31, 1994,
the Company granted Thomas A. Montgomery warrants to purchase up to 4,214 shares
of Common Stock exercisable as follows: 2,107 shares immediately and the
remaining 2,107 shares on or after May 31, 1995, at an exercise price of $1.28
per share; (iv) On August 1, 1994, the Company granted to Mr. Montgomery
warrants to purchase up to 1,404 shares of Common Stock exercisable as follows:
702 shares immediately and the remaining 702 shares on or after August 1, 1995,
at an exercise price of $1.28 per share, which remaining portion was canceled in
connection with the repayment of the MJ Partners Note; (v) On August 15, 1994,
the Company granted to Mr. Montgomery warrants to purchase up to 2,810 shares of
Common Stock exercisable as follows: 1,405 shares immediately and the remaining
1,405 shares on or after August 15, 1995, at an exercise price of $1.28 per
share, which remaining portion was canceled in connection with the repayment of
the MJ Partners Note; and (vi) On August 31, 1994, the Company granted to Shelly
Burks warrants to purchase up to 2,342 shares of Common Stock exercisable as
follows: 1,171 shares immediately and the remaining 1,171 shares on or after
August 31, 1995, at an exercise price of $1.28 per share, which remaining
portion was canceled in connection with the repayment of the MJ Partners Note.
On July 27, 1995 the Company granted Paul R. Herchman a warrant to purchase
up to 15,610 shares of Common Stock at an exercise price of $2.56 per share, of
which all 15,610 shares were purchasable
II-3
<PAGE> 75
immediately. This warrant was granted to Mr. Herchman in consideration for his
personal guaranty of the obligations of the Company under the NationsBank Loans.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement.
2.1 -- Asset Purchase Agreement, dated October 30, 1995 between the Company
and Mobile Surgical Services of Central Florida, Inc.(1)(2)
2.2 -- Asset Purchase Agreement, dated March 18, 1996 between the Company
and Maasai Inc.(1)(2)
2.3 -- Asset Purchase Agreement, dated June 10, 1996 between the Company and
Mobile Laser Services, Inc.(1)(2)
3.1 -- Articles of Incorporation of the Company.(2)
3.2 -- Bylaws of the Company.(2)
3.3 -- Form of Amended and Restated Articles of Incorporation of the
Company.(2)
3.4 -- Form of Amended and Restated Bylaws of the Company.(2)
4.1 -- Specimen of Common Stock Certificate.(2)
4.2 -- Series A Convertible Preferred Stock Purchase Agreement dated July
10, 1992 between the Company and Mapleleaf Capital, Ltd.
4.3 -- Warrant to Purchase 60,000 shares of Series A Convertible Preferred
Stock of the Company dated July 10, 1992 between the Company and
Mapleleaf Capital, Ltd.(2)
4.4 -- Series B Convertible Preferred Stock Purchase Agreement dated
November 17, 1995 by and among the Company and Satana Corporation,
Mapleleaf Capital, Ltd., Sunwestern Investment Fund III, Sunwestern
Cayman 1988 Partners, Montgomery Jessup & Company, L.L.P., Morris
Moreland, DLJSC F.B.O. Michael Wallace, IRA, Sid Bonner, Clyde
Hutchinson, Marc Johnson, Thomas A. Montgomery, Hazelle Blair, Lloyd
Jones, Bart Tucker, Jay Farris and Kevin O'Brien.
4.5 -- Warrant to Purchase 468,300 Shares of Common Stock of the Company
dated July 10, 1992 between the Company and Satana Corporation.(2)
4.6 -- Warrant to Purchase 23,416 Shares of Common Stock of the Company
dated August 15, 1993 between the Company and Columbia General
Corporation.(2)
4.7 -- Warrant to Purchase 2,810 Shares of Common Stock of the Company dated
October 17, 1993 between the Company and Robert J. Mathews, M.D.(2)
4.8 -- Warrant to Purchase 2,342 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Shelly Burks.(2)
4.9 -- Warrant to Purchase 1,873 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Thomas A. Montgomery.(2)
4.10 -- Warrant to Purchase 6,556 Shares of Common Stock of the Company dated
September 1, 1994 between the Company and Thomas A. Montgomery.(2)
4.11 -- Warrant to Purchase 15,651 Shares of Common Stock of the Company
dated July 27, 1995 between the Company and Paul R. Herchman.(2)
5.1 -- Opinion of Jackson & Walker, L.L.P., counsel for the Company.(2)
10.1 -- Amended and Restated Revolving Credit and Term Loan Agreement dated
March 20, 1996 between the Company and NationsBank of Texas, N.A.
10.2 -- Agreement between the Company and Coherent Medical Group.
10.3 -- Master Lease Agreement dated July 20, 1995 between the Company and
Cabot Medical Corporation.
10.4 -- Master Services Agreement dated June 3, 1996 between the Company and
Cosmetic Technologies International.
10.5 -- Joint Venture Agreement dated March 25, 1996 between the Company and
Coherent-AMT Inc.(2)
10.6 -- Medical Alliance, Inc. 1994 Amended and Restated Long-Term Incentive
Plan.(2)
10.7 -- Employment Agreement between the Company and Paul Herchman.(2)
</TABLE>
II-4
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.8 -- Employment Agreement between the Company and Kevin O'Brien.(2)
10.9 -- Employment Agreement between the Company and Michael G. Wallace.(2)
10.10 -- Lease Agreement.(2)
11.1 -- Statement regarding computation of per share earnings.(2)
21.1 -- Subsidiaries of the Company.(2)
23.1 -- Consent of Jackson & Walker, L.L.P.(2)
23.2 -- Consent of Coopers & Lybrand, L.L.P.
24.1 -- Power of Attorney (contained on page II-7 of this Registration
Statement).(2)
27.1 -- Financial Data Schedule.(2)
99.1 -- Consent of Medical Data International, Inc.(2)
</TABLE>
- ---------------
(1) Certain schedules to this Agreement have been omitted. The Company will
furnish a copy of any omitted schedule to the Commission upon request.
(2) Previously filed
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE PAGE
- -------- ----
<S> <C> <C>
II -- Valuation and Qualifying Accounts............................................ S-2
</TABLE>
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on September 23, 1996.
MEDICAL ALLIANCE, INC.
By: /s/ MICHAEL G. WALLACE
-----------------------------------
Michael G. Wallace Chief Financial
Officer
II-6
<PAGE> 78
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of
Paul R. Herchman and Michael G. Wallace as his true and lawful attorney-in-fact
and agent, with full power to act alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- -------------------
<S> <C> <C>
Chairman of the Board September 23, 1996
* Executive Officer and President
- ----------------------------------------- (Principal Executive Officer)
Paul R. Herchman
Senior Vice President, Chief September 23, 1996
/s/ MICHAEL G. WALLACE Financial Officer and Treasurer
- ----------------------------------------- (Principal Financial and
Michael G. Wallace Accounting Officer)
Medical Director September 23, 1996
* and Director
- -----------------------------------------
David A. Kallenberger, M.D.
* Director September 23, 1996
- -----------------------------------------
Leo Lopez
* Director September 23, 1996
- -----------------------------------------
Thomas A. Montgomery
* Director September 23, 1996
- -----------------------------------------
Morris G. Moreland
* Director September 23, 1996
- -----------------------------------------
Leon Pritzker
* Director September 23, 1996
- -----------------------------------------
Jim Silcock
* /s/ MICHAEL G. WALLACE
- -----------------------------------------
Michael G. Wallace
As Attorney-In-Fact
</TABLE>
II-7
<PAGE> 79
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Medical Alliance, Inc. and Subsidiaries:
In connection with our audits of the consolidated financial statements of
Medical Alliance, Inc. and Subsidiaries as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995, which financial
statements are included in the Prospectus, we have also audited the financial
statement Schedule II of Medical Alliance, Inc. and Subsidiaries.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
July 17, 1996
S-1
<PAGE> 80
SCHEDULE II
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------- ------------ ---------- ---------- ----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts.......... $449,881 $1,884,709 $1,221,276(A) $1,113,314
Year ended December 31, 1994:
Allowance for doubtful accounts.......... 216,964 781,176 548,259 (A) 449,881
Year ended December 31, 1993:
Allowance for doubtful accounts.......... 304,810 604,723 692,569 (A) 216,964
</TABLE>
- ---------------
(A) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
2.1 -- Asset Purchase Agreement, dated October 30, 1995 between the Company
and Mobile Surgical Services of Central Florida, Inc.(1)(2)
2.2 -- Asset Purchase Agreement, dated March 18, 1996 between the Company
and Maasai Inc.(1)(2)
2.3 -- Asset Purchase Agreement, dated June 10, 1996 between the Company and
Mobile Laser Services, Inc.(1)(2)
3.1 -- Articles of Incorporation of the Company.(2)
3.2 -- Bylaws of the Company.(2)
3.3 -- Form of Amended and Restated Articles of Incorporation of the
Company.(2)
3.4 -- Form of Amended and Restated Bylaws of the Company.(2)
4.1 -- Specimen of Common Stock Certificate.(2)
4.2 -- Series A Convertible Preferred Stock Purchase Agreement dated July
10, 1992 between the Company and Mapleleaf Capital, Ltd.
4.3 -- Warrant to Purchase 60,000 shares of Series A Convertible Preferred
Stock of the Company dated July 10, 1992 between the Company and
Mapleleaf Capital, Ltd.(2)
4.4 -- Series B Convertible Preferred Stock Purchase Agreement dated
November 17, 1995 by and among the Company and Satana Corporation,
Mapleleaf Capital, Ltd., Sunwestern Investment Fund III, Sunwestern
Cayman 1988 Partners, Montgomery Jessup & Company, L.L.P., Morris
Moreland, DLJSC F.B.O. Michael Wallace, IRA, Sid Bonner, Clyde
Hutchinson, Marc Johnson, Thomas A. Montgomery, Hazelle Blair, Lloyd
Jones, Bart Tucker, Jay Farris and Kevin O'Brien.
4.5 -- Warrant to Purchase 468,300 Shares of Common Stock of the Company
dated July 10, 1992 between the Company and Satana Corporation.(2)
4.6 -- Warrant to Purchase 23,415 Shares of Common Stock of the Company
dated August 15, 1993 between the Company and Columbia General
Corporation.(2)
4.7 -- Warrant to Purchase 2,810 Shares of Common Stock of the Company dated
October 17, 1993 between the Company and Robert J. Mathews, M.D.(2)
4.8 -- Warrant to Purchase 2,342 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Shelly Burks.(2)
4.9 -- Warrant to Purchase 1,873 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Thomas A. Montgomery.(2)
4.10 -- Warrant to Purchase 6,556 Shares of Common Stock of the Company dated
September 1, 1994 between the Company and Thomas A. Montgomery.(2)
4.11 -- Warrant to Purchase 15,651 Shares of Common Stock of the Company
dated July 27, 1995 between the Company and Paul R. Herchman.(2)
5.1 -- Opinion of Jackson & Walker, L.L.P., counsel for the Company.(2)
10.1 -- Amended and Restated Revolving Credit and Term Loan Agreement dated
March 20, 1996 between the Company and NationsBank of Texas, N.A.
10.2 -- Agreement between the Company and Coherent Medical Group.
10.3 -- Master Lease Agreement dated July 20, 1995 between the Company and
Cabot Medical Corporation.
10.4 -- Master Services Agreement dated June 3, 1996 between the Company and
Cosmetic Technologies International.
10.5 -- Joint Venture Agreement dated March 25, 1996 between the Company and
Coherent-AMT Inc.(2)
10.6 -- Medical Alliance, Inc. 1994 Amended and Restated Long-Term Incentive
Plan.(2)
10.7 -- Employment Agreement between the Company and Paul Herchman.(2)
10.8 -- Employment Agreement between the Company and Kevin O'Brien.(2)
10.9 -- Employment Agreement between the Company and Michael G. Wallace.(2)
10.10 -- Lease Agreement.(2)
11.1 -- Statement regarding computation of per share earnings.(2)
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
21.1 -- Subsidiaries of the Company.(2)
23.1 -- Consent of Jackson & Walker, L.L.P.(2)
23.2 -- Consent of Coopers & Lybrand, L.L.P.
24.1 -- Power of Attorney (contained on page II-7 of this Registration
Statement).(2)
27.1 -- Financial Data Schedule.(2)
99.1 -- Consent of Medical Data International, Inc.(2)
</TABLE>
- ---------------
(1) Certain schedules to this Agreement have been omitted. The Company will
furnish a copy of any omitted schedule to the Commission upon request.
(2) Previously filed
<PAGE> 1
EXHIBIT 1.1
2,000,000 Shares of Common Stock
MEDICAL ALLIANCE, INC.
UNDERWRITING AGREEMENT
----------------------
____________, 1996
BEAR, STEARNS & CO. INC.
EQUITABLE SECURITIES CORPORATION
as Representatives of the several
Underwriters named in Schedule I
attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Dear Sirs:
Medical Alliance, Inc., a corporation organized and existing under
the laws of the State of Texas (the "Company"), proposes, subject to the terms
and conditions stated herein, to issue and sell to the several underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of 2,000,000
shares (the "Firm Shares") of its common stock, par value $.002 per share (the
"Common Stock"), and, for the sole purpose of covering over-allotments in
connection with the sale of the Firm Shares, at the option of the Underwriters,
up to an additional 300,000 shares (the "Additional Shares") of Common Stock.
The Firm Shares and any Additional Shares purchased by the Underwriters are
referred to herein as the "Shares". The Shares are more fully described in the
Registration Statement referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, the
Underwriters that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and may have
filed an amendment or amendments
<PAGE> 2
thereto, on Form S-1 (No. 333-9815), for the registration of the Shares under
the Securities Act of 1933, as amended (the "Act"). Such registration
statement, including the prospectus, financial statements and schedules,
exhibits and all other documents filed as a part thereof, as amended at the
time of effectiveness of the registration statement, including any information
deemed to be a part thereof as of the time of effectiveness pursuant to
paragraph (b) of Rule 430A or Rule 434 of the Rules and Regulations of the
Commission under the Act (the "Regulations"), is herein called the
"Registration Statement" and the prospectus, in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations or filed as part of the
Registration Statement at the time of effectiveness if no Rule 424(b) or Rule
434 filing is required, is herein called the "Prospectus". The term
"preliminary prospectus" as used herein means a preliminary prospectus as
described in Rule 430 of the Regulations.
(b) At the time of the effectiveness of the Registration
Statement or the effectiveness of any post-effective amendment to the
Registration Statement, when the Prospectus is first filed with the Commission
pursuant to Rule 424(b) or Rule 434 of the Regulations, when any supplement to
or amendment of the Prospectus is filed with the Commission, and at the Closing
Date and the Additional Closing Date, if any, (as hereinafter respectively
defined), the Registration Statement and the Prospectus and any amendments
thereof and supplements thereto complied or will comply in all material
respects with the applicable provisions of the Act and the Regulations and does
not or will not contain an untrue statement of a material fact and does not or
will not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein (i) in the case of the
Registration Statement (excluding the Prospectus contained therein), not
misleading and (ii) in the case of the Prospectus, in light of the
circumstances under which they were made, not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed as
part of the registration statement for the registration of the Shares or any
amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any
amendment thereof or supplement thereto was first filed with the Commission,
such preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through you as herein stated
expressly for use in connection with the preparation thereof. If Rule 434 is
used, the Company will comply with the requirements of Rule 434.
(c) Coopers & Lybrand L.L.P., who have certified the
financial statements and supporting schedules included in the Registration
Statement, are independent public accountants as required by the Act and the
Regulations.
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<PAGE> 3
(d) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, except
as set forth in the Registration Statement and the Prospectus, there has been
no material adverse change or any development involving a prospective material
adverse change in the business, prospects, properties, operations, condition
(financial or other) or results of operations of the Company and its
subsidiaries taken as a whole, whether or not arising from transactions in the
ordinary course of business, and since the date of the latest balance sheet
presented in the Registration Statement and the Prospectus, neither the Company
nor any of its subsidiaries has incurred or undertaken any liabilities or
obligations, direct or contingent, which are material to the Company and its
subsidiaries taken as a whole, except for liabilities or obligations which are
reflected in the Registration Statement and the Prospectus.
(e) This Agreement and the transactions contemplated
herein have been duly and validly authorized by the Company and this Agreement
has been duly and validly executed and delivered by the Company.
(f) The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not (i) conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with notice or lapse
of time, or both, would constitute a default) under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of its subsidiaries pursuant to, any agreement, instrument,
franchise, license or permit to which the Company or any of its subsidiaries is
a party or by which it or its properties or assets may be bound or (ii) violate
or conflict with any provision of the articles of incorporation or bylaws of
the Company or any of its subsidiaries or any judgment, decree, order, statute,
rule or regulation of any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its subsidiaries
or their respective properties or assets. No consent, approval, authorization,
order, registration, filing, qualification, license or permit of or with any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its subsidiaries or their respective
properties or assets is required for the execution, delivery and performance of
this Agreement or the consummation of the transactions contemplated hereby,
including the issuance, sale and delivery of the Shares to be issued, sold and
delivered by the Company hereunder, except the registration under the Act of
the Shares and such consents, approvals, authorizations, orders, registrations,
filings, qualifications, licenses and permits as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters.
(g) All of the outstanding shares of Common Stock are
duly and validly authorized and issued, fully paid and nonassessable and were
not issued and are not now in violation of or subject to any preemptive rights
(except for any issuance for which a subsequent waiver of all applicable
preemptive rights was obtained). The Shares, when issued, delivered and sold
in accordance with this Agreement, will be duly and validly issued and
outstanding, fully paid and nonassessable, and will not have been issued in
violation of or be subject to any preemptive rights. The Company has an
authorized and outstanding capitalization, including,
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<PAGE> 4
without limitation, stock options, warrants, and convertible preferred
securities, as set forth in the Registration Statement and the Prospectus. The
Common Stock, the Firm Shares and the Additional Shares conform to the
descriptions thereof contained in the Registration Statement and the
Prospectus.
(h) Each of the Company and its subsidiaries has been
duly organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its properties (owned,
leased or licensed) or the nature or conduct of its business makes such
qualification necessary, except for those failures to be so qualified or in
good standing which will not in the aggregate have a material adverse effect on
the Company and its subsidiaries, taken as a whole. Each of the Company and
its subsidiaries has all requisite power and authority, and all necessary
consents, approvals, authorizations, orders, registrations, qualifications,
licenses and permits of and from all public, regulatory or governmental
agencies and bodies, to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Registration Statement
and the Prospectus, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and the
Prospectus.
(i) Except as described in the Prospectus, there is no
litigation or governmental proceeding to which the Company is a party or to
which any property of the Company or any of its subsidiaries is subject or
which is pending or, to the knowledge of the Company, contemplated against the
Company or any of its subsidiaries which might result in any material adverse
change or any development involving a material adverse change in the business,
prospects, properties, operations, condition (financial or other) or, results
of operations of the Company and any of its subsidiaries taken as a whole or
which is required to be disclosed in the Registration Statement and the
Prospectus.
(j) The Company has not taken and will not take, directly
or indirectly, any action designed to cause or result in, or which constitutes
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Shares.
(k) The financial statements, including the notes
thereto, and supporting schedules included in the Registration Statement and
the Prospectus present fairly in all material respects the financial position
of the Company and its subsidiaries taken as a whole as of the dates indicated
and the results of its operations for the periods specified; except as
otherwise stated in the Registration Statement, said financial statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis; and the supporting schedules included in the
Registration Statement present fairly in all material respects the information
required to be stated therein.
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<PAGE> 5
(l) Except as described in the Prospectus, no holder of
securities of the Company has any rights to the registration of securities of
the Company because of the filing of the Registration Statement or otherwise in
connection with the sale of the Shares contemplated hereby.
(m) The Company is not, and upon consummation of the
transactions contemplated hereby will not be, subject to registration as an
"investment company" under the Investment Company Act of 1940.
(n) Except for the Company's 50% interest in Medical
Alliance Canada Ltd. and as described in the Prospectus, the Company does not
own, directly or indirectly, any capital stock, partnership interests, or
similar equity securities of any person or entity.
(o) The Company or its subsidiaries own or have a valid
license to use all patents, trademarks, copyrights, service marks, and
applications and registrations therefor, and all trade names, customer lists,
trade secrets, proprietary processes and formulae, inventions, know-how, and
other intellectual property rights necessary for the Company or its
subsidiaries to conduct its business as now being conducted and as described in
the Registration Statement and the Prospectus. Except as described in the
Prospectus, there is no pending or, to the knowledge of the Company, threatened
claim or litigation against the Company or any of its subsidiaries contesting
the right to use its intellectual property rights, asserting the misuse of any
thereof, or asserting the infringement or other violation of any intellectual
property rights of any third party. All inventions and know-how conceived by
employees of the Company or its subsidiaries and related to the business of the
Company or its subsidiaries were "works for hire," and the Company or its
subsidiaries own all right, title, and interest therein.
(p) The Company has been, and currently is, distributing
and marketing its products and services in compliance with all applicable
federal, state and foreign laws, rules and regulations.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to the Underwriters and
the Underwriters, severally and not jointly, agree to purchase from the
Company, at a purchase price per share of $____________, the number of Firm
Shares set forth opposite the respective names of the Underwriters in Schedule
I hereto plus any additional number of Shares which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the office of Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167, or at such other place as
shall be agreed upon by you and the Company, at 10:00 A.M. on the third or
fourth business day (as permitted under Rule 15c6-1 under the
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<PAGE> 6
Exchange Act) (unless postponed in accordance with the provisions of Section 9
hereof) following the date the effectiveness of the Registration Statement (or,
if the Company has elected to rely upon Rule 430A of the Regulations, the third
or fourth business day (as permitted under Rule 15c6-1 under the Exchange Act)
after the determination of the initial public offering price of the Shares), or
such other time not later than ten business days after such date as shall be
agreed upon by you and the Company (such time and date of payment and delivery
being herein called the "Closing Date"). Payment shall be made to the Company
by wire transfer in same day funds to a bank account specified by the Company
at the Company's expense against delivery to you for the respective accounts of
the Underwriters of certificates for the Shares to be purchased by them.
Certificates for the Shares shall be registered in such name or names and in
such authorized denominations as you may request in writing at least two full
business days prior to the Closing Date. The Company will permit you to
examine and package such certificates for delivery at least one full business
day prior to the Closing Date.
(c) In addition, the Company hereby grants to the
Underwriters the option to purchase up to 300,000 Additional Shares at the same
purchase price per share to be paid by the Underwriters to the Company for the
Firm Shares as set forth in this Section 2, for the sole purpose of covering
over-allotments in the sale of Firm Shares by the Underwriters. This option
may be exercised at any time, in whole or in part, on or before the thirtieth
day following the date of the Prospectus, by written notice by you to the
Company. Such notice shall set forth the aggregate number of Additional Shares
as to which the option is being exercised and the date and time, as reasonably
determined by you, when the Additional Shares are to be delivered (such date
and time being herein sometimes referred to as the "Additional Closing Date");
provided, however, that the Additional Closing Date shall not be earlier than
the Closing Date or earlier than the second full business day after the date on
which the option shall have been exercised nor later than the eighth full
business day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). Certificates for the Additional Shares shall be registered
in such name or names and in such authorized denominations as you may request
in writing at least two full business days prior to the Additional Closing
Date. The Company will permit you to examine and package such certificates for
delivery at least one full business day prior to the Additional Closing Date.
The number of Additional Shares to be sold to each
Underwriter shall be the number which bears the same ratio to the aggregate
number of Additional Shares being purchased as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such
number increased as set forth in Section 9 hereof) bears to 2,000,000 subject,
however, to such adjustments to eliminate any fractional shares as you in your
sole discretion shall make.
Payment for the Additional Shares shall be made by wire
transfer in same day funds to a bank account specified by the Company at the
Company's expense, upon delivery of the certificates for the Additional Shares
to you for the respective accounts of the Underwriters at the offices of Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
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<PAGE> 7
3. OFFERING.
Upon your authorization of the release of the Firm Shares,
the Underwriters propose to offer the Shares for sale to the public upon the
terms set forth in the Prospectus.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriters that:
(a) If the Registration Statement has not yet been
declared effective the Company will use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as possible, and if Rule 430A is used or the filing of the Prospectus
is otherwise required under Rule 424(b) or Rule 434, the Company will file the
Prospectus (properly completed if Rule 430A has been used) pursuant to Rule
424(b) or Rule 434 within the prescribed time period and will provide evidence
satisfactory to you of such timely filing. If the Company elects to rely on
Rule 434, the Company will prepare and file a term sheet that complies with the
requirements of Rule 434.
The Company will notify you immediately (and, if requested
by you, will confirm such notice in writing) (i) when the Registration
Statement and any amendments thereto become effective, (ii) of any request by
the Commission for any amendment of or supplement to the Registration Statement
or the Prospectus or for any additional information, (iii) of the mailing or
the delivery to the Commission for filing of any amendment of or supplement to
the Registration Statement or the Prospectus, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or of the initiation, or the
threatening, of any proceedings therefor, (v) of the receipt of any comments
from the Commission, and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time,
the Company will make every reasonable effort to prevent the issuance of any
such stop order and, if issued, to obtain the lifting of such order as soon as
possible. The Company will not file any amendment to the Registration
Statement or any amendment of or supplement to the Prospectus (including the
prospectus required to be filed pursuant to Rule 424(b) or Rule 434) that
differs from the prospectus on file at the time of the effectiveness of the
Registration Statement before or after the effective date of the Registration
Statement to which you shall reasonably object in writing after being timely
furnished in advance a copy thereof.
(b) If at any time when a prospectus relating to the
Shares is required to be delivered under the Act any event shall have occurred
as a result of which the Prospectus as then amended or supplemented would, in
the judgment of the Underwriters or the Company include an untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall be
necessary at any time to amend or supplement
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<PAGE> 8
the Prospectus or Registration Statement to comply with the Act or the
Regulations, the Company will notify you promptly and prepare and file with the
Commission an appropriate amendment or supplement (in form and substance
satisfactory to you) which will correct such statement or omission and will use
its best efforts to have any amendment to the Registration Statement declared
effective as soon as possible.
(c) The Company will promptly deliver to you two signed
copies of the Registration Statement, including exhibits and all amendments
thereto, and the Company will promptly deliver to each of the Underwriters such
number of copies of any preliminary prospectus, the Prospectus, the
Registration Statement, and all amendments of and supplements to such
documents, if any, as you may reasonably request.
(d) The Company will endeavor in good faith, in
cooperation with you, at or prior to the time of effectiveness of the
Registration Statement, to qualify the Shares for offering and sale under the
securities laws relating to the offering or sale of the Shares of such
jurisdictions as you may designate and to maintain such qualification in effect
for so long as required for the distribution thereof.
(e) The Company will make generally available (within the
meaning of Section 11(a) of the Act) to its security holders and to you as soon
as practicable, but not later than 45 days after the end of its fiscal quarter
in which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement (in form complying with the provisions
of Rule 158 of the Regulations) covering a period of at least twelve
consecutive months beginning after the effective date of the Registration
Statement.
(f) During the period of 180 days from the date of the
Prospectus, the Company will not, without the prior written consent of Bear,
Stearns & Co. Inc., issue, sell, pledge, offer or agree to sell, grant any
option for the sale of, or otherwise dispose of (or announce any issuance,
sale, pledge, offer grant of option, or other disposition), directly or
indirectly, any Common Stock (or any securities convertible into, exercisable
for or exchangeable for Common Stock), and the Company will obtain the
undertaking of each of its officers and directors and, to the extent possible,
each other holder of capital stock, stock options, warrants, or other
securities convertible or exchangeable into Common Stock of the Company not to
engage in any of the aforementioned transactions on their own behalf, other
than the Company's sale of Shares hereunder. In addition, the Company will
obtain the undertaking of each of its officers and directors and, to the extent
possible, each other holder of capital stock, stock options, warrants, or other
securities convertible or exchangeable into Common Stock of the Company not to
exercise any rights to require the Company to register any Common Stock or
other securities of the Company under the Act during the one-year period after
the date of the Prospectus, other than the exercise of such rights for which
the prior written consent of Bear, Stearns & Co. Inc. shall have been obtained.
(g) During a period of three years from the effective
date of the Registration Statement, the Company will furnish to you copies of
(i) all reports to its shareholders; and
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<PAGE> 9
(ii) all reports, financial statements and proxy or information statements
filed by the Company with the Commission or any national securities exchange.
(h) The Company will apply the proceeds from the sale of
the Shares as set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will use its best efforts to cause the
Shares to be included in the Nasdaq National Market.
(j) The Company will file with the Commission such
reports on Form SR as may be required pursuant to Rule 463 of the Regulations.
5. PAYMENT OF EXPENSE.
Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company hereby
agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any
amendments or supplements thereto (including, without limitation, fees and
expenses of the Company's accountants and counsel), the underwriting documents,
and all other documents related to the public offering of the Shares (including
those supplied to the Underwriters in quantities as hereinabove stated), (ii)
the issuance, transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) the qualification
of the Shares under state or foreign securities or Blue Sky laws, including the
costs of printing and mailing a preliminary and final "Blue Sky Survey" and the
fees of counsel for the Underwriters and such counsel's disbursements in
relation thereto, (iv) inclusion of the Shares in the Nasdaq National Market,
(v) filing fees of the Commission and the National Association of Securities
Dealers, Inc.; (vi) the cost of printing certificates representing the Shares
and (vii) the cost and charges of any transfer agent or registrar.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the Underwriters to purchase and pay for
the Firm Shares and the Additional Shares, as provided herein, shall be subject
to the accuracy of the representations and warranties of the Company herein
contained, as of the date hereof and as of the Closing Date (for purposes of
this Section 6 "Closing Date" shall refer to the Closing Date for the Firm
Shares and any Additional Closing Date, if different, for the Additional
Shares), to the absence from any certificates, opinions, written statements or
letters furnished to you or to Underwriters' Counsel pursuant to this Section 6
of any misstatement or omission, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M., New York time, on the date of this
Agreement, or at such later time and date as shall have
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<PAGE> 10
been consented to in writing by you; if the Company shall have elected to rely
upon Rule 430A or Rule 434 of the Regulations, the Prospectus shall have been
filed with the Commission in a timely fashion in accordance with Section 4(a)
hereof; and, at or prior to the Closing Date no stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereof shall have been issued and no proceedings therefor shall have been
initiated or threatened by the Commission.
(b) At the Closing Date you shall have received the
opinion of Jackson & Walker, L.L.P., counsel for the Company, dated the Closing
Date addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) Each of the Company and its subsidiaries has
been duly organized and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation.
Each of the Company and its subsidiaries is duly qualified and in
good standing as a foreign corporation in each jurisdiction in
which the character or location of its properties (owned, leased
or licensed) or the nature or conduct of its business makes such
qualification necessary, except for those failures to be so
qualified or in good standing which will not in the aggregate have
a material adverse effect on the Company and its subsidiaries
taken as a whole. Each of the Company and its subsidiaries has
all requisite corporate authority to own, lease and license its
respective properties and conduct its business as now being
conducted and as described in the Registration Statement and the
Prospectus. Except as set forth on Schedule 6(b)(i), all of the
issued and outstanding capital stock of each subsidiary of the
Company has been duly and validly issued and is fully paid and
non-assessable and free of preemptive rights and, to the best
knowledge of such counsel, is owned directly or indirectly by the
Company, free and clear of any lien, encumbrance, claim, security
interest, restriction on transfer, shareholder agreement, voting
trust or other defect of title whatsoever.
(ii) The Company has authorized and outstanding
capital stock, including, without limitation, stock options,
warrants, and convertible debt securities, as set forth in the
Registration Statement and the Prospectus. All shares of Series A
Convertible Preferred Stock and Series B Convertible Preferred
Stock of the Company have been converted into shares of Common
Stock at the applicable conversion ratio. All of the outstanding
shares of Common Stock are duly and validly authorized and issued,
are fully paid and nonassessable. All outstanding securities of
the Company were not issued in violation of any preemptive rights.
The Shares to be delivered on the Closing Date have been duly and
validly authorized and, when delivered by the Company in
accordance with this Agreement, will be duly and validly issued,
fully paid and nonassessable and will not have been issued in
violation of or subject to any preemptive rights. The Common
Stock, the Firm Shares and the Additional Shares conform to the
descriptions thereof contained in the Registration Statement and
the Prospectus.
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<PAGE> 11
(iii) The Shares to be sold under this Agreement to
the Underwriters have been accepted for quotation on the Nasdaq
National Market.
(iv) This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(v) To the best of such counsel's knowledge, there
is no litigation or governmental or other action, suit, proceeding
or investigation before any court or before or by any public,
regulatory or governmental agency or body pending or threatened
against, or involving the properties or business of, the Company
which is of a character required to be disclosed in the
Registration Statement and the Prospectus which has not been
properly disclosed therein.
(vi) The execution, delivery, and performance of
this Agreement and the consummation of the transactions
contemplated hereby by the Company do not and will not (A)
conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company pursuant
to, any agreement, instrument, franchise, license or permit known
to such counsel to which the Company is a party or by which it or
its properties or assets may be bound or (B) violate or conflict
with any provision of the articles of incorporation or by-laws of
the Company, or, to the best knowledge of such counsel, any
judgment, decree, order, statute, rule or regulation of any court
or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its properties or assets.
No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any
public, governmental, or regulatory agency or body having
jurisdiction over the Company or any of its properties or assets
is required for the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated
hereby, except for (1) such as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters (as to which such
counsel need express no opinion) and (2) such as have been made or
obtained under the Act.
(vii) The Registration Statement and the Prospectus
and any amendments thereof or supplements thereto (other than the
financial statements and schedules and other financial data
included or incorporated by reference therein, as to which no
opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and the Regulations.
(viii) The Registration Statement is effective under
the Act, and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement or any
post-effective amendment thereof has been issued and
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<PAGE> 12
no proceedings therefor have been initiated or threatened by the
Commission and all filings required by Rule 424(b) of the
Regulations have been made.
(ix) In addition, such opinion shall also contain a
statement that such counsel has participated in conferences with
officers and representatives of the Company, representatives of
the independent public accountants for the Company and the
Underwriters at which the contents and the Prospectus and related
matters were discussed and, no facts have come to the attention of
such counsel which would lead such counsel to believe that either
the Registration Statement at the time it became effective
(including the information deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A(b) or
Rule 434, if applicable), or any amendment thereof made prior to
the Closing Date as of the date of such amendment, contained an
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus as of
its date (or any amendment thereof or supplement thereto made
prior to the Closing Date as of the date of such amendment or
supplement) and as of the Closing Date contained or contains an
untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading (it being understood that
such counsel need express no belief or opinion with respect to the
financial statements and schedules and other financial data
included or incorporated by reference therein).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters'
Counsel, familiar with the applicable laws; (B) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
and certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and its subsidiaries, provided that
copies of any such statements or certificates shall be delivered to
Underwriters' Counsel. The opinion of such counsel for the Company shall state
that the opinion of any such other counsel is in form satisfactory to such
counsel and, in their opinion, you and they are justified in relying thereon.
(c) All proceedings taken in connection with the sale of
the Firm Shares and the Additional Shares as herein contemplated shall be
satisfactory in form and substance to you and to Winstead Sechrest & Minick
P.C., counsel to the Underwriters ("Underwriters' Counsel"), and the
Underwriters shall have received from Underwriters' Counsel a favorable
opinion, dated as of the Closing Date with respect to the issuance and sale of
the Shares, the Registration Statement and the Prospectus and such other
related matters as you may reasonably require, and the Company shall have
furnished to Underwriters' Counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
-12-
<PAGE> 13
(d) At the Closing Date and Additional Closing Date you
shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of the Company, dated the Closing Date or Additional Closing
Date, as the case may be, to the effect that (i) the condition set forth in
subsection (a) of this Section 6 has been satisfied, (ii) as of the date hereof
and as of the Closing Date or Additional Closing Date, as the case may be, the
representations and warranties of the Company set forth in Section 1 hereof are
accurate, (iii) as of the Closing Date or Additional Closing Date, as the case
may be, the obligations of the Company to be performed hereunder on or prior
thereto have been duly performed and (iv) subsequent to the respective dates as
of which information is given in the Registration Statement and the Prospectus,
the Company has not sustained any material loss or interference with its
business or properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, and there has not been any material adverse change, or
any development involving a material adverse change, in the business prospects,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except in each case as described in or contemplated
by the Prospectus.
(e) At the time this Agreement is executed and at the
Closing Date or Additional Closing Date, as the case may be, you shall have
received a letter, from Coopers & Lybrand L.L.P., independent public
accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date or Additional Closing Date, as the case
may be, addressed to the Underwriters and in form and substance satisfactory to
you, to the effect that: (i) they are independent certified public accountants
with respect to the Company within the meaning of the Act and the Regulations
and stating that the answer to Item 10 of the Registration Statement is correct
insofar as it relates to them; (ii) stating that, in their opinion, the
consolidated financial statements and schedules of the Company and its
subsidiaries included in the Registration Statement and the Prospectus and
covered by their opinion therein comply as to form in all material respects
with the applicable accounting requirements of the Act and the applicable
published rules and regulations of the Commission thereunder; (iii) on the
basis of procedures consisting of a reading of the latest available unaudited
interim financial statements of the Company and its subsidiaries, a reading of
the minutes of meetings and consents of the shareholders and board of directors
of the Company and its subsidiaries and the committees of such board subsequent
to December 31, 1995, inquiries of officers and other employees of the Company
and its subsidiaries who have responsibility for financial and accounting
matters of the Company and its subsidiaries with respect to transactions and
events subsequent to December 31, 1995 and other specified procedures and
inquiries to a date not more than five days prior to the date of such letter,
nothing has come to their attention that would cause them to believe that: (A)
the unaudited consolidated financial statements and schedules of the Company
and its subsidiaries presented in the Registration Statement and the Prospectus
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder or that such unaudited consolidated
financial statements are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration Statement
and the Prospectus; (B) with respect to the period
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<PAGE> 14
subsequent to June 30, 1996, there were, as of the date of the most recent
available monthly consolidated financial statements of the Company and its
subsidiaries and as of a specified date not more than five days prior to the
date of such letter, any changes in the capital stock or long-term indebtedness
of the Company and its subsidiaries or any decrease in the net current assets
or stockholders' equity of the Company, in each case as compared with the
amounts shown in the most recent balance sheet presented in the Registration
Statement and the Prospectus, except for changes or decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur
or which are set forth in such letter, (C) the pro forma adjustments to certain
consolidated financial statements of the Company and its subsidiaries presented
in the Registration Statement and the Prospectus have not been properly applied
to the historical amounts reflected in those statements; (D) that during the
period from July 1, 1996, to the date of the most recent available monthly
financial statements of the Company, if any, and to a specified date not more
than five days prior to the date of such letter, there was any decrease, as
compared with the corresponding period in the prior fiscal year, in total
revenues, or total or per share net income, except for decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur
or which are set forth in such letter; and (iv) stating that they have compared
specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company and its
subsidiaries set forth in the Registration Statement and the Prospectus, which
have been specified by you prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages, and information may be derived from
the general accounting and financial records of the Company and its
subsidiaries or from schedules furnished by the Company and its subsidiaries,
and excluding any questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified readings, inquiries, and
other appropriate procedures specified by you set forth in such letter, and
found them to be in agreement.
(f) Prior to the Closing Date the Company shall have
furnished to you such further information, certificates and documents as you
may reasonably request.
(g) You shall have received from each person who is a
director or officer of the Company and each holder, to the extent possible, of
capital stock, stock options, warrants, or securities convertible or
exchangeable into Common Stock of the Company an agreement to the effect that
such person will not, directly or indirectly, without your prior written
consent, (i) offer, sell, offer or agree to sell, grant any option to purchase
or otherwise dispose (or announce any offer, sale, grant of an option to
purchase or other disposition) of any shares of Common Stock (or any securities
convertible into, exercisable for or exchangeable or exercisable for shares of
Common Stock) for a period of 180 days after the date of the Prospectus or (ii)
exercise any right to require the Company to register any Common Stock or other
securities of the Company under the Act for the one-year period after the date
of the Prospectus.
(h) At the Closing Date, the Shares shall have been
accepted for quotation on the Nasdaq National Market.
-14-
<PAGE> 15
(i) At the time this Agreement is executed, all holders
of securities of the Company entitled to preemptive rights shall have (A)
waived such rights with respect to the issuance of the Shares and all prior
issuances of securities by the Company and (B) agreed to terminate such rights
as of the Closing Date.
If any of the conditions specified in this Section 6 shall not
have been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
cancelled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
cancelled by you at, or at any time prior to, the Additional Closing Date.
Notice of such cancellation shall be given to the Company in writing, or by
telephone, telex or telegraph, confirmed in writing.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any and all
losses, liabilities, claims, damages and expenses whatsoever as incurred
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any supplement thereto or amendment thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent but only to the extent that any such loss, liability, claim,
damage or expense arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Underwriter through you expressly for use
therein. The indemnity agreement set forth in this Section 7 shall govern the
rights of the parties as to the matters addressed in this Section 7(a) but
shall not in any manner otherwise limit the rights of the Underwriters set
forth elsewhere in this Agreement.
(b) Each Underwriter severally, and not jointly, agrees
to indemnify and hold harmless the Company, each of the directors of the
Company, each of the officers of the Company who shall have signed the
Registration Statement, and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the
-15-
<PAGE> 16
Exchange Act, against any losses, liabilities, claims, damages and expenses
whatsoever as incurred (including but not limited to attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), jointly or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
the registration statement for the registration of the Shares, as originally
filed or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that any
such loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
you expressly for use therein; provided, however, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. The indemnity agreement set forth in this Section 7 shall govern
the rights of the parties as to the matters addressed in this Section 7(b) but
shall not in any manner otherwise limit the rights of the Company set forth
elsewhere in this Agreement. The Company acknowledges that the statements set
forth in the last paragraph of the cover page, in the bold legend at the bottom
of page 2, and in the fifth and eighth paragraphs under the caption
"Underwriting" in the Prospectus constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for use in the
registration statement relating to the Shares as originally filed or in any
amendment thereof, any related preliminary prospectus or the Prospectus or in
any amendment thereof or supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 unless it materially
prejudices the indemnifying party). In case any such action is brought against
any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party
or parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in
connection with the defense of such action, (ii) the indemnifying parties shall
not have employed counsel to have charge of the defense of such action within a
reasonable time after
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<PAGE> 17
notice of commencement of the action, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses
shall be borne by the indemnifying parties. Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld.
8. CONTRIBUTION.
In order to provide for contribution in circumstances in
which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities and expenses
of the nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company) as
incurred to which the Company and one or more of the Underwriters may be
subject, in such proportions as is appropriate to reflect the relative benefits
received by the Company and the Underwriters from the offering of the Shares
or, if such allocation is not permitted by applicable law or indemnification is
not available as a result of the indemnifying party not having received notice
as provided in Section 7 hereof, in such proportion as is appropriate to
reflect not only the relative benefits referred to above but also the relative
fault of the Company and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same proportion as (x) the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and (y) the underwriting discounts and commissions received by
the Underwriters, respectively, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Company and of the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 8, (i)
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<PAGE> 18
in no case shall any Underwriter be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 8. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties,
notify each party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in
its or their obligation to purchase Firm Shares or Additional Shares hereunder,
and if the Firm Shares or Additional Shares with respect to which such default
relates do not (after giving effect to arrangements, if any, made by you
pursuant to subsection (b) below) exceed in the aggregate 10% of the number of
Firm Shares or Additional Shares, the Firm Shares or Additional Shares with
respect to which the default relates shall be purchased by the non-defaulting
Underwriters in proportion to the respective proportions which the numbers of
Firm Shares set forth opposite their respective names in Schedule I hereto bear
to the aggregate number of Firm Shares set forth opposite the names of the
non-defaulting Underwriters.
(b) In the event that such default relates to more than
10% of the Firm Shares or Additional Shares, as the case may be, you may in
your discretion arrange for yourself or for another party or parties (including
any non-defaulting Underwriter or Underwriters who so agree) to purchase such
Firm Shares or Additional Shares, as the case may be, to which such default
relates on the terms contained herein. In the event that within 5 calendar
days after such a default you do not arrange for the purchase of the Firm
Shares or Additional Shares, as the case may be, to which such default relates
as provided in this Section 9, this Agreement or, in the case of a default with
respect to the Additional Shares, the obligations of the Underwriters to
purchase and of the Company to sell the Additional Shares shall thereupon
terminate, without liability on the part of the Company with respect thereto
(except in each case as provided in Sections 5, 7(a) and 8 hereof) or the
Underwriters, but nothing in this Agreement shall relieve a defaulting
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<PAGE> 19
Underwriter or Underwriters of its or their liability, if any, to the other
Underwriters and the Company for damages occasioned by its or their default
hereunder.
(c) In the event that the Firm Shares or Additional
Shares to which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
you or the Company shall have the right to postpone the Closing Date or
Additional Closing Date, as the case may be for a period, not exceeding five
business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements, and the Company agrees to file promptly any
amendment or supplement to the Registration Statement or the Prospectus which,
in the opinion of Underwriters' Counsel, may thereby be made necessary or
advisable. The term "Underwriter" as used in this Agreement shall include any
party substituted under this Section 9 with like effect as if it had originally
been a party to this Agreement with respect to such Firm Shares and Additional
Shares.
10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS.
All representations and warranties, covenants and agreements
of the Underwriters and the Company contained in this Agreement, including the
agreements contained in Section 5, the indemnity agreements contained in
Section 7 and the contribution agreements contained in Section 8, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof or by or on
behalf of the Company, any of its officers and directors or any controlling
person thereof, and shall survive delivery of and payment for the Shares to and
by the Underwriters. The representations contained in Section 1 and the
agreements contained in Sections 5, 7, 8 and 11(d) hereof shall survive the
termination of this Agreement, including termination pursuant to Section 9 or
11 hereof.
11. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective, upon the later
of when (i) you and the Company shall have received notification of the
effectiveness of the Registration Statement or (ii) the execution of this
Agreement. If either the initial public offering price or the purchase price
per Share has not been agreed upon prior to 5:00 P.M., New York time, on the
fifth full business day after the Registration Statement shall have become
effective, this Agreement shall thereupon terminate without liability to the
Company or the Underwriters except as herein expressly provided. Until this
Agreement becomes effective as aforesaid, it may be terminated by the Company
by notifying you or by you notifying the Company. Notwithstanding the
foregoing, the provisions of this Section 11 and of Sections 1, 5, 7 and 8
hereof shall at all times be in full force and effect.
(b) You shall have the right to terminate this Agreement
at any time prior to the Closing Date, or terminate the obligations of the
Underwriters to purchase the Additional Shares at any time prior to the
Additional Closing Date, as the case may be, if (A) any domestic
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<PAGE> 20
or international event or act or occurrence has materially disrupted, or in
your opinion will in the immediate future materially disrupt, the market for
the Company's securities or securities in general; or (B) if trading on the New
York or American Stock Exchanges shall have been suspended, or minimum or
maximum prices for trading shall have been fixed, or maximum ranges for prices
for securities shall have been required, on the New York or American Stock
Exchanges by the New York or American Stock Exchanges or by order of the
Commission or any other governmental authority having jurisdiction; or (C) if a
banking moratorium has been declared by a state or federal authority or if any
new restriction materially adversely affecting the distribution of the Firm
Shares or the Additional Shares, as the case may be, shall have become
effective; or (D) (i) if the United States becomes engaged in hostilities or
there is an escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States or (ii) if
there shall have been such change in political, financial or economic
conditions if the effect of any such event in (i) or (ii) as in your reasonable
judgment makes it impracticable or inadvisable to proceed with the offering,
sale and delivery of the Firm Shares or the Additional Shares, as the case may
be, on the terms contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any
of the provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof,
the Company will, subject to demand by you, reimburse the Underwriters for all
out-of-pocket expenses (including the fees and expenses of their counsel),
incurred by the Underwriters in connection herewith.
12. NOTICE.
All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and
confirmed in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245
Park Avenue, New York, N.Y. 10167, Attention: __________________________; if
sent to the Company, shall be mailed, delivered, or telegraphed and confirmed
in writing to the Company, 2445 Gateway Drive, Suite 150, Irving, Texas 75063,
Attention: President.
13. PARTIES.
This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7
and 8, and their respective successors and assigns, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim
under or
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<PAGE> 21
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its
capacity as such, of Shares from any of the Underwriters.
14. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
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<PAGE> 22
If the foregoing correctly sets forth the understanding between
you and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
MEDICAL ALLIANCE, INC.
By:
-------------------------------------
Paul R. Herchman,
President
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
EQUITABLE SECURITIES CORPORATION
By:
-----------------------------
ON BEHALF OF THEMSELVES AND THE OTHER
UNDERWRITERS NAMED IN SCHEDULE I HERETO.
<PAGE> 23
SCHEDULE I
NUMBER OF FIRM SHARES
NAME OF UNDERWRITER TO BE PURCHASED
---------------------
Bear, Stearns & Co. Inc.
Equitable Securities Corporation
TOTAL 2,000,000
=========
<PAGE> 1
EXHIBIT 4.2
MEDICAL ALLIANCE, INC.
5005 LBJ FREEWAY, SUITE 1370
DALLAS, TEXAS 75244
___________________________________________________
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
July 10, 1992
___________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION 1
DESCRIPTION OF TRANSACTION
--------------------------
Page No.
--------
<S> <C> <C>
1.1 Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
2.1 Organization and Standing; Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . 2
2.2 Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 Material Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Title to Properties and Assets; Liens, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Compliance with Other Instruments, None Burdensome, etc . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Governmental Consent, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.15 Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.16 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.17 Collective Bargaining Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.19 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.20 Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.21 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.22 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.23 Brokers or Finders; Other Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.25 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.26 Vendors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.27 Company Net Worth and Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
-----------------------------------------------
<S> <C> <C>
3.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 Rule 144, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 No Public Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Access to Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 Residency/Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4
---------
CONDITIONS TO CLOSING OF INVESTORS
----------------------------------
4.1 Representations and Warranties Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Opinion of Company's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 Shareholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Blue Sky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Articles of Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.9 Conversion of Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.10 Restructuring of Satana Corporation Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.11 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.12 SBA Declarations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5
CONDITIONS TO CLOSING OF COMPANY
5.1 Representations and Warranties Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
SECTION 6
COVENANTS OF THE COMPANY
------------------------
<S> <C> <C>
6.1 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.4 Key-Man Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.6 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.7 SBA Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.8 Restructuring of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.9 Directors' and Officers' Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.10 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7
COVENANTS OF THE INVESTORS
--------------------------
7.1 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8
REGISTRATION RIGHTS
-------------------
8.1 Optional Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Required Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.3 Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.4 Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.5 Procedure for Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.7 Rule 144 Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.8 Obligations in a Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.9 Limitations on Subsequent Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 9
COMPANY'S CALL
--------------
9.1 Right to Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 Procedure for Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.3 Right to Retain Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
SECTION 10
DEFAULT
-------
<S> <C> <C>
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.2 Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.3 Board Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 11
MISCELLANEOUS
-------------
11.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.4 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.5 Notices and Demands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.6 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.10 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
(iv)
<PAGE> 6
MEDICAL ALLIANCE, INC.
SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
MEDICAL ALLIANCE, INC., a Texas corporation (the "Company"), and the
persons named on the Schedule of Purchasers, attached hereto as Exhibit A
(collectively, the "Investors" and each individually, an "Investor"), enter
into this Agreement dated as of July 10, 1992, relating to the issuance by the
Company of certain of its securities.
SECTION 1
DESCRIPTION OF TRANSACTION
--------------------------
1.1 Description of Securities. The Company agrees to issue to the
Investors and the Investors agree to purchase from the Company (a) 375,000
shares of its authorized but unissued Series A Convertible Preferred Stock, par
value $.002 per share (the "Preferred Stock"), for a total purchase price of
$750,000 and (b) warrants to purchase up to 60,000 shares of Preferred Stock, a
form of which is attached as Exhibit B, for a total purchase price of $60.00
(the "Warrants"). The shares of Preferred Stock issued to the Investors
pursuant to this Agreement (including the shares issued upon exercise of the
Warrants (the "Warrant Shares")) are referred to herein as the "Preferred
Shares." The number of Preferred Shares issued (or issuable upon exercise of a
Warrant) to an Investor is that number of shares listed with such Investor's
name on Exhibit A. The Preferred Stock will be convertible into shares of its
Common Stock, $.002 par value (the "Common Stock"), as provided in the
Company's Articles of Incorporation, as amended by the Articles of Amendment,
attached hereto as Exhibit C. Any securities of the Company issued or issuable
upon conversion of the Preferred Shares (and any Common Stock issued as stock
dividends on the Preferred Shares) are referred to as "Conversion Shares."
1.2 Closing. The closing of the purchase and sale of the
Preferred Shares and, Warrants will take place at the offices of Jackson &
Walker, L.L.P., 901 Main Street, Suite 6100, Dallas, Texas, at 10:00 A.M., on
the date of this Agreement (the "Closing"), or such other time and place as
agreed to by the parties (the "Closing Date"). At the Closing, the Company
will deliver to each Investor (a) a certificate or certificates, each
registered in such Investor's name representing the Preferred Shares and (b) a
warrant or warrants, each registered in such Investor's name representing the
warrants to purchase Preferred Shares, being acquired by each Investor upon
payment of the purchase price by the Investors to the Company by check(s) in
the aggregate amount of $750,060.
<PAGE> 7
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to the Investors that the
following are true and correct as of the date hereof:
2.1 Organization and Standing: Certificate of Incorporation and
Bylaws. The Company is a corporation duly organized and existing under the
laws of the State of Texas and is in good standing under such laws. The
Company has requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as presently conducted and
as proposed to be conducted. Except as set forth in Schedule 2.1, the Company
is qualified to do business as a foreign corporation in each jurisdiction where
the ownership of its properties or the conduct of its business requires such
qualification and where the failure so to be qualified would have a material
adverse effect on such corporation's business as now conducted. Schedule 2.1
sets forth a complete and accurate listing of the states where the Company
currently owns properties and/or conducts business and the Company is in the
process of qualifying to do business as a foreign corporation. The Company has
furnished the Investors with copies of its Articles of Incorporation and
Bylaws, as amended. Said copies are true, correct and complete and contain all
amendments through the Closing Date.
2.2 Corporate Power. The Company has all requisite legal and
corporate power and authority to execute and deliver this Agreement, and has
all requisite legal and corporate power and authority to sell and issue the
Preferred Shares and Warrants hereunder, to issue the Preferred Stock upon
exercise of the Warrants, to issue the Common Stock issuable upon conversion of
the Preferred Shares, and to carry out and perform its obligations under the
terms of this Agreement.
2.3 Subsidiaries. The Company has no subsidiaries and does not
otherwise own or control, directly or indirectly, any equity interest in any
corporation, association or business entity.
2.4 Capitalization. As of the Closing (after giving effect to the
issuance of the Preferred Shares) the authorized capital stock of the Company
will consist of 10,000,000 shares of Common Stock of which 1,136,340 shares
will be issued and outstanding and 2,000,000 shares of Preferred Stock, of
which 375,000 shares will be issued and outstanding. None of the shares of
Preferred Stock were issued and outstanding prior to the Closing. The
outstanding shares of capital stock of the Company have been duly authorized
and validly issued, and are fully paid and nonassessable. The Company has
reserved (a) up to 435,000 shares of Common Stock for issuance upon conversion
of the Preferred Shares (including the 60,000 shares of Preferred Stock that
may be issued to the Investors upon exercise of Warrants) and (b) up to an
aggregate of 648,350 shares of its Common Stock for issuance to (i) employees,
consultants, or directors under stock plans or arrangements approved by the
Board of Directors and (ii) Satana Corporation pursuant to that certain Warrant
to Purchase Common Stock in Laser Support
2
<PAGE> 8
Services, Inc. and Stock Repurchase Agreement dated January 17, 1991, as
amended on the date hereof (the "Satana Warrant"). Except as set forth above
or on Schedule 2.4, there are no options, warrants or other rights outstanding
to purchase any of the Company's authorized and unissued capital stock.
2.5 Authorization. All corporate action on the part of the
Company, its directors and stockholders necessary for (a) the authorization,
execution, delivery and performance of this Agreement by the Company, (b) the
authorization, sale, issuance and delivery of the Preferred Shares and Warrants
(including the Preferred Stock upon exercise of the Warrants and the Common
Stock issuable upon conversion of the Preferred Shares) and (c) the performance
of all of the Company's obligations hereunder has been taken or will be taken
prior to the Closing. This Agreement, when executed and delivered by the
Company, shall constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as the indemnification
provisions of Section 8.6 hereof may be limited by principles of public policy,
and subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. The Preferred Shares, when
issued in compliance with the provisions of this Agreement, will be validly
issued, will be fully paid and nonassessable, and will have the rights,
preferences, and privileges described in Exhibit C (unless amended after the
date hereof). Common Stock issuable upon conversion of the Preferred Shares
have been duly and validly reserved and, when issued in compliance with the
provisions of this Agreement and Exhibit C, will be validly issued, and will be
fully paid and nonassessable; and the Preferred Shares and such shares of
Common Stock will be free of any liens or encumbrances, other than as set forth
in this Agreement, and any liens or encumbrances created by or imposed upon the
holders through no action of the Company; provided, however, that the Preferred
Shares and the Conversion Shares may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein and that certain
Amended and Restated Stock Buy and Sell Agreement, of even date herewith, as
may be amended from time to time (the "Shareholders' Agreement"), in
substantially the form of Exhibit D. The shares of Common Stock issuable upon
conversion of the Preferred Shares are not subject to any preemptive rights or
rights of first refusal, except as set forth in this Agreement and the
Shareholders' Agreement.
2.6 Financial Statements. The Company has delivered to each
Investor its unaudited balance sheet and unaudited statement of operations for
the fiscal year ended December 31, 1991, and unaudited balance sheet and
statement of operations for the five-month period ended May 31, 1992 (the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
period indicated ("GAAP"). The Financial Statements fairly present the
financial condition and results of operations of the Company at such date or
for such period, subject, in the case of the unaudited interim financial
statements, to changes resulting from normal year-end adjustments (none of
which would either, alone or in the aggregate, be materially adverse to the
financial condition or operating results of the Company). Except as shown on
Schedule 2.6, since May 31, 1992, there, has been no change in the assets,
liabilities, financial condition or operating results of the Company from that
3
<PAGE> 9
reflected in the Financial Statements, except changes in the ordinary course of
business that have not been, in the aggregate, materially adverse to the
assets, properties, financial condition, operating results or business of the
Company.
2.7 Material Liabilities. Except as set forth in Schedule 2.7,
the Company has no material liabilities or obligations, absolute or contingent
(individually or in the aggregates, other than (a) liabilities and obligations
disclosed in the Financial Statements, (b) liabilities and obligations incurred
in the ordinary course of business subsequent to May 31, 1992, and (c)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements. Schedule 2.7 sets forth a complete and
accurate listing of the Company's indebtedness for borrowed money as of the
Closing Date, which either the Company has directly or indirectly created,
incurred, assumed or guaranteed, and a description of any security for such
indebtedness.
2.8 Title to Properties and Assets; Liens, Etc. The Company has
good and marketable title to its properties and assets which it owns, and has a
valid leasehold interest in each property and asset it leases, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than
(a) as listed in Schedule 2.8, (b) as disclosed in the Financial Statements
(including the notes thereof), (c) the lien of current taxes not yet due and
payable, and (d) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company. Schedule 2.8 contains a complete listing
of properties and assets used in the business and operations of the Company as
of May 31, 1992, which are not owned by the Company, identifying the owner of
such properties and assets and specifying the material monetary obligations of
the Company relating to its use of such properties and assets.
2.9 Compliance with Other Instruments, None Burdensome, etc. The
Company is not in violation of any term of its Articles of Incorporation or
Bylaws, as each may have been amended from time to time, or in any material
respect of any term or provision of any material mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decree, and to the best
of its knowledge is not in violation of any order, statute, rule or regulation
applicable to the Company where such violation would materially and adversely
affect the Company. The execution, delivery and performance of and compliance
with this Agreement, and the issuance of the Preferred Shares and the Common
Stock issuable upon conversion of the Preferred Shares, have not resulted and
will not result in any material violation of, or conflict with, or constitute a
material default under, the Company's Articles of Incorporation or Bylaws, as
each may have been amended from time to time, or any of its material
agreements, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company.
2.10 Litigation, etc. There are no actions, suits, proceedings or
investigations pending against the Company (or, to the best of the Company's
knowledge, any threat thereof) or its properties before any court or
governmental agency (nor, to the best of the Company's
4
<PAGE> 10
knowledge, is there any reasonable threat thereof).
2.11 Employees. To the best of the Company's knowledge, no
employee of the Company is in violation of any term of any employment contract,
patent disclosure or confidentiality agreement or any other contract or
agreement relating to the relationship of such employee with the Company or any
other party. Except as disclosed on Schedule 2.11, the Company has no
employment agreements with any employees, officers or directors of the Company,
other than the agreements relating to noncompetition, inventions, copyrights,
patents and confidential information, substantially in the form provided to the
Investors. Schedule 2.11 lists the Company's (i) management, including
officers (the "Management"), and (ii) employees who are entrusted with access
to proprietary information of the Company (Management and employees entrusted
with access to proprietary information are collectively referred to as the "Key
Employees").
2.12 Registration Rights. Except as set forth in this
Agreement and Schedule 2.12, the Company is not under any contractual
obligation to register (in compliance with the filing requirements and being
deemed effective under the Securities Act of 1933, as amended (the "Securities
Act")) any of its presently outstanding securities or any of its securities
which may hereafter be issued.
2.13 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with (a) the
valid execution and delivery of this Agreement, (b) the offer, sale or issuance
of the Preferred Shares and Warrants (and the Preferred Stock upon exercise of
the Warrants and the Common Stock issuable upon conversion of the Preferred
Shares), or (c) the consummation of any other transaction contemplated hereby,
except (i) for those which have been obtained on or before the Closing Date or
(ii) Qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the
Preferred Shares and Warrants (and the Common Stock issuable upon conversion of
the Preferred Shares) under applicable Blue Sky laws, which filings and
qualifications, if required, will be accomplished in a timely manner.
2.14 Real Property. The Company enjoys peaceful and undisturbed
possession under all real property leases under which the Company is operating,
and all such leases are valid and subsisting and none of them is in default. A
listing of said leases, their terms and total lease payments is attached hereto
as Schedule 2.14. The Company does not own any real property.
2.15 Material Contracts and Commitments. Each material contract,
agreement and instrument which is material to the financial condition,
operating results or business of the Company and which the Company is a party
is listed in Schedule 2.15 attached hereto. To the Company's knowledge, all
such contracts, agreements and instruments are valid and enforceable
obligations of the parties thereto in accordance with their respective terms,
and the Company has not waived any rights thereunder.
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2.16 Tax Returns and Payments. The Company has fully filed or
timely extended all federal, state and local tax returns required to be filed
and is not currently delinquent or subject to penalties, as to any federal,
state and other taxes, assessments and governmental charges upon the Company
and its properties, the failure of which to file or pay would have a material
adverse effect on the financial condition or operations of the Company. The
charges, accruals and reserves on the books of the Company with respect to
federal taxes for the fiscal periods of the Financial Statements are adequate.
There are currently no agreements, waivers or other arrangements providing for
an extension of time with respect to the filing of any tax return by, or the
payment of any tax, governmental charge or deficiency by, or the assessment of
any tax, governmental charge or deficiency against, the Company. There are not
any actions, suits, proceedings, investigations or claims now pending, or to
the Company's knowledge, threatened, against the Company in respect of taxes,
governmental charges or assessments, or any matters under discussion with any
governmental authority relating to taxes, governmental charges or assessments,
or any claims for additional taxes, governmental charges or assessments
asserted by any such authority.
2.17 Collective Bargaining Agreements. The Company has no
collective bargaining agreement with its employees.
2.18 Insurance. Except as set forth on Schedule 2.18, the Company
insures, to a reasonable amount, with reputable insurance companies, so much of
its properties as corporations of similar size engaged in similar businesses
customarily would ensure properties of a similar character against loss by fire
and other causes, and maintains liability insurance of such character and in
such amounts as corporations of similar size engaged in similar businesses
customarily carry.
2.19 Proprietary Rights. The Company has ownership of, or valid
licenses to use, all patents, trademarks, copyrights and other proprietary
rights used in its business. To the best knowledge of the Company, its present
products do not infringe any patent, copyright, trademark or other proprietary
rights of others, the Company does not believe it is utilizing the inventions,
copyrights, or other proprietary rights of any employee (or person currently
intended to be hired) created prior to his employment with the Company which
the Company does not have rights to use, and the Company has not received any
notice from any third party of any such alleged infringement by the Company.
To the Company's knowledge, the Company has taken reasonable steps to establish
and preserve its ownership of all patent, trademark, copyright, trade secret
and other proprietary rights with respect to its products and technology which
are material to the operation of the Company's business and which they own and
use, although the Company has filed no registrations for patents, trademarks,
or copyrights. The Company is not aware of any infringement by others of its
patents,- trademarks, copyrights or other proprietary rights in any of its
products or technology.
2.20 Use of Funds. The Company will use the funds obtained from
the Investors pursuant to the sale and issuance of the Preferred Stock being
issued on the date hereof as shown on Schedule 2.20.
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<PAGE> 12
2.21 Compliance with ERISA. The Company does not maintain a
pension or profit sharing plan, and is not subject to any of the funding or
vesting requirements of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or any requirement which could create an accumulated funding
deficiency within the meaning of ERISA. The Company has not incurred any
liability to the Pension Benefit Guaranty Corporation established under ERISA
(or any successor thereto under ERISA). The consummation of the transactions
set forth in this Agreement will not constitute a "prohibited transaction"
within the meaning of Section 4975 of the Internal Revenue Code of 1986, as
amended, or Section 406 of ERISA.
2.22 Offering. Subject to the accuracy of each Investor's
representations in Section 3 hereof, the offer, sale and issuance of the
Preferred Shares and Warrants to be issued in conformity with the terms of this
Agreement, and the issuance of the Common Stock to be issued upon conversion of
the Preferred Shares, constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act.
2.23 Brokers or Finders; Other Offers. The Company has not
incurred, as a result of any action taken by the Company, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement.
2.24 Disclosure. To the best of the Company's knowledge, none of
the representations and warranties made by the Company in this Agreement,
including Schedule 2.24 and the other Schedules and Exhibits hereto, when taken
as a whole, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein and in
the Schedules and Exhibits hereto not misleading in light of the circumstances
under which they were made. Schedule 2.24 sets forth a complete and accurate
listing of additional disclosures of material facts that the Company believes
necessary in order to make the statements contained in this Agreement not
misleading.
2.25 Customers. Schedule 2.25 sets forth an accurate and complete
listing of the Company's ten (10) largest customers for the five-month period
ended May 31, 1992. Except as disclosed on Schedule 2.25, no adverse material
changes have occurred in the Company's relationship with such customers.
2.26 Vendors. Schedule 2.26 sets forth an accurate and complete
listing of each vendor that has provided supplies or services to the Company
valued in excess of $10,000.00 for the five-month period ended May 31, 1992.
Except as disclosed on Schedule 2.26, no adverse material changes have occurred
in the Company's relationship with such vendors.
2.27 Company Net Worth and Net Income. The Company, taken together
with its "affiliates" (entities other than licensed small business investment
companies, directly or indirectly, controlling, controlled by or under common
control with the Company), is independently owned and operated, is not dominant
in its field of operation, does not have net worth in excess of $6,000,000 and
does not have average net income (after deduction for federal income taxes and
computed without benefit of loss carryovers) for the preceding two years in
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<PAGE> 13
excess of $2,000,000. For purposes of this paragraph, the term "control" means
the possession, directly or indirectly, or the power to direct or cause the
direction of the management and policies of another, whether through the
ownership of voting securities, by contract or otherwise.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
-----------------------------------------------
Each Investor hereby severally represents and warrants to the Company
that the following are true and correct as of the date hereof:
3.1 Organization and Good Standing. Each Investor which is a
corporation is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, or which is a limited
partnership is duly organized and validly existing under the laws of the
jurisdiction in which it was organized. Each Investor has all requisite power
and authority to execute and deliver this Agreement and the Shareholders'
Agreement and to carry out and perform its obligations hereunder and under the
Shareholders' Agreement.
3.2 Experience. (a) It is an accredited investor as defined under
Regulation D under the Securities Act and (b) by reason of its own business and
financial experience and that of those persons, if any, retained by it to
advise it with respect to its investment, it together with such advisors has
such knowledge, sophistication and experience in business and financial matters
so that it is capable of evaluating the merits and risks of its investment in
the Company and has the capacity to protect its own interests.
3.3 Investment. It is acquiring the Preferred Shares, the
Warrants and the underlying Common Stock for investment for its own account,
not as a nominee or agent, and not with the view to, or for resale in
connection with, any "distribution." It understands that the Preferred Shares
and Warrants and the underlying Common Stock to be purchased have not been,
within the meaning of the Securities Act, registered under the Securities Act
or any state securities laws by reason of specific exemptions from the
registration provisions of the Securities Act and any applicable state
securities laws, the availability of which depend upon, among other things, the
bona fide nature of the investment intent and the accuracy of such Investor's
representations as expressed herein.
3.4 Rule 144, etc. It acknowledges that the Preferred Shares,
Warrants and the underlying Common Stock must be held indefinitely unless
subsequently registered under the Securities Act and any applicable state
securities act or unless exemptions from such registration are available. It
is aware of the provisions of Rule 144 promulgated under the Securities Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain
current public information about the Company, the resale occurring not less
than two years after a party has purchased and paid for the security to be
sold,
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<PAGE> 14
the sale being effected through a "broker's transaction" or in transactions
directly with a "market maker" and the number of shares being sold during any
three-month period not exceeding specified limitations.
3.5 No Public Market. It understands that no public market now
exists for any of the securities issued by the Company and that the Company has
made no assurances that a public market will ever exist for the Company's
securities.
3.6 Access to Data. It has had an opportunity to discuss the
Company's business, management and financial affairs with its management and
the opportunity to review the Company's facilities and business plan.
3.7 Authorization. The execution, delivery and performance of
this Agreement and the Shareholders' Agreement have been duly authorized by all
necessary action on the part of such Investor. This Agreement and the
Shareholders' Agreement when executed and delivered by such Investor will
constitute a valid and legally binding obligation of such Investor, enforceable
in accordance with its terms, except as the indemnification provisions of
Section 8.6 hereof may be limited by principles of public policy, and subject
to laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies.
3.8 Brokers or Finders. The Company has not, and will not, incur,
directly or indirectly, as a result of any action taken by such Investor, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
3.9 Residency/Principal Place of Business. It was formed under
the laws of, and its principal place of business is, the jurisdiction listed on
Exhibit A.
3.10 Purpose. It was not formed for the purpose of making an investment in
the Company.
3.11 No Breach. The execution, delivery and performance by such
Investor of this Agreement and the Shareholders' Agreement, the consummation of
the transactions contemplated hereby and thereby and the ownership of the
Preferred Shares and Warrants do not (a) conflict with or result in a breach of
the terms, conditions or provisions of the articles of incorporation, bylaws or
limited partnership agreement of such Investor (as may be applicable), or (b)
result in a violation of any investment restriction to which such Investor is
subject.
3.12 Litigation. With respect to such Investor, there is no
action, suit, proceeding, order, investigation or claim pending or, to the
knowledge of such Investor, threatened against such Investor at law or in
equity, or before or by any governmental department, commission, board, bureau,
agency or instrumentality concerning the validity of this Agreement or the
right of such Investor to enter into this Agreement or seeking to enjoin the
consummation of the transactions contemplated hereby.
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<PAGE> 15
SECTION 4
CONDITIONS TO CLOSING OF INVESTORS
----------------------------------
Each Investor's obligations to purchase the Preferred Stock (to be
issued at the Closing) and Warrants at the Closing are, at the option of each
Investor, subject to the fulfillment as of the Closing Date of the following
conditions:
4.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 2 of this Agreement shall be true
and correct in all material respects at and as of the Closing.
4.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with in all material respects.
4.3 Opinion of Company's Counsel. The Investor Group shall have
received from Jackson & Walker, L.L.P., counsel to the Company, an opinion
addressed to them, dated the Closing Date, with respect to the matters set
forth in Exhibit E.
4.4 Secretary's Certificate. The Company shall have delivered to
the Investors a certificate of the Secretary of the Company dated as of the
Closing Date, in the form of Exhibit F hereto.
4.5 Compliance Certificate. The Company shall have delivered to
the Investors a certificate of the Company in the form of Exhibit G hereto,
executed by the President of the Company, dated the Closing Date and
certifying, among other things, to the fulfillment of the conditions specified
in Sections 4.1 and 4.2 of this Agreement.
4.6 Shareholders' Agreement. The Investors shall have received
the Shareholders' Agreement.
4.7 Blue Sky. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the issuance of the Preferred Shares and
Warrants to the Investors, and the offer and sale of the Preferred Shares and
Warrants to the Investors, and the Common Stock issuable upon conversion of the
Preferred Shares.
4.8 Articles of Amendment. The Company shall have filed Articles
of Amendment with the Secretary of State of Texas in substantially the form of
Exhibit C.
4.9 Conversion of Subordinated Debt. The Company shall have
converted all of the shareholder subordinated debt as reflected in the May 31,
1992 balance sheet ("Subordinated
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<PAGE> 16
Debt") into shares of Common Stock at a conversion rate of one (1) share of
Common Stock for every $20.00 of Subordinated Debt.
4.10 Restructuring of Satana Corporation Debt. Pursuant to the
terms described under the heading "Debt Restructuring" in the letter agreement
dated May 29, 1992 from Sunwestern Investment Group to, and accepted by, the
Company, the Company shall complete the restructuring of the Company's debt
owed to Satana Corporation, evidenced by that certain Promissory Note made to
Satana Corporation, dated January 17, 1991, in the original principal amount of
$500,000, including the revision of the Satana Warrant terms to conform
substantially with the Warrants (the "Satana Restructuring").
4.11 Legal Matters. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby shall have
been reasonably approved by counsel to the Investors.
4.12 SBA Declarations. The Company shall have provided to the
Investors completed and executed Small Business Administration Forms 652
(Assurance of Compliance for Nondiscrimination) and 480 (Size Status
Declaration).
SECTION 5
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Preferred Stock to be
issued at the Closing and Warrants at the Closing is, at the option of the
Company, subject to the fulfillment as of the Closing Date of the following
conditions:
5.1 Representations and Warranties Correct. The representations
and warranties made by each Investor in Section 3 of this Agreement shall be
true and correct in all material respects at and as of the Closing.
5.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Investors on or prior to the Closing
Date shall have been performed or complied with in all material respects.
5.3 Compliance Certificate. The Investor shall have delivered to
the Company a certificate of the Investor in the form of Exhibit H hereto,
executed by an authorized officer of the Investor, dated the Closing Date and
certifying, among other things, to the fulfillment of the conditions specified
in Sections 5.1 and 5.2 of this Agreement.
5.4 Legal Matters. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby shall have
been reasonably approved by counsel to the Company.
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<PAGE> 17
SECTION 6
COVENANTS OF THE COMPANY
Until the first to occur of (i) the Investors hold less than 100,000
Preferred Shares or (ii) a Qualified Public Offering (as defined in Article
Four, Section B.4(b)(i) of the Articles of Incorporation, as amended), the
Company hereby covenants and agrees as follows:
6.1 Financial Information. The Company will mail the following
reports to each Investor:
(a) As soon as practicable after the end of each month,
and in any event within sixty (60) days thereafter, a balance sheet of the
Company as at the end of such month, and a statement of operations, and
statement of cash flow of the Company, for each month and for the current fiscal
year of the Company, to date, prepared in accordance with GAAP (or accompanied
by an explanatory note, which describes any changes in accounting principles
from those used in prior periods), together with a comparison of such statements
to the corresponding budget of the current fiscal year, changes resulting from
year-end audit adjustments, and certified by the principal financial or
accounting officer of the Company.
(b) As soon as practicable after the end of each fiscal
year, and in any event within ninety (90) days thereafter, a balance sheet of
the Company as of the end of such fiscal year, and a statement of operations
and statement of cash flow of the Company for such year, prepared in accordance
with GAAP and setting forth in each case in comparative form the figures for
the previous fiscal year (except for the first year), all in reasonable detail
and certified by the principal financial or accounting officer of the Company
and audited by and accompanied by the report of independent public accountants
of national standing i.e., one of the Big Six accounting firms) selected by the
Board of Directors.
(c) As soon as practicable, and in any event within (i)
thirty (30) days of approval of the Board of Directors following the Closing
and (ii) thereafter prior to the end of the first calendar month of each fiscal
year, a budget/operating forecast for each fiscal year of the Company, which
budget/operating forecast will be approved by the Board of Directors.
For so long as an Investor is eligible to receive reports
under this Section 6.1, the Company will permit each Investor to inspect at the
Investor's expense any of the properties or books and records of the Company,
to make copies of extracts from such books and records and to discuss the
affairs and condition of the Company with representatives of the Company, all
to such reasonable extent and at such reasonable times and intervals as such
Investor may reasonably request. If the Investor is a person or entity other
than the Investor that is the signatory to this Agreement, the right to inspect
the properties or books or records of the Company granted under this Section
6.1 may be exercised only with the consent of the Company, which consent will
not be unreasonably withheld. Any Investor who exercises the right to
inspection must, unless otherwise required by law, at the request of the
Company, sign
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<PAGE> 18
an agreement to hold in confidence any confidential information about the
Company received as a result of such inspection under circumstances indicating
the confidentiality of such information until the Company has publicly
disclosed such information or until disclosure is required by law or by court
order. The rights granted to any Investor under this Section 6.1 will continue
until the Company has commenced filing periodic reports with the Commission
pursuant to the requirements of Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the " 1934 Act"), and will then be
suspended, subject to resumption if the Company should thereafter cease filing
such reports.
6.2 Board of Directors. The Company shall take all appropriate
actions, including amending its bylaws, to initially set a Board of Directors
consisting of seven (7) members. Unless otherwise agreed to by the Director
nominated by the Investor, the Board of Directors will meet at least four (4)
times per year at three (3) month intervals. The Company will reimburse each
Director nominated by the Investors, and each attendee designated by the
Investors, for all direct travel expenses incurred by such Director and/or
attendee in connection with attending any board meeting or other board
functions.
6.3 Compensation Committee. At the first meeting of the Board of
Directors following the Closing, the Board shall create and select members of a
"Compensation Committee." As long as the Investors have the right, pursuant to
Section 10 of the Shareholders' Agreement to elect representatives of the Board
of Directors, the Compensation Committee shall be comprised of three members,
one of whom will be the Director nominated by the Investors and one of whom
will be the Director nominated by Satana. The Compensation Committee shall on
a yearly basis determine (i) which employees are part of Management and (ii)
the compensation for each member of Management.
6.4 Key-Man Insurance. The Company shall maintain after the
Closing for so long as the Company has an insurable interest in the life of
Paul Herchman ("Herchman"), term life insurance on the life of Herchman, in the
minimum amount of $500,000.00 with the proceeds payable to the Company.
Without the prior written approval of the Investors, the Company shall not
pledge at least $500,000.00 of the Company's interest in such term life
insurance or the proceeds thereof.
6.5 Insurance. From and after the Closing, the Company shall
maintain such other insurance with coverages and in the amounts as shall be
reasonably necessary and appropriate to protect the assets of the Company.
6.6 Intellectual Property. The Company will use all reasonable
and prudent efforts to keep confidential all know-how, trade secrets,
proprietary rights and other confidential intellectual property and information
which is material to its business or prospective business, and to provide the
Company with sufficient title to, ownership of, or rights to such intellectual
property as is or may become necessary for the conduct of its business. The
Company will use all reasonable commercial efforts to enter into such
agreements with its employees, consultants, licensees, customers and other
third parties as may be reasonably required to carry out its
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obligations under this Section 6.6; including, but not limited to, using all
reasonable commercial efforts to enter into noncompetition and nondisclosure
agreements (in forms acceptable to Investor) with each Key Employee.
6.7 SBA Information. The Company, within twenty (20) days after
an Investor shall have made a request therefor, shall furnish to such Investor
in writing all information reasonably available to the Company which the
Investor shall request with respect to the Company or any firm or corporation
in which the Company may from time to time have or have had any interest, which
is needed in connection with the preparation of SBA Form 468 or any other
report the Investor may be required to make to any governmental agency or
regulatory authority in connection with its purchase or ownership of the
Preferred Shares, the Warrants or Common Stock issued upon conversion of the
Preferred Shares.
6.8 Restructuring of Debt. On or before December 31, 1992, the
Company shall restructure, in a manner satisfactory to the Investor, all debt
in which the Company has granted liens on its accounts receivable; except,
however, the Investor acknowledges that if the Satana Restructuring has been
completed as contemplated by Section 4.10 of this Agreement, then the Company's
debt to Satana Corporation has been satisfactorily restructured for the
purposes of this Section 6.8.
6.9 Directors' and Officers' Liability Insurance. On or before
September 15, 1992 the Company shall purchase a directors' and officers'
insurance policy with policy limits and other terms reasonably acceptable to
the Investor.
6.10 Negative Covenants. The Company shall not, without the prior
written consent of the holders of a majority of the then outstanding Preferred
Shares and Conversion Shares:
(a) except as provided in the Articles of Amendment,
declare or pay any dividends on the Common Stock;
(b) repurchase or redeem any shares of Common Stock
except pursuant to the terms of the Satana Warrant and the Warrants;
(c) make any loans or advances to employees or
consultants of the Company, other than in the ordinary course of business as
part of travel advances or advances, and other than loans to employees or
consultants of the Company approved by the Board of Directors in amounts not to
exceed $5,000 per individual or $50,000 in the aggregate at any time;
(d) enter into any guaranty arrangement, or mortgage or
pledge, or create a security interest in, or permit any subsidiary to mortgage,
pledge or create a security interest in, all or substantially all of the assets
of the Company or such subsidiary, other than a guaranty arrangement or a
security interest in the assets of the Company or such subsidiary as part of
(i) the refinancing of any Company indebtedness listed in Schedule 2.7 or (ii)
financing obtained from a national or state chartered bank or from regular
commercial financing sources for
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<PAGE> 20
accounts receivable, or (iii) any security interest related to a lease or
financing of equipment by the Company;
(e) merge or consolidate, or enter into any agreement to
merge or acquire, any other corporation, partnership or other business entity
into the Company, or acquire, or enter into any agreement to acquire,
substantially all the stock or assets of another corporation, partnership or
other business entity in any transaction or series of transactions which in the
aggregate exceed $500,000 on or prior to December 31, 1992, or $1,000,000 from
or after January 1, 1994;
(f) enter into a line of business that differs from the
current business of the Company, which currently consists of developing and
marketing a program to make laser technology available to physicians in their
offices on a rental basis (the "Business"); or
(g) sell or otherwise dispose of all or substantially all
of the assets of the Company, or merge or consolidate the Company with or into
any other corporation or corporations, except pursuant to a Qualified Sale.
For purposes of this Agreement, a "Qualified Sale" shall mean a transaction in
which the proceeds payable to the Investors for each of the Preferred Shares is
greater than or equal to the following amounts, plus all accrued and unpaid
dividends:
<TABLE>
<CAPTION>
DATE PER SHARE PROCEEDS
<S> <C>
July 1, 1992 through June 30, 1995 $7.00
July 1, 1995 through June 30, 1996 $9.00
July 1, 1996 through June 30, 1997 $11.00
</TABLE>
SECTION 7
COVENANTS OF THE INVESTORS
7.1 Confidential Information. Each Investor acknowledges that
during the course of evaluating the Company and the Business, it has had access
to, and will in the future continue to receive, or otherwise have access to,
confidential and proprietary information regarding the Company and the
Business. Each Investor hereby agrees not to disclose, and to use its
reasonable best efforts to cause its Affiliates not to disclose, to any person,
and not to use for its own account, any such information, or any information
regarding the Company or the Business which such Investor hereafter comes to
possess and which such Investor knows or has reason to believe is confidential,
without the prior express written consent of the Company unless and to the
extent that such information (a) becomes generally known to and available for
use by the public other than as a result of the breach of this Section 7.1, (b)
is required to be disclosed by law, court order or similar legal compulsion (in
which case the person being so compelled will promptly notify the Company of
such disclosure and the extent of such
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<PAGE> 21
disclosure) or (c) was known by such Investor or its Affiliates prior to its
disclosure to such Investor or its Affiliates by the Company. As used herein,
an "Affiliate" of any Investor means any person who, either directly or
indirectly, through one or more intermediaries, controls, is controlled by or
is under common control with, such Investor. Notwithstanding anything to the
contrary contained in this Section 7.1, each Investor shall be entitled to
provide summaries of the financial and related information of the type
currently provided to such Investor's limited partners and/or shareholders in
the ordinary course of reporting to such persons.
SECTION 8
REGISTRATION RIGHTS
8.1 Optional Registrations. If the Company decides to register
any of its Common Stock or securities convertible into or exchangeable for
Common Stock under the Securities Act (other than a registration solely to
implement an employee benefit plan or a transaction to which Rule 145 or any
other similar rule of the Securities and Exchange Commission (the "Commission")
is applicable), the Company will promptly give written notice to the Investors,
and the Company will use all reasonable efforts to effect the registration
under the Securities Act of all Registrable Securities (as defined in Section
8.4) which the Investors request be included in such registration by a written
notice delivered to the Company within thirty (30) days after the notice given
by the Company subject to such Investor's accepting the terms of the
underwriters, including the initial public offering price and the discounts and
commissions, as agreed upon by the Company and the managing underwriter
selected by it.
If the registration involves an underwritten public offering, the
Company will not be required to register Registrable Securities in excess of
the amount that the principal underwriter reasonably and in good faith
recommends may be included in such offering. If any Registrable Securities are
not included for this reason, the Company will permit the Investors who have
requested participation to include all shares requested to be included in the
registration on a pro rata basis, based upon Common Stock owned or obtainable
by such holder.
If the Company elects to terminate any registration filed under this
Section 8.1, the Company will have no obligation to register the securities
sought to be included by the Investors in such registration. For each
registration and offering effected pursuant to this Section 8.1, all expenses
of the registration and offering (excluding all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
such Investors) and the reasonable fees and expenses of one (1) independent
counsel for the Investors will be borne by the Company.
8.2 Required Registrations. If one or more of the Investors
holding at least a fifty percent (50%) of the Conversion Shares notifies the
Company in writing that such Investor(s) intend to offer for public sale at
least forty-five percent (45%) of the shares of Common Stock issued or
issuable upon conversion of the Preferred Shares, the Company will notify all
of the
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<PAGE> 22
Investors of its receipt of such notification. Upon the written request of any
Investor delivered to the Company within fifteen (15) days after delivery from
the Company of such notification, the Company will use its best efforts to
cause the Registrable Securities as may be requested by any Investors
(including the Investor(s) giving the initial notice) to be included in a
registration statement under the Securities Act. All expenses of the first
registration pursuant to this Section 8.2 and the reasonable fees and expenses
of one (1) independent counsel for the Investors will be borne by the Company
(excluding all underwriting discounts, selling commissions and stock transfer
taxes applicable to the securities registered by such Investor). The Investors
will bear their pro rata share (based upon the securities included in the
registration) of reasonable fees and expenses associated with any subsequent
registration pursuant to this Section 8.2. The Company will not be required to
file more than two (2) registration statements pursuant to this Section 8.2,
and will not be required to file any registrations under this section until the
earlier of (a) June 30, 1994, or (b) six (6) months following the date as the
Company files a registration statement under the Securities Act. This Section
8.2 will not apply to requests for registration on Form S-3 (or successor form)
which will be governed by Section 8.3.
8.3 Form S-3. Once the Company is eligible to effect a
registration of its securities under Form S-3 (or a successor form), the
Investors will have the right to request, and the Company shall use its best
efforts to effect, registrations of shares of their Registrable Securities on
Form S-3 (but no more than one such registration during any one fiscal year) as
long as (a) Investor(s) holding at least twenty-five percent (25 %) of the then
outstanding Conversion Shares notify the Company of their desire to register at
least ten percent (10%) of the outstanding Conversion Shares and (b) the
aggregate proposed offering price (based upon the current market price of the
Common Stock) is not less than $500,000.00 for each registration.
The Company will give notice to all Investors of the request for
registration pursuant to this Section 8.3. Upon written request of any
Investor delivered to the Company within fifteen (15) days after delivery from
the Company of such notification, the Company will use all reasonable efforts
to cause the registration of all shares of Registrable Securities on Form S-3
or such successor form to the extent requested by the Investor(s). All
expenses incurred in connection with the registrations requested pursuant to
this Section 8.3, including the reasonable fees and expenses of one (1)
independent counsel for the selling Investor(s), will be borne by the Company
(excluding all underwriting discounts, selling commissions and stock transfer
taxes applicable to the securities registered by such Investor).
8.4 Registrable Securities. For the purposes of this Section 8,
the term "Registrable Securities" will mean any shares of Common Stock held by
the Investors or issuable upon conversion of Preferred Shares, and any other
shares or equity securities distributable on, with respect to, or in
substitution for such Registrable Securities, except for those that have been
sold or transferred pursuant to an effective registration statement or pursuant
to Rule 144 under the Securities Act.
8.5 Procedure for Registration. Whenever the Company is required
under this Agreement to register Common Stock, it agrees to do the following:
17
<PAGE> 23
(a) Use all reasonable efforts to prepare promptly for
filing with the Commission a registration statement and such amendments and
supplements to said registration statement and the prospectus as may be
necessary to declare or keep the registration statement effective and to comply
with the provisions of the Securities Act for the period necessary to, complete
the proposed public offering, but not more than 180 days;
(b) Furnish to each selling Investor such copies of each
preliminary and final prospectus and such other documents as such Investor may
reasonably request to facilitate the public offering of his Common Stock;
(c) Enter into any underwriting agreement with provisions
reasonably required by the proposed underwriter for the selling Investor(s), if
any;
(d) Use all reasonable efforts to register or qualify the
Common Stock covered by the registration statement under the securities or
"blue-sky" laws of such jurisdictions as any selling Investor(s) may reasonably
request, although the Company will not have to register in any states that
require it to qualify to do business or subject itself to general service of
process, and for a registration under Section 8. 1, the Company will not be
required to register in more states than is necessary to permit the sale of the
securities; and
(e) The Company is not required to file a registration
statement within ninety (90) days following the effective date of any other
registration statement initiated by the Company. The Company may postpone the
filing of any registration statement required under Sections 8.2 or 8.3 for a
reasonable period of time, not to exceed ninety (90) days, if the Company has
been advised by legal counsel that such filing would require the disclosure of
a material fact, and the Company determines reasonably and in good faith that
such disclosure would have a material adverse effect on the Company.
8.6 Indemnification. Subject to applicable law, the Company will
indemnify each Investor holding Registrable Securities included in the
registration statement, and each person controlling any of them, against all
claims, losses, damages and liabilities, including legal and other expenses
reasonably incurred, arising out of any untrue or allegedly untrue statement of
a material fact contained in the registration statement, or any omission or
alleged omission to, state a material fact required to be stated in the
registration statement or necessary to make the statements not misleading, or
arising out of any violation by the Company of the Securities Act, any state
securities or "blue-sky" laws or any applicable rule or regulation. This
indemnification will not apply to any claims, losses, damages or liabilities to
the extent they arise out of or are based upon an untrue statement or omission
based upon information furnished in writing to the Company by such Investor, or
controlling person, respectively, expressly for use in the registration
statement. With respect to such untrue statement or omission in the
information furnished in writing to the Company by such Investor, such person
will indemnify the underwriters, the Company, its directors and officers, the
other persons selling securities under the registration statement and each
person controlling any of them against any losses, claims, damages, expenses or
liabilities to which any of them may become subject as a result of such
18
<PAGE> 24
untrue statement or omission (including those incurred in connection with
investigating or defending against such claims).
8.7 Rule 144 Requirements. If the Company becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, the Company will
use all reasonable efforts to file with the Commission such information as the
Commission may require and will use all reasonable efforts to make available
Rule 144 under the Securities Act (or any successor exemptive rule).
8.8 Obligations in a Registration. Any Investor included in any
registration agrees to furnish such information regarding such person and the
securities sought to be registered as the Company may reasonably request in
connection with the registration, qualification or compliance. If the
registration involves an underwriter, such Investor agrees, upon the request of
such underwriter, not to sell any unregistered securities of the Company for a
period of ten (10) days prior to or ninety (90) days following the effective
date of the registration statement for such offering.
8.9 Limitations on Subsequent Registration After the date hereof,
the Company will not, without the prior written consent of Investors
representing at least a majority of the Preferred Shares and Conversion Shares,
taken together as a class, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either the date set forth in Section 8.2, or within ninety (90) days
of the effective date of any registration effective pursuant to Section 8.2, or
(b) that would allow any such holder or prospective holder to have greater
rights than the Investors under Section 8.1 or 8.3.
SECTION 9
COMPANY'S CALL
9.1 Right to Call. If on or prior to December 31, 1997, the
Company has not completed a Qualified Public Offering and complied with its
obligations under Section 8 of this Agreement or provided the holders of
Preferred Shares and/or Conversion Shares (collectively, the "Remaining
Shares') the opportunity to sell the Remaining Shares in a bona fide
transaction which would result in the per share proceeds as provided in Section
6. 10(g) above, then for any Remaining Shares outstanding on December 31, 1997,
the Company shall have the right, but not the obligation, to deliver to each of
the holders of the Remaining Shares a notice (the "Call Notice") of the
Company's intent to repurchase all of the Remaining Shares, and repurchase all
Remaining Shares tendered by the holders pursuant to the terms of Section 9.2
below. The Call Notice must be given on or before January 15, 1998.
9.2 Procedure for Call. Subject to compliance with the applicable
laws of the State of Texas regarding the repurchase of a corporation's capital
stock, the Company will purchase
19
<PAGE> 25
all Remaining Shares tendered by the holders within one hundred eighty (180)
days following the Call Notice. The purchase price paid by the Company to the
holders for each of the Remaining Shares shall be a per share amount equal to
the higher of (a) two (2) times gross revenues of the Company on a consolidated
basis or (b) fifteen (15) times earnings before interest, taxes, depreciation
and amortization, on a consolidated basis, computed in accordance with GAAP,
divided by the number of then outstanding shares of voting stock of the Company
(including, without limitation, shares of Common Stock and Preferred Stock).
If either the Company or the holder disagrees with the valuation determined by
the formula above, then such party may require the purchase price to be the
fair market value as determined by an independent appraiser mutually acceptable
to the Company and the holder(s) desiring to sell their Remaining Shares. The
cost of such appraisal shall be paid by the party requesting such appraisal,
except as provided in the following sentence. If the Company and such
holder(s) cannot agree on an appraiser, then each of the Company and the
holder(s) wishing to sell shall have the right to designate an appraiser at its
own expense, and such appraisers shall jointly select a third appraiser, whose
cost shall be shared equally by the Company and the holders desiring to sell
their remaining Shares. The appraisal of fair market value which is neither
the highest nor lowest (or, if two appraisals are the same, then that amount
shall be considered the fair market value) shall be binding on the parties for
the purposes of this Section 9. The Company and the holders of the Remaining
Shares shall not disclose to the appraisers, or allow such appraisers to in any
way use or consider, any of the formulas contained in this Section 9.2. The
Company shall purchase such shares by payment of cash at the time of the
purchase; provided however, that only to the extent lawful surplus is not
available, the Company's obligation pursuant to this Section 9 shall not
expire, but continue, and the Company shall be obligated to make such cash
payment as soon as such legal surplus becomes available. The payment to such
holder(s) by the Company pursuant to this Section 9 shall be, and continue to
be until made, a legal obligation of the Company.
9.3 Right to Retain Shares. Notwithstanding the Company's right
to give a notice of intent to repurchase the Remaining Shares pursuant to this
Section 9, a holder of Remaining Shares may decline to accept the Company's
offer contained in the Call Notice, and may retain its Remaining Shares, such
election to be made in writing within fifteen (15) days after the per share
purchase price for the Remaining Shares has been conclusively determined.
9.4 Termination of Call. The Company's right to deliver a Call
Notice and to purchase the Remaining Shares shall terminate upon the occurrence
of a Qualified Public Offering or a Qualified Sale.
SECTION 10
DEFAULT
10.1 Events of Default. Each of the following events shall be an
Event of Default hereunder:
20
<PAGE> 26
(a) If the Company shall default in the performance of or
compliance with any of their respective covenants contained in this Agreement
or any covenant regarding the Investors' rights under the Shareholders'
Agreement or any obligations of the Company to holders of Preferred Stock under
the terms of the Articles of Amendment, and such default shall not have been
remedied within thirty (30) days after written notice thereof shall have been
given to the Company, as applicable, by one or more of the holders of the
Preferred Shares and/or Conversion Shares;
(b) If any material representation or warranty made in
writing by or on behalf of the Company herein or pursuant hereto or otherwise
in connection with the transactions contemplated hereby shall prove to have
been false or incorrect in any material respect on the date as of which made
and the effect of falsity or incorrectness shall not have been remedied within
thirty (30) days after written notice thereof shall have been given to the
Company by one (1) or more of the holders of the Preferred Shares and/or
Conversion Shares; provided, however, that such notice and cure period shall
only be applicable if such falsity or incorrectness is capable of being
remedied within such period; and
(c) If the Company shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
as they become due, or shall file a voluntary petition in bankruptcy, or shall
be adjudicated a bankruptcy or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, or shall file any answer admitting or not contesting the
material allegations or a petition filed against the Company in any such
proceedings, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of the Company or of all or any substantial
part of the properties of the Company, or if the Company or its directors or
the majority shareholders shall take any action looking to the dissolution or
liquidation of the Company.
10.2 Remedies on Default. In case any one or more Events of
Default or the breach of any other agreement or covenant contained herein shall
occur and be continuing, the holder of any Preferred Share and/or Conversion
Share may proceed to protect and enforce the rights of such holder by an action
at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any other
documents executed pursuant to the transactions contemplated herein, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law. The Company
acknowledges that any breach or violation of the representations and covenants
contained in this Agreement or the Shareholders' Agreement will cause
substantial damages and irreparable harm to the Investors, and that the remedy
at law for such breach will be inadequate. In the event of any breach of this
Agreement or the Shareholders' Agreement, the Investors will be entitled to
actual damages and temporary and permanent injunctive relief to prevent the
breach or further breach or violation of any provisions of this Agreement or
the Shareholders' Agreement, without the necessity of proving actual damages.
21
<PAGE> 27
If any holder of any Preferred Share and/or Conversion Share shall
give any notice or take any other action in respect of a claimed default, the
Company shall forthwith give written notice thereof to all other holders of the
Preferred Shares and/or Conversion Shares at the time outstanding describing
the notice or action and the nature of the claimed default. No course of
dealing and no delay on the part of any holder of any Preferred Shares and/or
Conversion Shares in exercising any right shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies now or hereafter
available by law, in equity, by statute or otherwise.
10.3 Board Control.
(a) In addition to the other rights provided under
Section 10.2, if an Event of Default shall occur relating to (i) the
declaration and payment of dividends on the Preferred Shares, or (ii) the
compliance with the rights of the Investors under Sections 8 or 9 hereof, then
the holders of outstanding Preferred Shares and/or Conversion Shares shall be
entitled to nominate a majority of the number of the authorized members of the
Board of Directors and the Company shall be obligated to see that such nominees
are elected pursuant to the procedures contained in Article Four, Section
B.3(b)(ii) of the Articles of Incorporation, as amended.
(b) If and when the Event of Default ceases to exist,
upon ten (10) days' notice by any shareholder, which notice shall provide
evidence satisfactory to the Board of Directors in its reasonable discretion
that the Event of Default no longer continues to exist, the authorized number
of members of the Board of Directors shall automatically be decreased to such
number existing prior to the increase described in paragraph (a) above, and
each of the members of the Board of Directors of the Company elected pursuant
to the nominations of the holders of the Preferred Shares and/or Conversion
Shares pursuant to paragraph (a) above shall be deemed to have resigned
immediately following the Board of Directors' reasonable and good faith
determination that the Event of Default no longer continues to exist.
SECTION 11
MISCELLANEOUS
11.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Texas.
11.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by an Investor and
the closing of the transactions contemplated hereby; notwithstanding, however,
that the representations and warranties contained in Section 2 shall survive
only for a period of two (2) years after the Closing Date.
11.3 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
22
<PAGE> 28
11.4 Entire Agreement: Amendment. This Agreement and the other
documents delivered pursuant hereto (including those contained in the Exhibits)
at the Closing constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any
such amendment, waiver, discharge or termination is sought; provided, however,
that any provisions hereof may be amended, waived, discharged or terminated
upon the written consent of the Company and the holders of at least a majority
in interest of the then outstanding Preferred Shares and/or Conversion Shares,
taken as a whole.
11.5 Notices and Demands. Any notice or demand which is required
will be deemed to have been sufficiently received (except as otherwise
provided) three (3) days after being sent by certified or registered mail,
postage and charges prepaid, return receipt requested, or one (1) day after
sent by overnight delivery providing receipt of delivery, to the following
addresses: if to the Company at the address as shown on the signature page of
this Agreement, or at any other address designated by the Company to each of
the Investors in writing; if to an Investor, at its mg address as shown on
Exhibit A, or at any other address designated by such Investor to the Company
in writing.
11.6 Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any holder
of a Preferred Share or a Conversion Share, upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of
such holder, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of a Preferred Share or a Conversion Share of any breach
or default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or the other agreements executed in
furtherance of the transactions contemplated hereunder, by law or otherwise
afforded to any party, shall be cumulative and not alternative.
11.7 Expenses. The Company and each Investor agrees to pay its own
respective expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby; provided, however, that the Company
agrees to pay up to a maximum of $15,000, the legal fees and expenses of legal
counsel to the Investors.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Investors,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
23
<PAGE> 29
11.9 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
invalid or unenforceable, the remainder of this Agreement shall continue in
full force and effect, and the invalid or unenforceable provision shall be
modified to the extent necessary to make it valid and enforceable; provided
that no such modification shall be effective if it materially changes the
economic benefit of this Agreement to any party.
11.10 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
24
<PAGE> 30
The foregoing agreement is hereby executed as of the date first above
written.
COMPANY
MEDICAL ALLIANCE, INC.
By: /s/ Paul Herchman
----------------------------------
Paul Herchman
President
Address: 5005 LBJ Freeway
Suite 1370
Dallas, Texas 75244
INVESTORS
MAPLELEAF CAPITAL, LTD.
By: /s/ James Silcock
----------------------------------
Its:
----------------------------------
25
<PAGE> 31
DISCLOSURE SCHEDULES
These Disclosure Schedules are delivered in connection with the Series A
Convertible Preferred Stock Purchase Agreement dated July 10, 1992, among
Medical Alliance, Inc. and certain investors listed therein (the "Investors")
(the "Agreement"). Sections listed below correspond to Sections in the
Agreement. Items disclosed for any Section may be applicable to other Sections
set forth herein and are deemed to be disclosed for all purposes of the
Agreement.
<PAGE> 32
SCHEDULE 2.1
STATES IN WHICH THE PROCESS OF
APPLYING FOR AUTHORITY TO DO BUSINESS
AS A FOREIGN CORPORATION HAS
NOT BEEN COMPLETED
Delaware
Indiana
Kansas
Kentucky
Minnesota
New Jersey
New York
Virginia
Washington, D. C.
Wisconsin
Good Standing Qualification
The Company is presently not in good standing in Texas and Oklahoma,
but is in the process of remedying this situation.
<PAGE> 33
SCHEDULE 2.6
CHANGE IN ASSETS, LIABILITIES,
FINANCIAL CONDITION OR
OPERATING RESULTS SINCE 5/31/92
Ordered 4 electrosurgery generators for a total amount of approximately
$28,000. These have been invoiced, but have not yet been paid.
Ordered 6 hysteroscope units for a total of approximately $180,000. These have
been invoiced, but have not yet been paid.
Increase in equipment financing debt of $25,000 plus accrued interest rolled
over into equipment note.
Professional fees associated with financing transactions ($50,000).
<PAGE> 34
SCHEDULE 2.7
MATERIAL LIABILITIES
(EXCEPTIONS FROM PARAGRAPH 2.7 OF AGREEMENT)
Office sublease for 5005 LBJ Freeway, Suite 1370, Dallas, Texas
Employment agreements
Consulting contracts with Tony Levecchio and Eric Jenkins
Various HMO and insurance contracts
FINANCING AGREEMENTS
APPROXIMATIONS
(EXCLUSIVE OF ACCRUED INTEREST)
AS OF JULY 10, 1992
<TABLE>
<S> <C>
MJ Capital Partners, L.P, 250,000
MJ Capital Corporation 50,000*
HMS Capital Co. 134,000**
Montgomery, Jessup & Co. 25,000
HJM Partners 20,000
Shareholders Subordinated Debt 198,792
Satana Corporation 500,000
Pavillion Bank 40,000
</TABLE>
* Lease Financing
** Advance from entity which has master lease on 5005 LBJ
Freeway, Suite 1370, Dallas, Texas
<PAGE> 35
SCHEDULE 2.8
LISTING OF PROPERTIES AND ASSETS
USED IN OPERATION OF BUSINESS
BUT NOT OWNED BY COMPANY
Office leased premises at 5005 LBJ Freeway, Suite 1370, Dallas
Texas subleased from HJM, a related party, to lease office
space at $2475/mo, 19 mos remaining on least, total obligation
$75,000.
Copy machine, fax machines, telephones, and various office
equipment and furniture rented from HJM Partners. Company is
billed monthly from HJM for prorated use.
Employee cars (owned by individual employees; company
reimburses at a rate of .27/mile for the first 1500 miles
traveled in a month, the remaining mileage being reimbursed at
a rate of .13/mile)
Two (2) mobile laser units including colposcope, smoke
evacuator system and other related equipment leased from MJ
Capital Corporation ($50,000)
LISTING OF PROPERTIES AND ASSETS USED IN
OPERATION OF BUSINESS BUT NOT OWNED BY COMPANY
SUBJECT TO LIENS, PLEDGED OR OTHER ENCUMBRANCE
All mobile laser units including colposcopes, smoke evacuation
systems, electrosurgical generators financed by:
HMS Capital Corporation
MJ Capital Partners, L.P.
All office equipment and furniture subject to liens by MJ
Capital Partners, L.P.
All accounts receivables and company accounts subject to liens
by:
HMS Capital Corporation (limited to $200,000)
Pavillion Bank
All equipment, accounts receivable and corporate accounts
subject to second liens by Satana Corporation
<PAGE> 36
Miscellaneous purchase money and mechanics liens on laser,
electrosurgical generators, hysteroscopy unit purchases or
repairs
Sharplan
Valleylab
Medical Dynamics
Baylor Biomedical
<PAGE> 37
SCHEDULE 2.10
POSSIBLE LITIGATION
Dr. Peter Kelly
Dr. Peter Kelly's patients' account collections and any
related claims which may be related thereto.
<PAGE> 38
SCHEDULE 2.11
KEY EMPLOYEES
Stephen Bender* Chris Lewis*
Cynthia Canales Todd Miller*
Todd Brading* Tony Mitchell*
Scott Carroll* Kevin O'Brien*
Kent DeLozier* Tom Panek*
Lance Everson* John Pircher*
Jay Farris* Elena Porras
Matt Gasque* Leslie Roark
Jim Graham* Mark Rubino*
Carrie Grizzle Andy Schlehr*
Kathryn Heffernan Mike Sims*
Paul Herchman* Cheri Stephens
Clyde Hutchinson* Bill Stover*
Andy Touchette* Rod Turbyfill*
John Twomey* Dan Walsh*
John Wegforth*
Board of Directors: Management:
Paul Herchman Paul Herchman
Tom Montgomery Kevin O'Brien
Leon Pritzker Jay Farris
David Kallenberger Bill Stover
Ed Taylor Cynthia Canales
Marc Johnson Kathryn Heffernan
Morris Moreland
*indicates employee agreements
<PAGE> 39
SCHEDULE 2.12
REGISTRATION RIGHTS
Satana Corporation pursuant to the Satana Warrant
<PAGE> 40
SCHEDULE 2.14
REAL PROPERTY LEASES
Sublease from HJM Partners, a related party, to lease office space located at
5005 LBJ Freeway, Suite 1370, Dallas, Texas for $2475/mo., 19 mos. remaining on
lease, total obligation $75,000.
Lease storage space from Marsh Lane Storage Center, located at 2771 Oak Tree
Drive, Carrollton, Texas for one year, total obligation $500.
<PAGE> 41
SCHEDULE 2.15
MATERIAL CONTRACTS AND COMMITMENTS
Agreement (not written) with SAI for instrument sales
Consulting agreements with:
Tony Levecchio
Eric Jenkins
Kristal Carringer
Service contracts as provided for on all laser units with various
equipment manufacturers
Distribution agreements with various equipment manufacturers and
sellers
Physician contracts
HMO contracts
PPO contracts
Employment Agreements [See Schedule 2.11]
Financing Agreements [See Schedule 2.7]
<PAGE> 42
SCHEDULE 2.18
INSURANCE
The Company does not currently carry the following types of coverage,
but may carry such coverage in the future.
Liability insurance on directors and officers
Workman's Comp insurance
It is the policy of the Company not to maintain professional liability
(malpractice) insurance. This policy in based upon our conclusions
that: (1) we do not qualify for professional liability insurance since
we are not providing services to a patient that requires a
professional license; (2) because of our independent contractor status
to the physicians who use our equipment, we have no vicarious
liability in the event of professional malpractice by the physician,
his employees or agents; (3) we have an indemnity agreement with all
physicians in which they agree to indemnify us for physician
negligence or the negligence of physician's agents or employees; (4)
we only purchase equipment from companies maintaining product
liability insurance and (5) we have a right to common law indemnity
from the manufacturer in the event a product defect leads to an injury
of any of physician's patients (this common law indemnity being based
upon a "pass through product" theory).
<PAGE> 43
SCHEDULE 2.20
USE OF FUNDS
<TABLE>
<S> <C>
$225,000 pay down of existing debt, trade accounts,
and accrued interest
$475,000 working capital reserves, equipment down
payments, and general corporate purposes.
$50,000 Transaction expenses.
</TABLE>
<PAGE> 44
SCHEDULE 2.24
ADDITIONAL DISCLOSURE
Potential for a patient to sue Sharplan for faulty equipment, Sharplan
being the supplier of the equipment used on this patient.
<PAGE> 45
[LASER SUPPORT SERVICES, INC. LETTERHEAD]
July 9, 1992
Mr. Tom Paulino, Head Technician In-House
Sharplan Lasers, Inc.
One Pearl Court
Allendale, NJ 07401
Dear Tom:
As we discussed today, I have sent you a copy of the letter I received by
certified mail from Dr. Jacqueline Brown in Houston.
I reported the incident to Doug Mead on June 30, 1992, and he informed me he
would call Dr. Brown to determine if an accident occurred and send me a letter
stating what action would be taken. I need this from Doug to complete our
file.
Please inform me and Dr. Brown as to the outcome of your investigation, and the
repair of the malfunctioning foot pedal. Also, please let me know of your
follow-up actions with Dr. Brown.
Thank you for your attention to this matter.
Sincerely,
Paul Herchman
President
PH:cs
<PAGE> 46
[TOTAL WOMAN HEALTH CARE CENTER LETTERHEAD]
Laser Support Services Incorporated
5005 LBJ Freeway, Suite 1370
Dallas, TX 75244
ATTN: TODD MILLER
DISTRICT MANAGER
Dear Mr. Miller:
This letter is to confirm a conversation that I had with Mr. Doug Mead
of Sharplan Lasers in which I related the incident surrounding the
malfunctioning of unit number 48 in conjunction with treating Lucy Ancira in my
office. The patient was being treated for cervical dysplasia and human
papilloma virus in the cervical canal. The method of treatment was laser
vaporization of the cervix. At the time of the malfunctioning, the cervix had
been vaporized with a setting of 15 watts continuous. I completed the
vaporization of the cervix to a depth of 5 millimeters and at the last use of
the laser, the beam continued to fire after releasing my foot from the foot
pedal. The patient began to express a burning sensation in the vaginal area
and I immediately grabbed the moistened proctal swab which had been soaked with
acetic acid to buffer the beam from the patient. The laser, however, continued
to fire and it was obvious that in order to prevent serious injury of the
patient, the beam would have to be directed away from the patient. The beam
was then removed from the vagina and directed toward the table. At this time a
matter of seconds, 10-15 seconds, Mr. Turbyfill was able to disconnect the
laser in order to shut off the beam. It was observed, however, that the
patient had a very superficial burn of the right inner thigh, an well as a
small punctate burn of the left buttock. In addition, the examination table
had several holes burned in the table as a result of the laser continuing to
fire.
After assuring and re-examining the patient to make sure that there
were no other injuries, the equipment was rechecked and appeared to be in
perfect operation. It is a complete mystery as to why the footswitch
malfunctioned, however, the machine appeared to be functioning well during the
majority of this case, as well as during a previous case in which we used this
same instrument. I am writing to request that this incident be further
investigated and that the unit be evaluated as well as the technician present
during the operation be questioned. This was a very serious malfunction and
could have possibly caused irreparable damage to the patient, as well as to
other persons present in the room during operation of this equipment. Please
inform me of the outcome of your investigation, as well as to the possibility
of this malfunction reoccurring. Thank you very much for your cooperation.
Sincerely,
Jacqueline Brown, M.D.
<PAGE> 47
SCHEDULE 2.25
LIST OF SEVENTEEN (17) LARGEST CUSTOMERS
FOR FIVE MONTH PERIOD ENDED MAY 31, 1992
Dr. Stephen England
Dr. Franklin Polun
Dr. Linda Tucker
Dr. Japzon Rebandel
Dr. R. Sklar
Dr. Richard Kauffman
Dr. Ray Moeller
Dr. Theodore Liebman
Dr. George Ahlering
Dr. Steven Bigg
Dr. Dixie Dooley
Dr. Geoffrey Engel
Dr. Charles Lakin
Dr. Resneder
Dr. Yogendra Shah
Dr. Sherwood
Dr. Paul Benson
<PAGE> 48
SCHEDULE 2.26
LIST OF VENDORS WHICH HAVE SUPPLIED
TO THE COMPANY EQUIPMENT OR SERVICE
VALUED IN EXCESS OF $10,000.00
FOR THE FIVE MONTH PERIOD ENDED MAY 3l, 1992
Montgomery, Jessup
Precision Medical
Valleylab
Sharplan
CLASS
Employers Health Insurance
Medical Dynamics
Baylor Biomedical
U.S. Postmaster
Epoch Solutions
American Airlines
<PAGE> 49
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
LASER SUPPORT SERVICES, INC.
__________________
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act (the "Act"), Laser Support Services, Inc., a corporation
organized and existing under the laws of the State of Texas, hereby adopts the
following Articles of Amendment to its Articles of Incorporation and
DOES HEREBY CERTIFY:
FIRST: The name of the corporation is Laser Support Services, Inc.
SECOND: That the shareholders of the corporation have duly adopted
effective June 30, 1992, the following amendments amending its Articles of
Incorporation as follows:
RESOLVED, that Article One of the Articles of Incorporation be amended
to change the name of the corporation to "Medical Alliance, Inc.," and such
Article One as amended, shall read in its entirety as follows:
ARTICLE ONE
The name of the corporation is MEDICAL ALLIANCE, INC.
RESOLVED, that Article Four of the Articles of Incorporation of the
corporation be amended in its entirety to (i) increase the authorized number of
shares of common stock of the corporation to 10,000,000, and to create a new
class of stock to be designated "Preferred Stock", (ii) provide the Board of
Directors the power to fix the rights of and issue from time to time one or
more series of Preferred Stock, (iii) provide the preferences, voting powers,
qualifications, special or relative rights of a series of Preferred Stock, the
"Series A Convertible Preferred Stock", (iv) decrease the par value of the
common stock of the corporation and (v) effect a stock split of all of the
common stock of the corporation, including any shares of common stock that may
be purchased pursuant to any outstanding options to purchase common stock, in
the ratio of 10 to 1, and such Article Four as amended, shall read in its
entirety as follows:
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<PAGE> 50
ARTICLE FOUR
A. The aggregate number of shares that the Corporation
shall have authority to issue is 12,000,000 shares. Such shares shall
be issued in two classes of stock to be designated "Preferred Stock",
which may be issued from time to time in one or more series, and
"Common Stock", respectively. The number of shares of Preferred Stock
authorized is 2,000,000 shares, having a par value of $.002 per share.
The number of shares of Common Stock authorized is 10,000,000 shares,
having a par value of $.002 per share.
Preferred Stock may be issued in one or more series as may be
determined from time to time by the Board of Directors. All shares of
any one series of Preferred Stock will be identical except as to the
date of issue and the dates from which dividends on shares of the
series issued on different dates will cumulate, if cumulative.
Authority is hereby expressly granted to the Board of Directors to
authorize the issuance of one or more series of Preferred Stock, and
to fix by resolution or resolutions providing for the issue of each
such series the voting powers, designations, preferences, and
relative, participating, optional, redemption, conversion, exchange or
other special rights, qualifications, limitations or restrictions of
such series, and the number of shares in each series, to the full
extent now or hereafter permitted by law.
B. The corporation is authorized to issue 435,000 shares
of "Series A Convertible Preferred Stock (the "Series A Stock"). The
preferences, voting powers, qualifications, special or relative rights
or privileges of the shares of Series A Stock are as follows:
1. Dividends.
(a) Each share of Series A Stock will have the right to
receive, in preference to the holders of the Common Stock or any other
junior stock, cumulative dividends equal to $0.20 per annum. The
Board of Directors shall declare such dividends at an appropriate
meeting, and such dividends shall be due and payable annually to the
holders of the Series A Stock on June 30 of each year beginning June
30, 1993 (each a "Dividend Payment Date"). The dividends payable to
the holders of the Series A Stock shall be cumulated so that if on any
Dividend Payment Date full dividends upon the outstanding Series A
Stock shall not have been paid in accordance with the provisions of
this paragraph, then the deficiency shall be declared and paid, or set
apart for payment, before any dividends shall be declared and paid, or
set apart for payment, upon the Common Stock, or any junior stock.
Any dividends not declared or paid to holders of
Series A Stock when due, because the corporation lacks the legal
surplus and the use of corporate funds for payment of the dividend
would result in liability of directors or officers of the corporation,
or because the use of the corporate funds for payment of such
dividends is otherwise prohibited by law, shall remain payable until
such time that
2
<PAGE> 51
the corporation shall have the legal surplus to pay such dividends.
At the time the corporation shall have such legal surplus, the
dividends shall become immediately due and payable.
(b) The corporation shall not declare or pay any dividend
on shares of Common Stock before June 30, 1994. On or after June 30,
1994, the corporation may (if the corporation has paid all dividends
due to holders of Series A Stock pursuant to paragraph (a) of this
Section 1) declare and pay dividends on the shares of Common Stock;
such dividends, however, shall not on a per share basis, except as
provided in this paragraph (b), exceed the per share dividends accrued
and paid to the Series A Stock (calculated on a per share Common Stock
equivalent basis) after such date; and holders of shares of Series A
Stock shall not be entitled to such dividend payable on shares of
Common Stock upon conversion of such shares of Series A Stock if the
equivalent dividend has already been paid on the shares of Series A
Stock. Any dividend declared and paid by the corporation in excess of
the dividend described in the preceding sentence shall be paid in
equal amounts on each share of Common Stock and Series A Stock (on a
per share Common Stock equivalent basis).
2. Liquidation, Dissolution or Winding Up.
(a) If any liquidation, dissolution or winding up of the
corporation occurs (a "Liquidation"), whether voluntary or
involuntary, the holder of each share of Series A Stock outstanding
will be entitled to be paid out of the assets of the corporation
available for distribution to shareholders an amount equal to $2.00
per share of Series A Stock, plus any accrued but unpaid dividends
(whether declared or not) on such share (the "Preferential
Distribution") before any payment may be made to the holders of any
class of stock ranking junior to the Series A Stock on liquidation.
If the assets to be distributed to the holders of the Series A Stock
under the previous sentence are insufficient to permit payment of the
full Preferential Distribution, then all of the assets of the
corporation available for distribution to the shareholders of the
corporation will be distributed to such holders pro rata, based upon
the ratio that the number of shares of Series A Stock held by such
holder bears to the total number of shares of Series A Stock then
outstanding. After the Preferential Distribution has been made to
such holders, or funds necessary for such payment have been set aside
by the corporation in trust for payment to such holders, any assets
remaining for distribution will be distributed to the holders of the
Common Stock or other stock junior to the Series A Stock.
(b) If assets other than cash are to be distributed to
the holders of the Series A Stock, the Board of Directors will first
determine the value of any non-cash assets for such purpose, and will
notify all holders of shares of Series A Stock of its determination.
The value of such assets for purposes of the distribution will be
determined by the Board of Directors in good faith, unless the holders
of a majority of the outstanding shares of Series A Stock object in
writing to the corporation within 15 days after the date of such
notice. If an objection
3
<PAGE> 52
occurs within such period, the valuation of assets for purposes of
distribution will be determined by appraisal in which (i) the
objecting, shareholders name in their notice one appraiser, (ii) the
Board of Directors by a majority vote names a second appraiser within
15 days from the receipt of such notice, (iii) the two appraisers then
select a mutually acceptable third appraiser, and (iv) the three
appraisers determine the valuation of such assets by majority vote, or
if no majority concurs, then the appraisal which is neither the
highest nor lowest will be binding. If the valuation as determined by
the Board of Directors is not less than ninety-five percent (95%) of
valuation as determined by the appraisers as indicated above, the
holders of the Series A Stock will pay the costs of the appraisers,
and otherwise, the corporation will bear the costs of the appraisal.
(c) A consolidation or merger of the corporation (except
as explained below) or a sale of all or substantially all of the
assets of the corporation will be regarded as a Liquidation within the
meaning of this Section 2, although each holder of Series A Stock will
have the right to elect treatment under Section 4(i) in lieu of
receiving payment in Liquidation under this Section 2. A sale of
substantially all of the assets of the corporation will mean the sale
or other disposition of more than a majority of the value of such
assets, based upon the fair market value of such assets.
3. Voting Power.
(a) Unless otherwise stated or as required by law, the
holder of each share of Series A Stock will be entitled to vote on all
matters with the Common Stock as a single class, and not as a separate
class or series. Each share of Series A Stock will entitle the holder
to the number of votes per share equal to the full number of shares of
Common Stock into which each share of Series A Stock is convertible on
the record date for such vote. The holders of the Series A Stock
shall receive notice of and shall be entitled to attend in person or
by proxy any meeting of shareholders.
(b) (i) Until the earlier of: (A) a Qualified Public
Offering (as defined in Section 4(b)(i) below); or (B) less
than 50,000 shares of Series A Stock are outstanding, the
holders of the Series A Stock shall be entitled, voting as a
single class, to elect one director of the corporation.
(ii) (A) If the corporation has not (I)
completed a Qualified Public Offering, or (II) provided the
holders of Series A Stock with an opportunity to sell the
Series A Stock in a bona fide transaction which would result
in the per share proceeds as provided in Section 6.8(g) of the
Series A Convertible Preferred Stock Purchase Agreement dated
as of July 10, 1992 (the "Preferred Stock Purchase
Agreement"), or (III) repurchased the Series A Stock pursuant
to the terms of Section 9 of the Preferred Stock Purchase
Agreement (or attempted to repurchase the Series A Stock and
the holder of such shares did not accept such offer pursuant
to Section 9), then the holders of the Series A Stock, if any,
on
4
<PAGE> 53
and after July 15, 1998, shall be entitled to elect a majority
of the members of the Board of Directors. If and when the
rights of the holders of Series A Stock pursuant to this
paragraph become operative, the authorized number of members
of the Board of Directors of the corporation shall
automatically be increased to the extent necessary to
establish the number of members of the Board of Directors at a
number that would permit the holders of Series A Stock to
elect a majority. Whenever such right of the holders of the
Series A Stock shall become operative, such right shall be
exercised initially either at a special meeting of the holders
of the Series A Stock called for that purpose or at any annual
meeting of shareholders held for the purpose of electing
directors, and thereafter at all annual meetings until such
right terminates.
(B) At any time at which the voting
rights of the holders of the Series A Stock provided above in
paragraph (A) shall have become operative and not have been
exercised, the holders of the Series A Stock may designate the
additional members of the Board of Directors by a written
consent of a majority of such holders.
(C) Upon termination of the right of the
holders of the Series A Stock to vote for directors provided
in paragraph (A) (due to the fact that there are no shares of
Series A Stock then outstanding), the term of office of any
director then in office elected by the Series A Stock pursuant
to paragraph (A) shall terminate immediately and the
authorized number of members of the Board of Directors shall
automatically be decreased to such number existing prior to
the increase described in paragraph (A) above. If the office
of any director elected by the holders of the Series A Stock
pursuant to paragraph (A) becomes vacant by reason of death,
resignation, retirement, disqualification, removal from office
or otherwise, then the procedure provided for in the
immediately preceding paragraph shall be used to fill the
vacancy.
(D) The Bylaws of the corporation shall
automatically be deemed amended from time to time to provide
for the increase in the maximum authorized number of members
of the Board of Directors and for the election procedure as
provided by hereof.
(iii) In electing the directors to be elected by
the holders of the Series A Stock, each holder of such stock
shall have one vote for each share thereof held. Any director
elected by the holders of the Series A Stock pursuant to the
provisions of this paragraph (b) of Section 3 may be removed
at any time, with or without cause, only by the affirmative
vote of the holders of a majority of the shares of Series A
Stock then issued and outstanding. If any vacancies occur in
the Board of Directors of the corporation by reason of the
death, resignation, retirement, disqualification or removal
from office or otherwise of any director elected by the
holders of the Series A Stock pursuant to this paragraph
5
<PAGE> 54
(b), then the holders of the Series A Stock shall elect a
successor and the director so chosen shall hold office until
the next annual election of directors and until his successor
shall have been duly elected and qualified, unless sooner
displaced.
(c) In addition to the voting rights granted in
paragraphs (a) and (b) of this Section 3, as long as at least 50,000
shares of Series A Stock are outstanding, the holders of the Series A
Stock will be entitled to vote as a class separately from all other
classes of stock of the corporation, and an affirmative vote of the
holders of a majority of the shares of the Series A Stock then
outstanding will be required for shareholder approval, on the
following matters:
(i) Authorizing or issuing any additional shares
of Series A Stock, or other equity security that is senior to
the Series A Stock as to liquidation preferences, redemption
preferences, dividend rights or voting rights, or that is on
parity with the Series A Stock as to dividend rights or voting
rights (that have been specifically provided to (A) holders of
Series A Stock in these Articles of Incorporation, (B)
Investors pursuant to the terms of the Preferred Stock
Purchase Agreement or (C) Mapleleaf pursuant to the terms of
the Amended and Restated Stock Buy and Sell Agreement dated as
of July 10, 1992), provided, however, that similar voting
rights may be granted to other holders of equity securities so
long as such rights do not interfere with or change the
aforementioned voting rights; or authorize or create any
shares of any other class or series or any warrants, bonds,
debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase any shares of
the corporation having any such preference;
(ii) Reclassifying the shares of Common Stock, or
any other shares of stock hereafter created which are junior
to the Series A Stock, into shares of Series A Stock or into
shares having preference or priority senior to the Series A
Stock, or on parity with the Series A Stock as to dividend
rights or voting rights (except to the extent provided in (i)
above);
(iii) Amending or repealing any provision of these
Articles of Incorporation if such action would adversely
change the designations, relative rights and preferences of
the Series A Stock under these Articles of Incorporation; or
(iv) Authorizing any merger or consolidation of
the corporation with or into any other corporation or entity,
authorize the sale of substantially all of the assets of the
corporation (as such term is defined in Section 2, above)
except a Qualified Sale, or authorize any other type of
voluntary Liquidation, except in a transaction with a
wholly-owned subsidiary of the corporation in which the Series
A Stock survives with the same rights and privileges as are
currently existing.
6
<PAGE> 55
4. Conversion. The holders of the Series A Stock will
have the following conversion rights:
(a) Any shares of the Series A Stock may, at the option
of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common
Stock issuable upon conversion will be the product obtained by
multiplying the Applicable Conversion Rate (as determined under
Section 4(d), below) by the number of shares of Series A Stock being
converted.
(b) (i) Each share of Series A Stock outstanding will
automatically be converted into Common Stock (based upon the
Applicable Conversion Rate in effect at that time)
simultaneously with the closing of an underwritten public
offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock with an aggregate selling price (before
deducting underwriting discounts and commissions) of at least
$10.0 million at a per share price of at least $7.00 (subject
to adjustment for intervening stock splits, stock dividends
and the like) (a "Qualified Public Offering").
(ii) If the public offering specified in Section
(4)(b)(i) occurs, the outstanding shares of Series A Stock
will be converted automatically without any further action by
the holders of such shares, whether or not the certificates
representing such shares are surrendered to the corporation or
its transfer agent. The corporation will not be obligated to
issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing
the Series A Stock are either delivered to the corporation or
any transfer agent, or the holder notifies the corporation or
any transfer agent that such certificates have been lost,
stolen or destroyed, and executes an agreement satisfactory to
the corporation to indemnify the corporation from any loss
incurred by it in connection with such issuance.
(c) Upon the conversion of the Series A Stock pursuant to
either Section 4(a) or 4(b), any accrued but unpaid dividends (whether
declared or not) shall be immediately due and payable by the
corporation. Any amount of dividends unpaid by the corporation on the
date of such conversion shall thereafter bear interest at
NationsBank's base rate (or other rate comparable to the prime rate),
adjusted on the first day of each calendar quarter, until fully paid.
(d) The conversion rate in effect at any time (the
"Applicable Conversion Rate") will equal the quotient obtained by
dividing $2.00 by the Applicable Conversion Value, calculated as
provided below.
(e) The Applicable Conversion Value in effect initially
will be $2.00.
7
<PAGE> 56
(f) After July 10, 1992, in each of the events specified
in this Section 4(f), the Applicable Conversion Value will
simultaneously be adjusted by dividing the Applicable Conversion Value
then in effect by a fraction, the numerator of which will be the
number of shares of Common Stock outstanding immediately after the
specified event, and the denominator of which will be the number of
shares of Common Stock outstanding immediately prior to the specified
event, and the quotient so obtained will then be the Applicable
Conversion Value: (i) issuing additional shares of the Common Stock as
a dividend or other distribution on outstanding Common Stock, (ii)
subdividing outstanding shares of Common Stock into a greater number
of shares of the Common Stock, or (iii) combining outstanding shares
of the Common Stock into a smaller number of shares of the Common
Stock.
(g) If the corporation at any time while there are any
shares of Series A Stock outstanding issues any shares of Common Stock
or securities convertible into Common Stock ("Additional Common
Shares") other than adjusted under Section 4(f) or as permitted below,
at a price per share less than the Applicable Conversion Value in
effect immediately prior to such issuance, then (i), if the issuances
occur on or before December 31, 1993, the Applicable Conversion Value
will be reduced to the issuance price of the Additional Common Shares
and (ii), if the issuance occurs after December 31, 1993, the
Applicable Conversion Value will be reduced to an amount determined by
multiplying the Applicable Conversion Value by a fraction (a) the
numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale, plus (2) the
number of shares of Common Stock. that the aggregate consideration
received by the corporation for the total number of Additional Common
Shares so issued would purchase at such Applicable Conversion Value
and (b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue or sale plus
the number of such Additional Common Shares so issued. The issuance
of Additional Common Shares for consideration above the then
Applicable Conversion Value will not increase the Applicable
Conversion Value.
The following will not be considered issuances of Additional
Common Shares:
(i) the issuance of Common Stock upon conversion
of Series A Stock or as a dividend or distribution on the
Series A Stock;
(ii) the corporation's issuance of up to an
aggregate of (a) 150,000 shares of Common Stock or options to
purchase Common Stock, on or before December 31, 1993, or (b)
up to an aggregate of twelve percent (12%) of the Common Stock
(including options to purchase Common Stock) on a then fully
diluted basis, at any time after December 31, 1993 (including
shares issuable under options outstanding on the date hereof
and those shares under (g)(ii)(a)), to employees or
consultants of the corporation upon the exercise of rights
under an employee stock purchase or option plan or other
contracts or arrangements approved by
8
<PAGE> 57
the Board of Directors of the corporation (the "Option
Shares"). The 150,000 shares of Common Stock described in
this paragraph will be subject to appropriate adjustment for
any unissued shares if any event specified in Section 4(f)
occurs, and any such increases will not be considered to be
Additional Common Shares;
(iii) the issuance of Common Stock upon the
exercise of options and warrants of the corporation
outstanding as of July 10, 1992;
(iv) the issuance of Common Stock for which an
appropriate adjustment has already been made under Section
4(f); and
(v) the issuance of Series A Stock upon the
exercise of the Investors Warrants (as hereinafter defined).
The holders of a majority of the shares outstanding of Series
A Stock may also determine that other issuances of Common Stock will
not be considered as the issuance of Additional Common Shares.
If any part of the consideration received by the corporation
for the issuance of Common Stock consists of property other than cash,
such consideration will have the same value as recorded on the books
of the corporation for the receipt of such property, as long as such
value was determined reasonably and in good faith by the Board of
Directors and appropriate notice and opportunity for objection
(comparable to the notice and objection procedure outlined in Section
2(b)) is provided to the holders of the shares of Series A Stock.
For the purpose of this Section 4(g), the issuance of any
warrants (except the Warrants to purchase up to 60,000 shares of
Series A Stock dated July 10, 1992 issued to certain Holders (as that
term is defined in the Warrants) (the "Investors Warrants")), options
(except the options exercisable into Option Shares) or other
subscription or purchase rights for shares of Common Stock and the
issuance of any securities convertible into shares of Common Stock (or
the issuance of any warrants, options or any rights with respect to
such convertible securities) (except for the issuance of Series A
Stock upon exercise, in whole or in part, of the Investors Warrants)
will be considered an issuance of Common Stock at such time if the Net
Consideration Per Share that may be received by the corporation for
such Common Stock (as hereinafter determined) is less than the
Applicable Conversion Value at the time of such issuance and, except
as otherwise provided, an adjustment in the Applicable Conversion
Value will be made as provided in this Section 4(g) as if such Common
Stock were issued at such Net Consideration Per Share. No adjustment
of the Applicable Conversion Value shall be made under this Section
4(g) upon the issuance of any additional shares of Common Stock that
are issued on the exercise of any warrants, options or other
subscription or purchase rights or on the exercise of any conversion
or exchange rights in any convertible securities if an adjustment
previously has been
9
<PAGE> 58
made on the issuance of such warrants, options or other rights. Any
adjustment of the Applicable Conversion Value with respect to this
paragraph will be disregarded if the rights to acquire shares of
Common Stock upon exercise or conversion of the warrants, options,
rights or convertible securities giving rise to such adjustment expire
or are canceled without having been exercised (to the extent of the
number of shares covered by those rights expired or canceled), so that
the Applicable Conversion Value effective immediately upon such
cancellation or expiration will be equal to the Applicable Conversion
Value in effect immediately prior to the time of the issuance of the
expired or canceled warrants, options, rights or convertible
securities, with such additional adjustments as would have been made
to that Applicable Conversion Value had the expired or canceled
warrants, options, rights or convertible securities not been issued.
If the terms of any warrants, options, other subscription or purchase
rights or convertible securities previously issued by the corporation
are changed to change the Net Consideration Per Share payable or the
number of shares of Common Stock issuable thereunder, the Applicable
Conversion Value will be recomputed as of the date of the change to
give effect to such change. For purposes of this paragraph, the Net
Consideration Per Share that may be received by the corporation will
mean the total amount of consideration, if any, received by the
corporation for the issuance of such warrants, options, rights of
convertible securities, plus the minimum amount of consideration, if
any, payable to the corporation upon exercise or conversion, divided
by the aggregate number of shares of Common Stock that would be issued
if all such warrants, options, subscriptions, or other purchase rights
or convertible securities were exercised or converted at such Net
Consideration Per Share.
(h) If the Common Stock issuable upon the conversion of
the Series A Stock is changed into the same or different number of
shares of any class or classes of stock (other than a subdivision or
combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 4), then the holder of each share of Series
A Stock will have the right to convert such share into the shares of
stock and other property receivable by holders of the number of shares
of Common Stock into which such shares of Series A Stock might have
been converted immediately prior to such reclassification or change.
(i) If at any time a capital reorganization (other than a
subdivision, combination, reclassification or exchange of shares
provided for in Section 4(h)), a merger or consolidation involving the
corporation, or the sale of all or substantially all of the
corporation's properties and assets to any other person occurs, then
the holders of the Series A Stock will have the right to receive upon
conversion of the Series A Stock the number of shares of stock or
other property of the corporation (or of the successor corporation)
which a holder of Common Stock would have the right to receive on such
event. In that event, each holder of Series A Stock will have the
option of electing treatment under either this Section 4(i) or Section
2(c), above, notice of which election must be submitted by the holder
in writing to the corporation at its principal offices no later than
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fifteen (15) days after the date of the corporation's notice of such
event, which will notify the holder of such alternative. If the
corporation is the surviving entity in a capital reorganization or
merger, or if the shareholders of the corporation hold a majority of
the outstanding capital stock of the surviving corporation following
such consolidation or merger, then the holders of the Series A Stock
shall have the right to continue as holders of Series A Stock having
rights and preferences as nearly comparable to those rights held prior
to the reorganization or merger as practicable.
(j) If an adjustment of the Applicable Conversion Rate
occurs, the corporation will furnish each holder of Series A Stock
with a certificate, prepared by the chief financial officer of the
corporation, showing such adjustment and explaining the facts upon
which such adjustment is based. No adjustment will be made for
amounts less than one cent per share, although any adjustment not made
due to this sentence will be taken into account on any subsequent
adjustment.
(k) To exercise the conversion privilege, a holder of
Series A Stock must surrender the certificate or certificates
representing the shares being converted to the corporation at its
principal office along with written notice requesting conversion. The
certificate or certificates for shares of Series A Stock surrendered
must be accompanied by proper assignment to the corporation or in
blank. The date when both such written notice and certificate(s) are
received by the corporation (or the date of an automatic conversion,
as discussed below) will be the "Conversion Date." As promptly as
practicable after the Conversion Date, the corporation will issue and
deliver to the holder of the shares of Series A Stock being converted,
a certificate or certificates for the number of full shares of Common
Stock issuable upon the conversion of Series A Stock. In the case of
an optional conversion by a holder, such conversion will be effective
immediately prior to the close of business on the Conversion Date, and
at such time the rights of the holder as holder of Series A Stock will
cease, and such holder will become the record holder of Common Stock.
In the case of an automatic conversion pursuant to Section 4(b)(i)
above, such conversion shall be deemed to have been made immediately
upon the consummation of such event and at such time the rights of the
holder as holder of Series A Stock will cease, and such holder will
become the record holder of Common Stock.
(l) No fractional shares of Common Stock or scrip
representing fractional shares will be issued upon conversion of
Series A Stock. Instead of any fractional shares of Common Stock, the
corporation will pay to the holder of the shares of Series A Stock
which were converted a cash adjustment for such fraction equal to the
equivalent market price for such fractional share (as determined in a
manner prescribed by the Board of Directors) at the close of business
on the Conversion Date.
(m) If some but not all of the shares of Series A Stock
represented by a certificate surrendered by a holder are converted,
the corporation will deliver
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<PAGE> 60
to the holder a new certificate representing the number of shares of
Series A Stock that were not converted.
(n) The corporation will at all times reserve and keep
available out of its authorized but unissued shares of Common Stock
such number as are sufficient to permit the conversion of all
outstanding shares of the Series A Stock, and if the number of
authorized but unissued shares of Common Stock will not be sufficient
to permit the conversion of all then outstanding shares of the Series
A Stock, the corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common
Stock to the required number of shares.
5. No Reissuance of Series A Stock. No share or shares
of the Series A Stock acquired by the corporation may be reissued as
shares of Series A Stock.
6. Notices of Record Date. Unless a longer period of
notice is required under applicable statute, if (a) the corporation
establishes a record date to determine the holders of any class of
securities who are entitled to receive any dividend or other
distribution, or (b) any capital reorganization of the corporation,
any reclassification or recapitalization of the capital stock of the
corporation, any merger or consolidation of the corporation, and any
transfer of all or substantially all of the assets of the corporation
to any other entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the corporation occurs, the
corporation will mail to each holder of Series A Stock at least twenty
(20) days prior to the record date a notice specifying (i) the date of
such record date for the purpose of such dividend or distribution and
a description of such dividend or distribution, (ii) the date on which
any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become
effective, and/or (iii) the time, if any, when the holders of record
of Common Stock (or other securities) will be entitled to exchange
their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding
up.
FURTHER RESOLVED, that Article Six of the Articles of Incorporation of
the corporation be amended in its entirety to provide for the limitation of
preemptive rights held by the corporation's shareholders, and the full text of
the new Article Six is as follows:
ARTICLE SIX
No shareholder of this corporation shall, by reason of his
holding shares of any class of stock of this corporation, have any
preemptive or preferential right to purchase or subscribe for any
shares of any class of stock of this corporation, now or hereafter to
be authorized, or any notes, debentures, bonds or other securities
convertible into or carrying options, warrants or rights to purchase
shares of any class, now or hereafter to be authorized, whether or not
the issuance of any such shares or such notes, debentures, bonds or
other securities
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<PAGE> 61
would adversely affect the dividend or voting rights of any such
shareholder, other than such rights, if any, as the Board of
Directors, at its discretion, from time to time may grant, and at such
price as the Board of Directors at its discretion may fix; and the
Board of Directors may issue shares of any class of stock of this
corporation or any notes, debentures, bonds or other securities
convertible into or carrying options, warrants or rights to purchase
shares of any class without offering any such shares of any class or
such notes, debentures, bonds or other securities either in whole or
in part to the existing shareholders of any class. This provision
shall not impair contractual rights granted by the Board of Directors
of the corporation.
FURTHER RESOLVED, that Article Ten of the Articles of Incorporation be
amended in its entirety to provide for the full protection from liability of
the Directors for taking certain action on behalf of the corporation, as
permitted by Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act,
as amended, and the full text of the new Article Ten is as follows:
ARTICLE TEN
Pursuant to Article 1302-7.06, Texas Miscellaneous Corporation
Laws Act, as amended, no member of the Board of Directors of the
corporation shall be liable, personally or otherwise, in any way to
the corporation or its shareholders for monetary damages caused in any
way by an act or omission occurring in the director's capacity as a
director of the corporation, except as otherwise expressly provided by
Article 1302-7.06B, as amended.
FURTHER RESOLVED, that the Articles of Incorporation be amended by
adding a new Article Twelve to provide indemnification of, advancement of
expenses to, and maintenance of insurance for, certain persons as permitted by
Article 2.02-1 of the Act, and the full text of the new Article Twelve is as
follows:
ARTICLE TWELVE
The Board of Directors of the corporation, in its sole
discretion, shall have the power, on behalf of the corporation, to
indemnify persons for whom indemnification is permitted by Article
2.02-1 of the Texas Business Corporation Act (the "Act"), as amended,
to the fullest extent permissible under Article 2.02-1 of the Act, as
amended, and may purchase such liability indemnification and/or other
similar insurance as the Board of Directors from time to time shall
deem necessary or appropriate, in its sole discretion.
The corporation may purchase and maintain liability,
indemnification and/or other similar insurance on behalf of itself,
and/or for any person who is or was a director, officer, employee or
agent of the corporation or who is or was serving at the request of
the corporation as a director, officer, trustee, employee, agent or
similar functionary of another foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee
benefit plan or
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<PAGE> 62
other enterprise, against any liability asserted against and/or
incurred by the corporation or person serving in such a capacity or
arising out of his/her/its status as such a person or entity, whether
or not the corporation would otherwise have the power to indemnify
such person against that liability.
The power to indemnify and/or obtain insurance provided in
this Article Twelve shall be cumulative of any other power of the
Board of Directors and/or any rights to which such a person or entity
may be entitled by law, the Articles of Incorporation and/or Bylaws of
the corporation, contract, other agreement, vote or otherwise.
AND FURTHER RESOLVED, that the Articles of Incorporation be amended by
adding a new Article Thirteen to provide that action that is required by the
Act to be taken at an annual or special meeting of the shareholders may be
taken without such meeting, and the full text of the new Article Thirteen is as
follows:
ARTICLE THIRTEEN
Any action required by the Act to be taken at any annual or
special meeting of the shareholders of the corporation, and/or any
action that may be taken at any annual or special meeting of the
shareholders of the corporation, may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of
votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were
present and voted. Such action shall be taken in accordance with the
provisions of Article 9.10.A of the Act, as amended.
THIRD: The number of shares of the corporation outstanding at the
time of such adoption was 113,634 shares of Common Stock. The number of shares
of Common Stock entitled to vote thereon was 113,634.
FOURTH: The holders of all of the shares outstanding and entitled to
vote on said amendment have signed a written consent pursuant to Article 9. 10
adopting said amendment and any written notice required by Article 9.10 has
been given.
FIFTH: That the aforesaid amendment does not in any way effect an
exchange, reclassification or cancellation of the authorized, issued or
outstanding shares of the corporation.
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<PAGE> 63
SIXTH: This amendment effects a decrease in the par value of the
Common Stock to $.002 per share and effects a stock split of the Common Stock
in the ratio of 10 to 1. Consequently, the stated capital of the corporation
will not be changed under or by reason of such amendment.
IN WITNESS WHEREOF, Laser Support Services, Inc. has caused these
Articles of Amendment to be signed by its President this 10th day of July,
1992.
LASER SUPPORT SERVICES, INC.
BY:
-------------------------------
Paul Herchman, President
15
<PAGE> 1
EXHIBIT 4.4
MEDICAL ALLIANCE, INC.
8200 SPRINGWOOD DRIVE, SUITE 200
IRVING, TEXAS 75063
--------------------------------
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
--------------------------------
NOVEMBER 17, 1995
<PAGE> 2
MEDICAL ALLIANCE, INC.
SERIES B CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
MEDICAL ALLIANCE, INC., a Texas corporation (the "Company"), and the
persons named on the Schedule of Purchasers attached hereto as Exhibit A
(collectively, the "Investors" and each individually, an "Investor"), enter
into this Series B Convertible Preferred Stock Purchase Agreement, dated as of
November 17, 1995 (the "Agreement"), relating to the issuance by the Company of
certain of its securities.
SECTION 1
DESCRIPTION OF TRANSACTION
1.1 Description of Securities. The Company agrees to issue to the
Investors and the Investors agree to purchase from the Company (a) 362,500
shares of its authorized but unissued Series B Convertible Preferred Stock, par
value $.002 per share (the "Series B Stock"), for a total purchase price of
$1,450,000. The shares of Series B Stock issued to the Investors pursuant to
this Agreement are referred to herein as the "Preferred Shares". The number of
Preferred Shares issued to an Investor is that number of shares listed with
such Investor's name on Exhibit A. The Series B Stock will be convertible into
shares of its common stock, $.002 par value, of the Company (the "Common
Stock"), as provided in the Company's Articles of Incorporation, as amended by
the Articles of Amendment, attached hereto as Exhibit B. Any securities of the
Company issued or issuable upon conversion of the Preferred Shares are referred
to as "Conversion Shares."
1.2 Closing. The closing of the purchase and sale of the
Preferred Shares will take place at the offices of Jackson & Walker, L.L.P.,
901 Main Street, Suite 6100, Dallas, Texas, at 10:00 A.M., on the date of this
Agreement (the "Closing"), or such other time and place as agreed to by the
parties (the "Closing Date"). At the Closing, the Company will deliver to each
Investor a certificate or certificates, each registered in such Investor's name
representing the Preferred Shares being acquired by such Investor upon payment
of the purchase price by such Investor to the Company by check(s) (in the
aggregate amount of $1,450,000).
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that the
following are true and correct as of the date hereof:
2.1 Organization and Standing; Certificate of Incorporation and
Bylaws. The Company is a corporation duly organized and existing under the
laws of the State of Texas and is in good standing under such laws. The
Company has requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as presently conducted
<PAGE> 3
and as proposed to be conducted. Except as set forth in Schedule 2.1, the
Company is qualified to do business as a foreign corporation in each
jurisdiction where the ownership of its properties or the conduct of its
business requires such qualification and where the failure so to be qualified
would have a material adverse effect on the Company's business as now
conducted. Schedule 2.1 sets forth a complete and accurate listing of the
states where the Company currently owns properties and/or conducts business and
the Company is in the process of qualifying to do business as a foreign
corporation. The Company has furnished the Investors with copies of its
Articles of Incorporation and Bylaws, as amended. Said copies are true,
correct and complete and contain all amendments through the Closing Date.
2.2 Corporate Power. The Company has all requisite legal and
corporate power and authority to execute and deliver this Agreement, and has
all requisite legal and corporate power and authority to sell and issue the
Preferred Shares hereunder, to issue the Common Stock issuable upon conversion
of the Preferred Shares, and to carry out and perform its obligations under the
terms of this Agreement.
2.3 Subsidiaries. Except as set forth on Schedule 2.3, the
Company has no subsidiaries and does not otherwise own or control, directly or
indirectly, any equity interest in any corporation, association or business
entity.
2.4 Capitalization. As of the Closing (after giving effect to the
issuance of the Preferred Shares) the authorized and issued and outstanding
capital stock of the Company will be as set forth on Schedule 2.4 attached
hereto. The outstanding shares of capital stock of the Company have been duly
authorized and validly issued, and are fully paid and nonassessable. The
Company has reserved up to 362,500 shares of Common Stock for issuance upon
conversion of the Preferred Shares. Except as set forth above or on Schedule
2.4, there are no options, warrants or other rights outstanding to purchase any
of the Company's authorized and unissued capital stock. Schedule 2.4 contains
a complete and accurate listing of the Company's stock plans or other
arrangements.
2.5 Authorization. All corporate action on the part of the
Company, its directors and shareholders necessary for (a) the authorization,
execution, delivery and performance of this Agreement by the Company, (b) the
authorization, sale, issuance and delivery of the Preferred Shares and (c) the
performance of all of the Company's obligations hereunder has been taken or
will be taken prior to the Closing. This Agreement, when executed and
delivered by the Company, shall constitute a valid and binding obligation of
the Company, enforceable in accordance with its terms, except as the
indemnification provisions of Section 8.6 hereof may be limited by principles
of public policy, and subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. The
Preferred Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, will be fully paid and nonassessable, and
will have the rights, preferences, and privileges described in Exhibit B
(unless amended after the date hereof). Common Stock issuable upon conversion
of the
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<PAGE> 4
Preferred Shares have been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement and Exhibit B, will be validly
issued, and will be fully paid and nonassessable; and the Preferred Shares and
such shares of Common Stock will be free of any liens or encumbrances, other
than as set forth in this Agreement, and any liens or encumbrances created by
or imposed upon the holders through no action of the Company; provided,
however, that the Preferred Shares and the Conversion Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein and that certain Amended and Restated Stock Buy and Sell
Agreement, dated July 10, 1992, as may be amended from time to time (the
"Shareholders' Agreement"), in substantially the form of Exhibit C. The
Preferred Shares and the shares of Common Stock issuable upon conversion of the
Preferred Shares are not subject to any (a) preemptive rights which have not
been waived as of the Closing Date, or (b) rights of first refusal, except, in
each case, as set forth in this Agreement, that certain Series A Convertible
Preferred Stock Purchase Agreement, dated as of July 10, 1992, by and between
the Company and Mapleleaf Capital, Ltd., and the Shareholders' Agreement.
2.6 Financial Statements. The Company has delivered to each
Investor its audited balance sheet and audited statement of operations for the
fiscal year ended December 31, 1994, and unaudited balance sheet and statement
of operations for the seven-month period ended July 31, 1995 (the "Financial
Statements"). The Financial Statements are complete and correct in all
material respects and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the period
indicated ("GAAP"). The Financial Statements fairly present the financial
condition and results of operations of the Company at such dates or for such
periods, subject, in the case of the unaudited interim financial statements, to
changes resulting from normal year-end adjustments (none of which would either,
alone or in the aggregate, be materially adverse to the financial condition or
operating results of the Company). Except as shown on Schedule 2.6, since July
31, 1995, there has been no change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse to the assets, properties,
financial condition, operating results or business of the Company.
2.7 Material Liabilities. Except as set forth in Schedule 2.7,
the Company has no material liabilities or obligations, absolute or contingent
(individually or in the aggregate), other than (a) liabilities and obligations
disclosed in the Financial Statements, (b) liabilities and obligations incurred
in the ordinary course of business subsequent to July 31, 1995, and (c)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements. Schedule 2.7 sets forth a complete and
accurate listing of the Company's indebtedness for borrowed money as of the
Closing Date, which either the Company has directly or indirectly created,
incurred, assumed or guaranteed, and a description of any security for such
indebtedness.
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<PAGE> 5
2.8 Title to Properties and Assets; Liens, Etc. The Company has
good and marketable title to its properties and assets which it owns, and has a
valid leasehold interest in each property and asset it leases, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than
(a) as listed in Schedule 2.8, (b) as disclosed in the Financial Statements
(including the notes thereof), (c) the lien of current taxes not yet due and
payable, and (d) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company.
2.9 Compliance with Other Instruments, None Burdensome, etc. The
Company is not in violation of any term of its Articles of Incorporation or
Bylaws, as each may have been amended from time to time, or in any material
respect of any term or provision of any material mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decree, and to the best
of its knowledge is not in violation of any order, statute, rule or regulation
applicable to the Company where such violation would materially and adversely
affect the Company. The execution, delivery and performance of and compliance
with this Agreement, and the issuance of the Preferred Shares and the Common
Stock issuable upon conversion of the Preferred Shares, have not resulted and
will not result in any material violation of, or conflict with, or constitute a
material default under, the Company's Articles of Incorporation or Bylaws, as
each may have been amended from time to time, or any of its material
agreements, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company.
2.10 Litigation, etc. There are no material actions, suits,
proceedings or investigations pending against the Company (or, to the best of
the Company's knowledge, any threat thereof) or its properties before any court
or governmental agency.
2.11 Employees. To the best of the Company's knowledge, no
employee of the Company is in violation of any term of any employment contract,
patent disclosure or confidentiality agreement or any other contract or
agreement relating to the relationship of such employee with the Company or any
other party. Except as disclosed on Schedule 2.11, the Company has no
employment agreements with any employees, officers or directors of the Company,
other than the agreements relating to noncompetition, inventions, copyrights,
patents and confidential information, substantially in the form provided to the
Investors.
2.12 Registration Rights. Except as set forth in this Agreement
and Schedule 2.12, the Company is not under any contractual obligation to
register (in compliance with the filing requirements and being deemed effective
under the Securities Act of 1933, as amended (the "Securities Act")) any of its
presently outstanding securities or any of its securities which may hereafter
be issued.
2.13 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with (a) the
valid execution and delivery of this Agreement, (b) the
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<PAGE> 6
offer, sale or issuance of the Preferred Shares (and the Common Stock issuable
upon conversion of the Preferred Shares), or (c) the consummation of any other
transaction contemplated hereby, except (i) for those which have been obtained
on or before the Closing Date or (ii) qualification (or taking such action as
may be necessary to secure an exemption from qualification, if available) of
the offer and sale of the Preferred Shares under applicable Blue Sky laws,
which filings and qualifications, if required, will be accomplished in a timely
manner.
2.14 Real Property. The Company enjoys peaceful and undisturbed
possession under all real property leases under which the Company is operating,
and all such leases are valid and subsisting and none of them is in default. A
listing of said leases, their terms and total lease payments is attached hereto
as Schedule 2.14. The Company does not own any real property.
2.15 Material Contracts and Commitments. Each material contract,
agreement and instrument which is material to the financial condition,
operating results or business of the Company and to which the Company is a
party is listed in Schedule 2.15 attached hereto. To the Company's knowledge,
all such contracts, agreements and instruments are valid and enforceable
obligations of the parties thereto in accordance with their respective terms,
and the Company has not waived any rights thereunder.
2.16 Tax Returns and Payments. The Company has fully filed or
timely extended all federal, state and local tax returns required to be filed
and is not currently delinquent or subject to penalties, as to any federal,
state and other taxes, assessments and governmental charges upon the Company
and its properties, the failure of which to file or pay would have a material
adverse effect on the financial condition or operations of the Company. The
charges, accruals and reserves on the books of the Company with respect to
federal taxes for the fiscal periods of the Financial Statements are adequate.
There are currently no agreements, waivers or other arrangements providing for
an extension of time with respect to the filing of any tax return by, or the
payment of any tax, governmental charge or deficiency by, or the assessment of
any tax, governmental charge or deficiency against, the Company. There are not
any actions, suits, proceedings, investigations or claims now pending, or to
the Company's knowledge, threatened, against the Company in respect of taxes,
governmental charges or assessments, or any matters under discussion with any
governmental authority relating to taxes, governmental charges or assessments,
or any claims for additional taxes, governmental charges or assessments
asserted by any such authority.
2.17 Collective Bargaining Agreements. The Company has no
collective bargaining agreement with its employees.
2.18 Insurance. Set forth on Schedule 2.18 is a listing of all
insurance policies carried by the Company.
2.19 Rights. The Company has ownership of, or valid licenses to
use, all patents, trademarks, copyrights and other proprietary rights used in
its business. To the best knowledge
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<PAGE> 7
of the Company, its present products do not infringe any patent, copyright,
trademark or other proprietary rights of others, the Company does not believe
it is utilizing the inventions, copyrights, or other proprietary rights of any
employee (or person currently intended to be hired) created prior to his
employment with the Company which the Company does not have rights to use, and
the Company has not received any notice from any third party of any such
alleged infringement by the Company. To the Company's knowledge, the Company
has taken reasonable steps to establish and preserve its ownership of all
patent, trademark, copyright, trade secret and other proprietary rights with
respect to its products and technology which are material to the operation of
the Company's business and which they own and use, including the filing, where
the Company has deemed appropriate, patents, trademarks and copyrights. The
Company is not aware of any infringement by others of its patents trademarks,
copyrights or other proprietary rights in any of its products or technology.
2.20 Use of Funds. The Company will use the funds obtained from
the Investors pursuant to the sale and issuance of the Preferred Shares being
issued on the date hereof as shown on Schedule 2.20.
2.21 Compliance with ERISA. The Company does not maintain a
pension or profit sharing plan, and is not subject to any of the funding or
vesting requirements of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or any requirement which could create an accumulated funding
deficiency within the meaning of ERISA. The Company has not incurred any
liability to the Pension Benefit Guaranty Corporation established under ERISA
(or any successor thereto under ERISA). The consummation of the transactions
set forth in this Agreement will not constitute a "prohibited transaction"
within the meaning of Section 4975 of the Internal Revenue Code of 1986, as
amended, or Section 406 of ERISA.
2.22 Offering. Subject to the accuracy of each Investor's
representations in Section 3 hereof, the offer, sale and issuance of the
Preferred Shares to be issued in conformity with the terms of this Agreement,
and the issuance of the Common Stock to be issued upon conversion of the
Preferred Shares, constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act.
2.23 Brokers or Finders, Other Offers. The Company has not
incurred, as a result of any action taken by the Company, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement.
2.24 Disclosure. To the best of the Company's knowledge, none of
the representations and warranties made by the Company in this Agreement,
including Schedule 2.24 and the other Schedules and Exhibits hereto, when taken
as a whole, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein and in
the Schedules and Exhibits hereto not misleading in light of the circumstances
under which they were made. Schedule 2.24 sets forth a complete and accurate
listing of
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<PAGE> 8
additional disclosures of material facts that the Company believes necessary in
order to make the statements contained in this Agreement not misleading.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby severally represents and warrants to the Company
that the following are true and correct as of the date hereof:
3.1 Organization and Good Standing. Each Investor which is a
corporation is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, or which is a limited
partnership is duly organized and validly existing under the laws of the
jurisdiction in which it was organized. Each Investor has all requisite power
and authority to execute and deliver this Agreement and the Shareholders'
Agreement and to carry out and perform its obligations hereunder and under the
Shareholders' Agreement.
3.2 Experience. (a) It is an accredited investor as defined under
Regulation D under the Securities Act and (b) by reason of its own business and
financial experience and that of those persons, if any, retained by it to
advise it with respect to its investment, it together with such advisors has
such knowledge, sophistication and experience in business and financial matters
so that it is capable of evaluating the merits and risks of its investment in
the Company and has the capacity to protect its own interests.
3.3 Investment. It is acquiring the Preferred Shares and the
underlying Common Stock for investment for its own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
"distribution." It understands that the Preferred Shares and the underlying
Common Stock to be purchased have not been, within the meaning of the
Securities Act, registered under the Securities Act or any state securities
laws by reason of specific exemptions from the registration provisions of the
Securities Act and any applicable state securities laws, the availability of
which depend upon, among other things, the bona fide nature of the investment
intent and the accuracy of such Investor's representations as expressed herein.
3.4 Rule 144, etc. It acknowledges that the Preferred Shares and
the underlying Common Stock must be held indefinitely unless subsequently
registered under the Securities Act and any applicable state securities act or
unless exemptions from such registration are available. It is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit the
resale of shares purchased in a private placement subject to the satisfaction
of certain conditions, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than two years after a party
has purchased and paid for the security to be sold, the sale being effected
through a "broker's transaction" or in transactions directly with a "market
maker" and the number of shares being sold during any three-month period not
exceeding specified limitations.
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<PAGE> 9
3.5 No Public Market. It understands that no public market now
exists for any of the securities issued by the Company and that the Company has
made no assurances that a public market will ever exist for the Company's
securities.
3.6 Access to Data. It has had an opportunity to discuss the
Company's business, management and financial affairs with its management and
the opportunity to review the Company's facilities and business plan.
3.7 Authorization. The execution, delivery and performance of
this Agreement and the Shareholders' Agreement have been duly authorized by all
necessary action on the part of such Investor. This Agreement and the
Shareholders' Agreement when executed and delivered by such Investor will
constitute a valid and legally binding obligation of such Investor, enforceable
in accordance with its terms, except as the indemnification provisions of
Section 8.6 hereof may be limited by principles of public policy, and subject
to laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies.
3.8 Brokers or Finders. The Company has not, and will not, incur,
directly or indirectly, as a result of any action taken by such Investor, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
3.9 Residency/Principal Place of Business. It was formed under
the laws of, and its principal place of business is, the jurisdiction listed on
Exhibit A.
3.10 Purpose. It was not formed for the purpose of making an
investment in the Company.
3.11 No Breach. The execution, delivery and performance by such
Investor of this Agreement and the Shareholders' Agreement, the consummation of
the transactions contemplated hereby and thereby and the ownership of the
Preferred Shares does not (a) conflict with or result in a breach of the terms,
conditions or provisions of the articles of incorporation, bylaws or limited
partnership agreement of such Investor (as may be applicable), or (b) result in
a violation of any investment restriction to which such Investor is subject.
3.12 Litigation. With respect to such Investor, there is no
action, suit, proceeding, order, investigation or claim pending or, to the
knowledge of such Investor, threatened against such Investor at law or in
equity, or before or by any governmental department, commission, board, bureau,
agency or instrumentality concerning the validity of this Agreement or the
right of such Investor to enter into this Agreement or seeking to enjoin the
consummation of the transactions contemplated hereby.
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SECTION 4
CONDITIONS TO CLOSING OF INVESTORS
Each Investor's obligations to purchase the Preferred Shares at the
Closing is, at the option of each Investor, subject to the fulfillment as of
the Closing Date of the following conditions:
4.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 2 of this Agreement shall be true
and correct in all material respects at and as of the Closing.
4.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with in all material respects.
4.3 Opinion of Company's Counsel. The Investors shall have
received from Jackson & Walker, L.L.P., counsel to the Company, an opinion
addressed to them, dated the Closing Date, with respect to the matters set
forth in Exhibit D attached hereto.
4.4 Secretary's Certificate. The Company shall have delivered to
the Investors a certificate of the Secretary of the Company dated as of the
Closing Date, in the form of Exhibit E attached hereto.
4.5 Blue Sky. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the issuance of the Preferred Shares to
the Investors, and the offer and sale of the Preferred Shares to the Investors,
and the Common Stock issuable upon conversion of the Preferred Shares.
4.6 Articles of Amendment. The Company shall have filed Articles
of Amendment with the Secretary of State of Texas in substantially the form of
Exhibit B.
4.7 Legal Matters. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby shall have
been reasonably approved by counsel to the Investors.
4.8 SBA Declarations. The Company shall have provided to the
Investors (as appropriate) completed and executed Small Business Administration
Forms 652 (Assurance of Compliance for Nondiscrimination) and 480 (Size Status
Declaration).
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SECTION 5
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Preferred Shares to be
issued at the Closing is, at the option of the Company, subject to the
fulfillment as of the Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations
and warranties made by each Investor in Section 3 of this Agreement shall be
true and correct in all material respects at and as of the Closing.
5.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Investors on or prior to the Closing
Date shall have been performed or complied with in all material respects.
5.3 Legal Matters. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby shall have
been reasonably approved by counsel to the Company.
5.4 Shareholder's Agreement. Each Investor shall have become a
party to the Shareholder's Agreement.
SECTION 6
COVENANTS OF THE COMPANY
Until the first to occur of (i) the Investors hold less than 100,000
Preferred Shares or (ii) a Qualified Public Offering (as defined in Article
Four, Section C.4(b)(i) of the Articles of Incorporation, as amended), the
Company hereby covenants and agrees as follows:
6.1 Financial Information. The Company will mail the following
reports to each Investor:
(a) As soon as practicable after the end of each month,
and in any event within sixty (60) days thereafter, a balance sheet of the
Company as at the end of such month, and a statement of operations, and
statement of cash flow of the Company, for each month and for the current
fiscal year of the Company, to date, prepared in accordance with GAAP (or
accompanied by an explanatory note, which describes any changes in accounting
principles from those used in prior periods), together with a comparison of
such statements to the corresponding budget of the current fiscal year, changes
resulting from year-end audit adjustments and certified by the principal
financial or accounting officer of the Company.
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<PAGE> 12
(b) As soon as practicable after the end of each fiscal
year, and in any event within one hundred twenty (120) days thereafter, a
balance sheet of the Company as of the end of such fiscal year, and a statement
of operations and statement of cash flow of the Company for such year, prepared
in accordance with GAAP and setting forth in each case in comparative form the
figures for the previous fiscal year (except for the first year), all in
reasonable detail and certified by the principal financial or accounting
officer of the Company and audited by and accompanied by the report of
independent public accountants of national standing (i.e., one of the Big Six
accounting firms) selected by the Board of Directors.
(c) As soon as practicable, and in any event within (i)
thirty (30) days of approval of the Board of Directors following the Closing
and (ii) thereafter prior to the end of the first calendar month of each fiscal
year, a budget/operating forecast for each fiscal year of the Company, which
budget/operating forecast will be approved by the Board of Directors.
For so long as an Investor is eligible to receive reports under this
Section 6.1, the Company will permit each Investor to inspect at the Investor's
expense any of the properties or books and records of the Company, to make
copies of extracts from such books and records and to discuss the affairs and
condition of the Company with representatives of the Company, all to such
reasonable extent and at such reasonable times and intervals as such Investor
may reasonably request. If the Investor is a person or entity other than the
Investor that is the signatory to this Agreement, the right to inspect the
properties or books or records of the Company granted under this Section 6.1
may be exercised only with the consent of the Company, which consent will not
be unreasonably withheld. Any Investor who exercises the right to inspection
must, unless otherwise required by law, at the request of the Company, sign an
agreement to hold in confidence any confidential information about the Company
received as a result of such inspection under circumstances indicating the
confidentiality of such information until the Company has publicly disclosed
such information or until disclosure is required by law or by court order. The
rights granted to any Investor under this Section 6.1 will continue until the
Company has commenced filing periodic reports with the Commission pursuant to
the requirements of Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and will then be suspended, subject
to resumption if the Company should thereafter cease filing such reports.
6.2 SBA Information. The Company, within twenty (20) days after
an Investor shall have made a request therefor, shall furnish to such Investor
in writing all information reasonably available to the Company which the
Investor shall request with respect to the Company or any firm or corporation
in which the Company may from time to time have or have had any interest, which
is needed in connection with the preparation of SBA Form 468 or any other
report the Investor may be required to make to any governmental agency or
regulatory authority in connection with its purchase or ownership of the
Preferred Shares or Common Stock issued upon conversion of the Preferred
Shares.
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<PAGE> 13
6.3 Insurance. From and after the Closing, the Company shall
maintain such insurance with coverages and in the amounts as the Company shall
reasonably determine to be necessary and appropriate to protect the assets of
the Company.
6.4 Negative Covenants. Until the occurrence of a Qualified
Public Offering (as defined in Article Four, Section C, subsection 4(b)(i) of
the Company's Articles of Incorporation), the Company shall not, without the
prior written consent of the holders of at least sixty-six and two-thirds
percent (66 - 2/3%) of the then outstanding Preferred Shares and Conversion
Shares:
(a) except as provided in the Articles of Amendment,
declare or pay any dividends on the Common Stock;
(b) repurchase or redeem any shares of Common Stock
except as provided in Schedule 6.3 attached hereto;
(c) make any loans or advances to employees or
consultants of the Company, other than in the ordinary course of business as
part of travel advances or salary advances, and other than loans to employees
or consultants of the Company approved by the Board of Directors in amounts not
to exceed $5,000 per individual or $50,000 in the aggregate at any time;
(d) enter into any guaranty arrangement, or mortgage or
pledge, or create a security interest in, or permit any subsidiary to mortgage,
pledge or create a security interest in, all or substantially all of the assets
of the Company or such subsidiary, other than a guaranty arrangement or a
security interest in the assets of the Company or such subsidiary as part of
(i) financing obtained from a national or state chartered bank or from regular
commercial financing sources for accounts receivable or (ii) any security
interest related to a lease or financing of equipment by the Company;
(e) merge or consolidate, or enter into any agreement to
merge or acquire, any other corporation, partnership or other business entity
into the Company, or acquire, or enter into any agreement to acquire,
substantially all the stock or assets of another corporation, partnership or
other business entity in any transaction or series of transactions which in the
aggregate exceed $1,000,000;
(f) enter into a line of business that materially differs
from the current business of the Company, which currently consists of providing
mobile surgical services to physicians offices and other alternative outpatient
settings (the "Business"); or
(g) sell or otherwise dispose of all or substantially all
of the assets of the Company, or merge or consolidate the Company with or into
any other corporation or corporations, except pursuant to a Qualified Sale.
For purposes of this Agreement, a "Qualified Sale" shall mean a transaction in
which the proceeds payable to the Investors for each of the
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Preferred Shares is greater than or equal to the following amounts, plus all
accrued and unpaid dividends:
DATE PER SHARE PROCEEDS
---- ------------------
July 1, 1995 through June 30, 1996 $ 9.00
July 1, 1996 through June 30, 1997 $11.00
July 1, 1997 through June 30, 1998 $13.00
6.5 SBA Repurchase Obligation. If the Company uses the proceeds
received from the sale of the Preferred Shares in violation of the rules and
regulations promulgated by the Small Business Administration (the "SBA"), it
shall give each Investor who is either a small business investment corporation
or a small business investment partnership, as defined by the rules and
regulations promulgated by the SBA (a "SBIC Purchaser"), the right in its sole
and absolute discretion to demand (regardless of the number of Preferred Shares
then held by such Investor), upon 30 days' notice, that the Company repurchase,
at the price paid hereunder by such SBIC Purchaser to the Company, all of the
Preferred Shares purchased by such SBIC Purchaser hereunder; provided, however,
that if on the date specified for repurchase in such notice, the Company shall
not have sufficient funds legally available for such repurchase, the Company
shall repurchase a pro rata portion of each such SBIC Purchaser's Preferred
Shares out of funds legally available therefor and shall repurchase the
remaining Preferred Shares of such holders as soon as practicable after the
Company has funds legally available therefor. All amounts due hereunder shall
be paid to such SBIC Purchaser by certified check, cashier's check or wire
transfer in immediately available funds. In the event any Preferred Shares are
repurchased by the Company hereunder, the stock certificates evidencing said
shares shall be surrendered by such SBIC Purchaser to the Company and canceled
by the Company. Notwithstanding the foregoing, to the extent that SBA
regulations permit the Company to cure any default under this Section 6.5, the
Company may cure such default prior to the expiration of the 30- day notice
period above, and in such case the rights of such SBIC Purchaser under this
Section 6.5 shall cease with respect to such default. Any such cure shall in
no way be deemed to limit such SBIC Purchaser's right under this Section 6.5
with respect to any subsequent default. Nothing in this Section 6.5 shall be
construed to restrict or otherwise limit such SBIC Purchaser's rights to seek
all other remedies available to it as provided hereunder, or at law or in
equity, including the remedy of specific performance. The provisions of this
Section 6.5 shall expire upon evidence satisfactory to such SBIC Purchaser that
the Company has utilized the proceeds received pursuant to this Agreement in a
manner that is consistent with their use reported to the SBA on SBA Form 1031.
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SECTION 7
COVENANTS OF THE INVESTORS
7.1 Confidential Information. Each Investor acknowledges that
during the course of evaluating the Company and the Business, it has had access
to, and will in the future continue to receive, or otherwise have access to,
confidential and proprietary information regarding the Company and the
Business. Each Investor hereby agrees not to disclose, and to use its
reasonable best efforts to cause its Affiliates not to disclose, to any person,
and not to use for its own account, any such information, or any information
regarding the Company or the Business which such Investor hereafter comes to
possess and which such Investor knows or has reason to believe is confidential,
without the prior express written consent of the Company unless and to the
extent that such information (a) becomes generally known to and available for
use by the public other than as a result of the breach of this Section 7.1, (b)
is required to be disclosed by law, court order or similar legal compulsion (in
which case the person being so compelled will promptly notify the Company of
such disclosure and the extent of such disclosure) or (c) was known by such
Investor or its Affiliates prior to its disclosure to such Investor or its
Affiliates by the Company. As used herein, an "Affiliate" of any Investor
means any person who, either directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with,
such Investor. Notwithstanding anything to the contrary contained in this
Section 7.1, each Investor shall be entitled to provide summaries of the
financial and related information of the type currently provided to such
Investor's limited partners and/or shareholders in the ordinary course of
reporting to such persons.
SECTION 8
REGISTRATION RIGHTS
8.1 Optional Registrations. If the Company decides to register
any of its Common Stock or securities convertible into or exchangeable for
Common Stock under the Securities Act (other than a registration solely to
implement an employee benefit plan or a transaction to which Rule 145 or any
other similar rule of the Securities and Exchange Commission (the "Commission")
is applicable), the Company will promptly give written notice to the Investors,
and the Company will use all reasonable efforts to effect the registration
under the Securities Act of all Registrable Securities (as defined in Section
8.4) which the Investors request be included in such registration by a written
notice delivered to the Company within thirty (30) days after the notice given
by the Company subject to such Investor's accepting the terms of the
underwriters, including the initial public offering price and the discounts and
commissions, as agreed upon by the Company and the managing underwriter
selected by it.
If the registration involves an underwritten public offering, the
Company will not be required to register Registrable Securities in excess of
the amount that the principal underwriter reasonably and in good faith
recommends may be included in such offering. If any Registrable
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Securities are not included for this reason, the Company will permit the
Investors who have requested participation to include all shares requested to
be included in the registration on a pro rata basis, based upon Common Stock
owned or obtainable by such holder.
If the Company elects to terminate any registration filed under this
Section 8.1, the Company will have no obligation to register the securities
sought to be included by the Investors in such registration. For each
registration and offering effected pursuant to this Section 8.1, all expenses
of the registration and offering (excluding all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
such Investors) and the reasonable fees and expenses of one (1) independent
counsel for the Investors will be borne by the Company.
8.2 Required Registrations. If one or more of the Investors
holding at least a forty percent (40%) of the Conversion Shares notifies the
Company in writing that such Investor(s) intend to offer for public sale at
least forty- five percent (45%) of the shares of Common Stock issued or
issuable upon conversion of the Preferred Shares, the Company will notify all
of the Investors of its receipt of such notification. Upon the written request
of any Investor delivered to the Company within fifteen (15) days after
delivery from the Company of such notification, the Company will use its best
efforts to cause the Registrable Securities as may be requested by any
Investors (including the Investor(s) giving the initial notice) to be included
in a registration statement under the Securities Act. All expenses of the
first registration pursuant to this Section 8.2 and the reasonable fees and
expenses of one (1) independent counsel for the Investors will be borne by the
Company (excluding all underwriting discounts, selling commissions and stock
transfer taxes applicable to the securities registered by such Investor). The
Investors will bear their pro rata share (based upon the securities included in
the registration) of reasonable fees and expenses associated with any
subsequent registration pursuant to this Section 8.2. The Company will not be
required to file more than two (2) registration statements pursuant to this
Section 8.2, and will not be required to file any registrations under this
section until the earlier of (a) December 31, 1996, or (b) six (6) months
following the date the Company files a registration statement under the
Securities Act. This Section 8.2 will not apply to requests for registration
on Form S-3 (or successor form) which will be governed by Section 8.3.
8.3 Form S-3. Once the Company is eligible to effect a
registration of its securities under Form S-3 (or a successor form), the
Investors will have the right to request, and the Company shall use its best
efforts to effect, registrations of shares of their Registrable Securities on
Form S-3 (but no more than one such registration during any one fiscal year) as
long as (a) Investor(s) holding at least twenty-five percent (25%) of the then
outstanding Conversion Shares notify the Company of their desire to register at
least ten percent (10%) of the outstanding Conversion Shares and (b) the
aggregate proposed offering price (based upon the current market price of the
Common Stock) is not less than $500,000.00 for each registration.
The Company will give notice to all Investors of the request for
registration pursuant to this Section 8.3. Upon written request of any
Investor delivered to the Company within fifteen
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(15) days after delivery from the Company of such notification, the Company
will use all reasonable efforts to cause the registration of all shares of
Registrable Securities on Form S-3 or such successor form to the extent
requested by the Investor(s). All expenses incurred in connection with the
registrations requested pursuant to this Section 8.3, including the reasonable
fees and expenses of one (1) independent counsel for the selling Investor(s),
will be borne by the Company (excluding all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
such Investor).
8.4 Registrable Securities. For the purposes of this Section 8,
the term "Registrable Securities" will mean any shares of Common Stock held by
the Investors or issuable upon conversion of Preferred Shares, and any other
shares or equity securities distributable on, with respect to, or in
substitution for such Registrable Securities, except for those that have been
sold or transferred pursuant to an effective registration statement or pursuant
to Rule 144 under the Securities Act.
8.5 Procedure for Registration. Whenever the Company is required
under this Agreement to register Common Stock, it agrees to do the following:
(a) Use all reasonable efforts to prepare promptly for
filing with the Commission a registration statement and such amendments and
supplements to said registration statement and the prospectus as may be
necessary to declare or keep the registration statement effective and to comply
with the provisions of the Securities Act for the period necessary to complete
the proposed public offering, but not more than 180 days;
(b) Furnish to each selling Investor such copies of each
preliminary and final prospectus and such other documents as such Investor may
reasonably request to facilitate the public offering of his Common Stock;
(c) Enter into any underwriting agreement with provisions
reasonably required by the proposed underwriter for the selling Investor(s), if
any;
(d) Use all reasonable efforts to register or qualify the
Common Stock covered by the registration statement under the securities or
"blue-sky" laws of such jurisdictions as any selling Investor(s) may reasonably
request, although the Company will not have to register in any states that
require it to qualify to do business or subject itself to general service of
process, and for a registration under Section 8.1, the Company will not be
required to register in more states than is necessary to permit the sale of the
securities; and
(e) The Company is not required to file a registration
statement within ninety (90) days following the effective date of any other
registration statement initiated by the Company. The Company may postpone the
filing of any registration statement required under Sections 8.2 or 8.3 for a
reasonable period of time, not to exceed ninety (90) days, if the Company has
been advised by legal counsel that such filing would require the disclosure of
a
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material fact, and the Company determines reasonably and in good faith that
such disclosure would have a material adverse effect on the Company.
8.6 Indemnification. Subject to applicable law, the Company will
indemnify each Investor holding Registrable Securities included in the
registration statement, and each person controlling any of them, against all
claims, losses, damages and liabilities, including legal and other expenses
reasonably incurred, arising out of any untrue or allegedly untrue statement of
a material fact contained in the registration statement, or any omission or
alleged omission to state a material fact required to be stated in the
registration statement or necessary to make the statements not misleading, or
arising out of any violation by the Company of the Securities Act, any state
securities or "blue-sky" laws or any applicable rule or regulation. This
indemnification will not apply to any claims, losses, damages or liabilities to
the extent they arise out of or are based upon an untrue statement or omission
based upon information furnished in writing to the Company by such Investor, or
controlling person, respectively, expressly for use in the registration
statement. With respect to such untrue statement or omission in the
information furnished in writing to the Company by such Investor, such person
will indemnify the underwriters, the Company, its directors and officers, the
other persons selling securities under the registration statement and each
person controlling any of them against any losses, claims, damages, expenses or
liabilities to which any of them may become subject as a result of such untrue
statement or omission (including those incurred in connection with
investigating or defending against such claims).
8.7 Rule 144 Requirements. If the Company becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, the Company will
use all reasonable efforts to file with the Commission such information as the
Commission may require and will use all reasonable efforts to make available
Rule 144 under the Securities Act (or any successor exemptive rule).
8.8 Obligations in a Registration. Any Investor included in any
registration agrees to furnish such information regarding such person and the
securities sought to be registered as the Company may reasonably request in
connection with the registration, qualification or compliance. If the
registration involves an underwriter, such Investor agrees, upon the request of
such underwriter, not to sell any unregistered securities of the Company for a
period of ten (10) days prior to or ninety (90) days following the effective
date of the registration statement for such offering.
8.9 Limitations on Subsequent Registration Rights. After the date
hereof, the Company will not, without the prior written consent of Investors
representing at least a majority of the Preferred Shares and Conversion Shares,
taken together as a class, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either the date set forth in Section 8.2, or within ninety (90) days
of the effective date of any registration effective
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pursuant to Section 8.2, or (b) that would allow any such holder or prospective
holder to have greater rights than the Investors under Section 8.1 or 8.3.
SECTION 9
DEFAULT
9.1 Events of Default. Each of the following events shall be an
Event of Default hereunder:
(a) If the Company shall default in the performance of or
compliance with any of its respective covenants contained in this Agreement or
any covenant regarding the Investors' rights under the Shareholders' Agreement
or any obligations of the Company to holders of Preferred Shares under the
terms of the Articles of Amendment, and such default shall not have been
remedied within thirty (30) days after written notice thereof shall have been
given to the Company, as applicable, by one or more of the holders of the
Preferred Shares and/or Conversion Shares;
(b) If any material representation or warranty made in
writing by or on behalf of the Company herein or pursuant hereto or otherwise
in connection with the transactions contemplated hereby shall prove to have
been false or incorrect in any material respect on the date as of which made
and the effect of falsity or incorrectness shall not have been remedied within
thirty (30) days after written notice thereof shall have been given to the
Company by one or more holders of a majority of the then issued and outstanding
Preferred Shares and/or Conversion Shares; provided, however, that such notice
and cure period shall only be applicable if such falsity or incorrectness is
capable of being remedied within such period; and
(c) If the Company shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
as they become due, or shall file a voluntary petition in bankruptcy, or shall
be adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, or shall file any answer admitting or not contesting the
material allegations of a petition filed against the Company in any such
proceedings, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of the Company or of all or any substantial
part of the properties of the Company, or if the Company or its directors or
the majority shareholders shall take any action looking to the dissolution or
liquidation of the Company.
9.2 Remedies on Default. In case any one or more Events of
Default or the breach of any other agreement or covenant contained herein shall
occur and be continuing, the holder of any Preferred Share and/or Conversion
Share may proceed to protect and enforce the rights of such holder by an action
at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any other
documents executed
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pursuant to the transactions contemplated herein, or for an injunction against
a violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law. The Company acknowledges that
any breach or violation of the representations and covenants contained in this
Agreement or the Shareholders' Agreement will cause substantial damages and
irreparable harm to the Investors, and that the remedy at law for such breach
will be inadequate. In the event of any breach of this Agreement or the
Shareholders' Agreement, the Investors will be entitled to actual damages and
temporary and permanent injunctive relief to prevent the breach or further
breach or violation of any provisions of this Agreement or the Shareholders'
Agreement, without the necessity of proving actual damages.
If any holder of any Preferred Share and/or Conversion Share shall
give any notice or take any other action in respect of a claimed default, the
Company shall forthwith give written notice thereof to all other holders of the
Preferred Shares and/or Conversion Shares at the time outstanding describing
the notice or action and the nature of the claimed default. No course of
dealing and no delay on the part of any holder of any Preferred Shares and/or
Conversion Shares in exercising any right shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies now or hereafter
available by law, in equity, by statute or otherwise.
SECTION 10
Miscellaneous
10.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Texas.
10.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by an Investor and
the closing of the transactions contemplated hereby; notwithstanding, however,
that the representations and warranties contained in Section 2 shall survive
only for a period of two (2) years after the Closing Date. Notwithstanding
anything herein to the contrary, no Investor may recover damages for any breach
of any representation, warranty or covenant of the Company in this Agreement
and the documents related hereto if such Investor had actual knowledge of the
facts and circumstances giving rise to such claim prior to the Closing.
10.3 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
10.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto (including those contained in the Exhibits
and Schedules) at the Closing constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set
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forth herein or therein. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that any provisions hereof may be amended, waived, discharged or
terminated upon the written consent of the Company and the holders of at least
a majority in interest of the then outstanding Preferred Shares and/or
Conversion Shares, taken as a whole.
10.5 Notices and Demands. Any notice or demand which is required
will be deemed to have been sufficiently received (except as otherwise
provided) three (3) days after being sent by certified or registered mail,
postage and charges prepaid, return receipt requested, or one (1) day after
sent by overnight delivery providing receipt of delivery, to the following
addresses: if to the Company at the address as shown on the signature page of
this Agreement, or at any other address designated by the Company to each of
the Investors in writing; if to an Investor, at its mailing address as shown on
Exhibit A, or at any other address designated by such Investor to the Company
in writing.
10.6 Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any holder
of a Preferred Share or a Conversion Share, upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of
such holder, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of a Preferred Share or a Conversion Share of any breach
or default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or the other agreements executed in
furtherance of the transactions contemplated hereunder, by law or otherwise
afforded to any party, shall be cumulative and not alternative.
10.7 Expenses. The Company and each Investor agrees to pay its own
respective expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby; provided, however, that the Company
agrees to pay, up to a maximum of $10,000, the legal fees and expenses of one
legal counsel to the Investors.
10.8 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
invalid or unenforceable, the remainder of this Agreement shall continue in
full force and effect, and the invalid or unenforceable provision shall be
modified to the extent necessary to make it valid and enforceable; provided
that no such modification shall be effective if it materially changes the
economic benefit of this Agreement to any party.
- 20 -
<PAGE> 22
10.9 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Investors,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
This Agreement is hereby executed as of the date first above written.
COMPANY:
MEDICAL ALLIANCE, INC.
By: /s/ Paul Herchman
-------------------------------------------
Paul Herchman, President
Address: 8200 Springwood Drive, Suite 200
Irving, Texas 75063
INVESTORS:
---------
SATANA CORPORATION
By: /s/ Morris G. Moreland
Its:
-------------------------------------------
MAPLELEAF CAPITAL, LTD.
By: /s/ James Silcock
-------------------------------------------
Its:
-------------------------------------------
SUNWESTERN INVESTMENT FUND III
By: /s/ James Silcock
-------------------------------------------
Its:
-------------------------------------------
SUNWESTERN CAYMAN 1988 PARTNERS
By: /s/ James Silcock
-------------------------------------------
- 21 -
<PAGE> 23
Its:
-------------------------------------------
MONTGOMERY JESSUP & COMPANY L.L.P.
PROFIT SHARING PLAN F.B.O.
THOMAS A. MONTGOMERY
By: /s/ THOMAS A. MONTGOMERY
-------------------------------------------
Thomas A. Montgomery
Its:
-------------------------------------------
DLJSC F.B.O. MICHAEL WALLACE, IRA
By: /s/ MICHAEL WALLACE
-------------------------------------------
Michael Wallace
Its:
-------------------------------------------
/s/ MORRIS MORELAND
----------------------------------------------
Morris Moreland
/s/ SID BONNER
----------------------------------------------
Sid Bonner
/s/ CLYDE HUTCHINSON
----------------------------------------------
Clyde Hutchinson
/s/ MARC JOHNSON
----------------------------------------------
Marc Johnson
/s/ THOMAS A. MONTGOMERY
----------------------------------------------
Thomas A. Montgomery
/s/ HAZELLE BLAIR
----------------------------------------------
Hazelle Blair
/s/ LLOYD JONES
----------------------------------------------
Lloyd Jones
- 22 -
<PAGE> 24
/s/ BART TUCKER
-----------------------------------------------
Bart Tucker
/s/ JAY FARRIS
-----------------------------------------------
Jay Farris
/s/ KEVIN O'BRIEN
-----------------------------------------------
Kevin O'Brien
- 23 -
<PAGE> 25
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Jurisdiction Where Purchase Price
Organized and of Series B
Principal Place Convertible Number of
Name and Address of Business Preferred Stock Shares
---------------- ------------------ --------------- ---------
<S> <C> <C> <C>
Satana Corporation $4.00 159,662
Plaza Two, Suite 102
Amarillo, Texas 79101
Attn: Morris Moreland
Mapleleaf Capital, Ltd. $4.00 35,985
12221 Merit Drive
Dallas, Texas 75251
Attn: Jim Silcock
Sunwestern Investment Fund III $4.00 64,839
12221 Merit Drive
Dallas, Texas 75251
Attn: Jim Silcock
Sunwestern Cayman 1988 Partners $4.00 70,243
12221 Merit Drive
Dallas, Texas 75251
Attn: Jim Silcock
Montgomery Jessup & Company $4.00 10,000
L.L.P. Profit Sharing Plan
F.B.O. Thomas A. Montgomery
5220 Spring Valley, Suite 600
Dallas, Texas 75240
Morris Moreland $4.00 4,000
Amarillo National Plaza Two
Amarillo, Texas 79101
Attn: Morris Moreland
DLJSC F.B.O. Michael Wallace, $4.00 3,750
IRA
2010 Warrior
Lewisville, Texas 75067
Sid Bonner $4.00 3,071
4925 Greenville Avenue, Suite
1105
Dallas, Texas 75206
Clyde Hutchinson $4.00 2,000
1469 Schwartz Meadow Drive
O'Fallon, Illinois 62269
Marc Johnson $4.00 2,000
800 Bell Room 1859
Houston, Texas 77002
Thomas A. Montgomery $4.00 2,500
5220 Spring Valley, Suite 600
Dallas, Texas 75240
Hazelle Blair $4.00 1,000
1508 Ben Drive
Irving, Texas 75061
Lloyd Jones $4.00 1,000
4301 Hidden Creek
Arlington, Texas 76016
Bart Tucker $4.00 1,000
P.O. Box 9320
Fort Worth, Texas 76147
Jay Farris $4.00 750
1004 Meadow Creek Drive #3122
Irving, Texas 75038
Kevin O'Brien $4.00 700
621 Stone Canyon Drive
Irving, Texas 75063
</TABLE>
Exhibit A - Page 1
<PAGE> 26
DISCLOSURE SCHEDULES
These Disclosure Schedules are delivered in connection with the Series
B Convertible Preferred Stock Purchase Agreement dated as of November 17, 1995,
by and among Medical Alliance, Inc. and certain investors listed therein (the
"Agreement"). Sections listed below correspond to Sections in the Agreement.
Items disclosed for any Section may be applicable to other Sections set forth
herein and are deemed to be disclosed for all purposes of the Agreement.
<PAGE> 27
NOVEMBER 1995 EQUITY TRANSACTION
SCHEDULE 2.1
Pending States for Foreign Corporation Qualification
Maryland
<PAGE> 28
SCHEDULE 2.3
Subsidiaries and Equity Investments
Wholly owned subsidiaries
(1) Physicians Marketing Services, Inc.
(2) Safety Compliance Services, Inc.
<PAGE> 29
SCHEDULE 2.4
Shareholder Listing
<PAGE> 30
MEDICAL ALLIANCE, INC.
Shareholder/Option Holder Listing
Post Funding November 17, 1995
<TABLE>
<CAPTION>
Existing Existing O/S Fully Diluted Employee
Common Existing Conv/Pref Conv/Pref Options Diluted Percent of Stock &
Shareholders Shares "A" Shares "B" Shares Warrants Shares Ownership Options
- ---------------------- -------- ------------------ ---------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Blair, H. 7,420 1,000 8,420 0.28%
Block, G. 24,200 24,200 0.81%
Bonner, S. 16,000 3,071 19,071 0.64%
Buford, F. 0 0 0.00%
Dax, J. 0 0 0.00%
Ennix, R. 5,000 5,000 0.17%
Farris, J. 7,710 750 53,500 61,960 2.07% 61,960
Herchman, P. 336,358 67,000 403,358 13.49% 403,358
Higgins, J. 75,590 75,590 2.53%
Hutchinson, C. 9,500 2,000 48,500 60,000 2.01% 60,000
Jenkins, E. 20,000 20,000 0.67%
Jenkins, J. 5,760 5,760 0.19%
Jessup, R. 18,130 6,000 24,130 0.81%
Johnson, M. 44,590 2,000 21,840 68,430 2.29%
Jones, L. 2,000 1,000 3,000 0.10%
Kallenberger, D. 106,000 17,000 123,000 4.11%
Mason, G. 20,140 20,140 0.67%
Mason, R. 4,170 4,170 0.14%
Mason, Romie 11,320 11,320 0.38%
Montgomery, T. 103,450 16,000 119,450 3.99%
Moreland, M. 38,430 4,000 42,430 1.42%
O'Brien, K. 20,000 700 106,000 126,700 4.24% 126,700
Lopez, Leo 0 1,000 1,000 0.03%
O'Brien, T. 0 0 0.00%
Pritzker, L. 49,540 2,000 51,540 1.72%
Reed, S. 20,140 20,140 0.67%
Shrader, J. 30,590 7,500 38,090 1.27%
Stover, W. 34,062 34,062 1.14%
Taylor, E. 78,750 78,750 2.63%
Willbanks, M. 74,590 74,590 2.49%
Currie, H. 10,000 10,000 0.33%
</TABLE>
<PAGE> 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Dahlson, A. 5,000 5,000 0.17%
Tucker, B. 2,000 1,000 3,000 0.10%
Levecchio, T. 5,000 5,000 0.17%
Purvis, F. 0 0 0.00%
James, J. 5,000 5,000 0.17% 5,000
Wallace, M. 6,650 3,750 53,500 63,900 2.14% 63,900
Hruza, G. 3,750 3,750 0.13%
Seifert, J. 3,750 3,750 0.13%
Mckinney, S. 3,750 3,750 0.13%
0
Carrol, S. 16,000 16,000 0.54% 16,000
Rubino, M. 16,000 16,000 0.54% 16,000
Burks, S. 1,500 1,500 0.05%
Montgomery, T. 12,500 3,300 15,800 0.53%
Schlehr, A. 16,000 16,000 0.54% 16,000
Twomey, J. 16,000 16,000 0.54% 16,000
Stephens, C. 1,400 0 1,400 0.05% 1,400
Saya, L. 5,500 5,500 0.18% 5,500
DeLozier, K. 3,500 3,500 0.12% 3,500
Alarcon, M. 3,000 3,000 0.10% 3,000
Eyerson, L. 16,000 16,000 0.54% 16,000
Arnold, C. 500 500 0.02% 500
Harrington, J. 3,000 3,000 0.10% 3,000
Armentor, T. 500 500 0.02% 500
</TABLE>
<PAGE> 32
SCHEDULE 2.6
Subsequent Material Adverse Changes
There are none.
<PAGE> 33
SCHEDULE 2.7
Debt Instruments as of August 31, 1995
(1) L.T. Barton Insurance
(2) Nations Bank
(3) Capital Leases
(a) DVI (5)
(b) Continuum Boimedical (1)
(c) Pacifica Finance (1)
(d) Unimedix (1)
(e) AT&T (1)
(f) Dr. Bond (1)
<PAGE> 34
SCHEDULE 2.8
Incumbrances of Assets
None
<PAGE> 35
SCHEDULE 2.11
Employment Agreements
MAI has employment agreements with the following employees:
<TABLE>
<S> <C> <C> <C>
1. Paul Herchman 40. Todd Miller
2. Mike Wallace 41. Tyler Morris
3. Kevin O'Brien 42. Brett Moss
4. Mark Novy 43. Larry Pilcher
5. John Garry 44. Rob Pupelis
6. Lori Saya 45. Chace Rawls
7. Dave Acosta 46. Mark Rubino
8. Steven Anderson 47. David Schaefer
9. Eric Ankenbrand 48. Andy Schlehr
10. David Bell 49. Patrick Sheehy
11. Brant Booker 50. John Sigman
12. Todd Brading 51. David Skie
13. Thomas Brady 52. Paul Sommer
14. Scott Carroll 53. Kip Thompson
15. Craig Cartland 54. Chuck Tingley
16. Robbie Copeland 55. Andy Touchette
17. Brian Cumpton 56. Tod Turbyfill
18. Greg Cromer 57. John Twomey
19. Sam Decker 58. Rod Wright
20. Kent DeLozier
21. Jefferey Denney
22. Edwin Etheridge
23. Lance Everson
24. Jay Ferris
25. Damon Faulkner
26. Matt Gasque
27. David Gill
28. Todd Graef
29. John Garberlen
30. Jonathan Harrington
31. Brian Hennessey
32. Matt Hurley
33. Clyde Hutchinson
34. Mark Jarboe
35. Eric Juengerman
36. Chris Keinsella
37. Brian Lohr
38. Joseph McLaughlin
39. Leah McMullan
</TABLE>
<PAGE> 36
SCHEDULE 2.12
Registration Rights
None
<PAGE> 37
SCHEDULE 2.14
Operating Leases
<TABLE>
<CAPTION>
Monthly Payment Term Payments Remaining
--------------- ---- ------------------
<S> <C> <C> <C> <C>
(1) Continuum Biomedical $11,000 Month to Month $11,000.00
(2) Coherent Varies Month to Month
(3) Cabot Medical Varies Month to Month
(4) American Business Credits $1,500-$2,000 Month to Month
(5) Hinsdale Management $329.25 25 Months 6,255.75
(6) Park Avenue of Wayzata $210.00 12 Months 1,050.00
(7) Centerco Properties $240.00 12 Months 1,440.00
(8) S & R Multi Services $275.00 12 Months 1,650.00
(9) Resource Realty $334.08 12 Months 2,004.48
(10) Reed Hartman $185.00 Month to Month
(11) Rico Partnership $378.65 36 Months 11,738.15
(12) Jam Enterprises $395.00 12 Months 2,765.00
(13) Colonial Self Storage $135.00 Month to Month
(14) Integrated Security Systems $2,500.00 50 Month 70,000.00
</TABLE>
Note: Coherent The lease agreement with Coherent states that Medical
Alliance pays Coherent a monthly amount equal to 40%
of the Ultrapulse gross revenues for that market up
to $15,000 of Untrapulse revenues. Any revenues in
excess of $15,000 will be calculated at a 20% rate.
Cabot The lease agreement with Cabot states that Medical
Alliance pays Cabot a per procedure rental ranging
from $50 to 120 per case.
<PAGE> 38
SCHEDULE 2.15
Material Contracts and Commitments
(1) Coherent
(2) Optomed
(3) Cabot/Ciron
<PAGE> 39
SCHEDULE 2.18
Insurance Policies
<TABLE>
<CAPTION>
Type of Insurance Name of Insurer
----------------- ---------------
<S> <C>
Property (Inland Marine) ITT Hartford
Workers' Compensation ITT Hartford
Auto Insurance ITT Hartford
Professional/General Liability Shubb Group Insurance
Life Insurance on Officers CNA Life & Manhattan Life
</TABLE>
<PAGE> 40
SCHEDULE 2.20
Use of Proceeds
<TABLE>
<S> <C>
Implement current same store plan $500,000
Complete roll out of West Coast 300,000
Salaries and expenses for new hires 150,000
Open Canadian market (Toronto) in late 1995 125,000
Officer Loan 60,000
Payment of Series A Preferred Dividend 87,000
Quality improvements to Operations, Promotions, Etc. 228,000
----------
$1,450,000
==========
</TABLE>
<PAGE> 41
SCHEDULE 2.24
Additional Disclosures
None
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED REVOLVING CREDIT
AND TERM LOAN AGREEMENT
THIS AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT
(this "Agreement") is entered into as of the 20th day of March, 1996 by and
between MEDICAL ALLIANCE, INC., a Texas corporation ("Borrower"), and
NATIONSBANK OF TEXAS, N.A., a national banking association ("Lender").
W I T N E S S E T H:
1. Borrower and Lender entered into that certain Revolving Credit
and Term Loan Agreement dated as of June 29, 1995 (the "Original Loan
Agreement"), pursuant to which Lender provided to Borrower a revolving credit
facility and a term loan facility upon the terms and subject to the conditions
set forth in the Original Loan Agreement.
2. Borrower has requested that Lender increase the amount and
extend the term of the revolving credit facility, provide to Borrower an
additional term loan facility, and modify certain other provisions contained in
the Original Loan Agreement.
3. Lender and Borrower desire, and have agreed, to amend and
restate the Original Loan Agreement in its entirety pursuant to this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other good valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1
DEFINITION OF TERMS
1.01. Definitions. As used in this Agreement, all exhibits and
schedules hereto and in any note, certificate, report or other Loan Documents
made or delivered pursuant to this Agreement, the following terms shall have
the respective meanings assigned to them in this Section 1 or in the section or
recital referred to below:
"Advance" shall mean the disbursement by Lender of a sum or sums lent
to Borrower pursuant to this Agreement.
"Agreement" shall mean this Amended and Restated Revolving Credit and
Term Loan Agreement, including the schedules and exhibits hereto, as the same
may be renewed, extended or modified from time to time.
"Affiliate" of any Person shall mean any other Person directly or
indirectly, controlling, controlled by, or under common control with, such
Person.
<PAGE> 2
"Base Rate" shall mean the variable rate of interest established from
time to time by Lender as its "prime rate" of interest (which rate of interest
is a general reference rate and may not be the lowest rate charged by Lender on
similar loans). Each change in the Base Rate shall become effective without
prior notice to Borrower automatically as of the opening of business on the
date of such change in the Base Rate.
"Borrowing Base" shall mean, as of any date, seventy-five percent
(75%) of aggregate Eligible Receivables.
"Borrowing Base Report" shall mean, as of any date of preparation, a
certificate in the form of Exhibit H attached hereto prepared, duly executed
and certified by a duly elected officer of Borrower showing the Borrowing Base
as determined by Borrower (which shall be subject to adjustment or modification
to the satisfaction of Lender) as of the date thereof, and which shall be in
form and substance acceptable to Lender.
"Business Day" shall mean any day other than a Saturday, Sunday or day
on which national banks are authorized to be closed under the laws of the state
of Texas.
"Cash Interest Expense" shall mean, for Borrower and its Subsidiaries
for any period, total interest expense in respect of Indebtedness actually paid
or that is payable during such period, including, without limitation, all
commissions, discounts and other fees and charges with respect to letters of
credit, but excluding interest expense not payable in cash, all as determined
in accordance with GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
all regulations promulgated and rulings issued thereunder.
"Collateral Documents" shall mean all security agreements, pledge
agreements, guaranty agreements and other agreements or documents executed or
delivered to secure repayment of the Obligation or any part thereof
"Consolidated Adjusted Net Income" shall mean, for any period,
consolidated net earnings (after income taxes) of Borrower and its
Subsidiaries, but excluding extraordinary gains, including gains due to (a)
sales or write-up of assets, (b) earnings of any Person newly acquired, if
earned prior to acquisition, or (c) acquisition of any securities of Borrower
or a Subsidiary.
"Consolidated Funded Debt" shall mean, for Borrower and its
Subsidiaries, the sum of the following (without duplication): (a) all
Indebtedness which would be classified as "funded indebtedness" or "long-term
indebtedness" on a consolidated balance sheet of Borrower and its Subsidiaries;
(b) all Indebtedness outstanding under a credit agreement providing for
borrowings over a period of more than one year (including indebtedness created
within one year of the maturity date); (c) the principal portion of all
obligations in respect of capital leases; and (d) all obligations under all
Guaranties.
-2-
<PAGE> 3
"Consolidated Tangible Net Worth" shall mean the total shareholder's
equity of Borrower and its Subsidiaries, less the aggregate book value of
Intangible Assets.
"Contract Rate" shall mean (a) with respect to the Revolving Note, the
rate set forth in Section 3.02(b) hereto, (b) with respect to the Term Note,
the rate set forth in Section 3.03(b), and (c) with respect to the Term B Note,
the rate set forth in Section 3.04(b).
"Current Maturities of Long-Term Debt" shall mean, as of any date, the
aggregate amount of all regularly scheduled principal payments of all
outstanding Indebtedness of Borrower and its Subsidiaries that are due and
payable within twelve (12) months of such date.
"Current Maturity Coverage Ratio" shall mean, as of any date, the
ratio of (a) Consolidated Adjusted Net Income for the twelve (12) month period
ending on the date of determination plus all non-cash items reducing
Consolidated Adjusted Net Income, less all non-cash items increasing
Consolidated Adjusted Net Income, to (b) Current Maturities of Long-Term Debt.
"Debtor Laws" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization
or similar laws from time to time in effect affecting the rights of creditors
generally.
"Dividends" in respect of any corporation, shall mean (i) cash
distributions or other distributions on, or in respect of, any class of capital
stock of such corporation, except for distributions made solely in shares of
stock of the same class, and (ii) other payments or transfers made in respect
of the redemption, repurchase or acquisition of such stock.
"EBITDA" shall mean for any period, for Borrower and its Subsidiaries,
the sum of (a) Consolidated Adjusted Net Income, plus (b) depreciation and
amortization expense, plus (c) Cash Interest Expense, plus (d) federal, state,
local and foreign income taxes deducted from Consolidated Adjusted Net Income
in accordance with GAAP.
"Eligible Receivables" shall mean only Receivables arising out of bona
fide sales made by Borrower or any Subsidiary in the ordinary course of
business, to the extent such Receivables are not in dispute and unless deemed
ineligible by a good faith reasonable determination by Lender. No Receivable
shall be an Eligible Receivable if (a) the invoice date for such receivable is
more than ninety (90) days prior to the date of determination of Eligible
Receivables, (b) if Lender reasonably believes that such Receivable may not be
paid because of the account debtors' financial inability to pay or because the
account debtor has disputed liability, asserted any right of setoff, or has
made a claim with respect to, such Receivable, other than as a minimal
adjustment in the ordinary course of business and in accordance with regular
commercial practice, (c) any such account has been placed with an attorney or
collection agency, (d) the balance due on such Receivable represents the
consignment of goods or any advancement of goods for which the sale is not
final, (e) the account debtor on any such Receivable is also a supplier or
creditor of Borrower or any Subsidiary and such account debtor has not by
written
-3-
<PAGE> 4
agreement subordinated its rights of setoff to the rights of Lender to the
satisfaction of Lender, (f) the Receivable is not subject to perfected, first
priority security interest in favor of Lender, (g) the account debtor is not
located within the United States or is the United States government or any
tribunal thereof unless appropriate assignment of claims are executed in
advance, (h) the collection of such Receivable is, in Lender's reasonable
credit judgment, otherwise insecure, or (i) such Receivable arises out of a
contract with, or order from, an account debtor that, by its terms, forbids or
makes void or unenforceable the assignment by Borrower or any Subsidiary to
Lender of the Receivable arising with respect thereto. A Receivable which is
at any time an Eligible Receivable, but which subsequently fails to meet any of
the foregoing requirements, shall forthwith cease to be an Eligible Receivable.
"Environmental Laws" shall mean any law pertaining to air, emissions,
water discharge, noise emissions, solid or liquid waste disposal, hazardous
waste or materials, industrial hygiene, or other environmental, health or
safety matters or conditions on, under or about real property or any portion
thereof, and similar laws of any Governmental Authority having jurisdiction
over real property as such laws may be amended or supplemented from time to
time, and regulations promulgated and rulings issued pursuant to such laws.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the regulations and published interpretations thereunder.
"ERISA Affiliate" shall mean any Subsidiary or trade or business
(whether or not incorporated) which is a member of a group of which Borrower is
a member and which is under common control with Borrower within the meaning of
Section 414 of the Code.
"Event of Default" shall have the meaning set forth in Section 9.01.
"Fixed Charges" shall mean, for any period for Borrower and its
Subsidiaries, the sum of (a) Cash Interest Expense (including the interest
component of any capital leases), and (b) operating lease expenses.
"GAAP" shall mean those generally accepted accounting principles and
practices, applied on a consistent basis, which are recognized as such by the
American Institute of Certified Public Accountants acting through its
Accounting Principles Board and the Financial Accounting Standards Board and/or
their respective successors and which are applicable in the circumstances as of
the date in question.
"Governmental Authority" shall mean, with respect to any Person, any
government (or any political subdivision or jurisdiction thereof), court,
bureau, agency or other governmental authority having jurisdiction over such
Person or any of its business, operations or properties.
"Guarantors" shall mean (a) all present and future Subsidiaries of
Borrower, and (b) Paul Herchman, and "Guarantor" shall mean any one of the
Guarantors.
-4-
<PAGE> 5
"Guaranty" of any Person shall mean any contract or understanding of
such Person pursuant to which such Person guarantees, or in effect guarantees,
any Indebtedness of any other Person (the "Primary Obligor") in any manner,
whether directly or indirectly, including agreements to assure the holder of
the Indebtedness of the Primary Obligor against loss in respect thereof; except
that "Guaranty" shall not include endorsements, in the ordinary course of
business, of negotiable instruments or documents for deposit or collection.
"Hazardous Material" shall mean any hazardous, toxic, or dangerous
waste, substance or material defined as such in or for the purpose of any
Environmental Law.
"Indebtedness" shall mean, with respect to any Person, all
indebtedness, obligations and liabilities of such Person, including without
limitation (a) all "liabilities" which would be reflected on a balance sheet of
such Person, (b) all obligations of such Person in respect of any Guaranty,
letter of credit or bankers' acceptance, (c) all obligations of such Person in
respect of any lease (whether operating or capital), (d) all obligations,
indebtedness and liabilities secured by any lien or any security interest on
any property or assets of such Person, and (e) any obligation to redeem or
repurchase any of such Person's capital stock, warrants or stock equivalents.
"Intangible Assets" of any Person shall mean those assets of such
Person which are (a) deferred assets, other than prepaid insurance and prepaid
taxes, (b) patents, copyrights, trademarks, tradenames, franchises, goodwill,
experimental expenses and other similar assets which would be classified as
intangible assets on a balance sheet of such Person, (c) unamortized debt
discount and expense, and (d) assets located, and notes and receivables due
from obligors domiciled, outside of the United States of America.
"Investment" in any Person shall mean any investment, whether by means
of share purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person, the Guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person.
"Lien" shall mean any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention arrangement, or any
other interest in property designed to secure the repayment of Indebtedness,
whether arising by agreement or under any statute or law, or otherwise.
"Loans" shall mean the Revolving Loan, the Term A Loan, and the Term B
Loan, and "Loan" shall mean any of the Revolving Loan, the Term A Loan or the
Term B Loan.
"Loan Documents" shall mean this Agreement, the Notes, the Collateral
Documents and any agreements, documents (and with respect to this Agreement,
and such other agreements and documents, any renewals, extensions, amendments
or supplements thereto) or certificates at any time executed or delivered
pursuant to the terms of this Agreement.
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"Material Adverse Effect" shall mean any material adverse changes in,
or effect upon, (a) the validity, performance or enforceability of any Loan
Documents, (b) the financial condition or business operations of Borrower, any
Subsidiary or Guarantor, or (c) the ability of Borrower to fulfill its
obligations under the Loan Documents.
"Maximum Rate" shall mean the highest nonusurious rate of interest (if
any) permitted from day to day by applicable law. Lender hereby notifies and
discloses to Borrower that, for purposes of Tex. Rev. Civ. Stat. Ann. art.
5069-1.04, as it may from time to time be amended, the "applicable rate
ceiling" shall be the "indicated rate" ceiling from time to time in effect as
limited by article 5069-1.04(b); provided, however, that to the extent
permitted by applicable law, Lender reserves the right to change the
"applicable rate ceiling" from time to time by further notice and disclosure to
Borrower.
"Notes" shall mean the Revolving Credit Note, the Term Note, and the
Term B Note, and "Note" shall mean any of the Revolving Note, the Term Note or
the Term B Note.
"Notice of Borrowing" shall mean (a) with respect to the Revolving
Loan, a notice in the form of Exhibit B, and (b) with respect to the Term
Loans, a notice in the form of Exhibit C.
"Obligation" shall mean all present and future indebtedness,
obligations, and liabilities and all renewals and extensions thereof, or any
part thereof, now or hereafter owed to Lender by Borrower, whether arising
pursuant to any of the Loan Documents, or otherwise, and all renewals and
extensions thereof, together with all interest accruing thereon and costs,
expenses and attorneys' fees incurred in the enforcement or collection thereof.
"Original Loan Agreement" shall have the meaning set forth in the
recitals of this Agreement.
"Person" shall include an individual, corporation, joint venture,
general or limited partnership, trust, unincorporated organization, or
government, or any agency or political subdivision thereof.
"Permitted Dividends" shall mean Dividends in respect of Borrower's
Class A Preferred Stock issued and outstanding as of June 29, 1995, payable on
June 30 of each year, not to exceed in the aggregate per year the lesser of (a)
$0.20 per share, and (b) $87,000.00.
"Permitted Liens" shall mean (a) Liens in favor of Lender to secure
the Obligation, (b) pledges or deposits made to secure payment of worker's
compensation (or to participate in any fund in connection with worker's
compensation), unemployment insurance, pensions, or social security programs,
(c) Liens imposed by mandatory provisions of law such as for materialmen's,
mechanic's, warehousemen's and other like Liens arising in the ordinary course
of business, securing Indebtedness whose payment is not yet due, (d) Liens for
taxes, assessments and governmental charges or levies imposed upon a Person or
upon such Person's income, profits or property, if the same are not yet due and
payable or if the same are being contested in good
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faith and as to which adequate reserves are maintained in accordance with GAAP,
(e) good faith deposits in connection with leases, real estate bids or
contracts (other than contracts involving the borrowing of money), pledges or
deposits to secure (or in lieu of ) surety, stay, appeal or customs bonds and
deposits to secure the payment of taxes, assessments, customs, duties or other
similar charges, (f) encumbrances consisting of zoning restrictions, easements,
or other restrictions on the use of real property, provided that such
encumbrances do not impair the use of such property for the uses intended, and
none of which is violated by existing or proposed structures or land use, and
(g) the capital leases and Liens evidenced by the financing statements listed
on Exhibit I.
"Permitted Subordinated Debt" shall mean Indebtedness of Borrower that
is subordinated to the Obligation pursuant to a written agreement containing
terms, conditions and subordination provisions acceptable to Lender, including,
without limitation, a provision stating that upon the occurrence and during the
continuance of an Event of Default under this Agreement or the Loan Documents,
no payments of principal or interest shall be made on or with respect to such
Indebtedness, or any renewals or extensions thereof.
"Plan" shall mean an employee benefit plan or other plan maintained by
Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code, as
amended.
"Potential Default" shall mean the occurrence of any event which with
passage of time or giving of notice or both could become an Event of Default.
"Receivables" shall mean all present and future (a) accounts,
receivables, contract rights, chattel paper, documents, tax refunds, or
payments of, or owned by, Borrower or any Subsidiary, (b) insurance proceeds,
patent rights, license rights, rights to refunds or indemnification, and other
general intangibles of every kind or nature of, or owned by, Borrower or any
Subsidiary, and (c) all forms of obligations whatsoever owing to Borrower or
any Subsidiary together with all instruments and all documents of title
representing any of the foregoing and all right, title, and interest in, and
all securities and guaranties with respect to, each Receivable.
"Revolving Loan" shall mean the revolving credit loan made or to be
made hereunder to Borrower by Lender pursuant to Section 2.01.
"Revolving Note" shall mean the Revolving Credit Note executed by
Borrower and delivered pursuant to the terms of this Agreement, together with
any renewals, extensions or modifications thereof, which note is in renewal,
extension, modification and increase of that certain Revolving Credit Note
dated June 29, 1995, executed by Borrower and payable to the order of Lender in
the original principal amount of $250,000.00.
"Scheduled Termination Date" shall mean May 30, 1997.
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"Subsidiary" shall mean any corporation of which more than fifty
percent (50%) (in number of votes) of the issued and outstanding securities
having ordinary voting power for the election of at least a majority of the
directors is owned or controlled, directly or indirectly, by Borrower, any
Subsidiary or any combination thereof, including, without limitation, those
listed on Exhibit A.
"Temporary Cash Investment" shall mean any Investment (i) in direct
obligations of the United States of America or any agency thereof, or
obligations fully guaranteed by the United States of America or any agency
thereof, provided that such obligations mature within one year of the date of
acquisition thereof, (ii) commercial paper rated in the highest grade by two or
more national credit rating agencies and maturing not more than 180 days from
the date of creation thereof, and (iii) time deposits with, and certificates of
deposit and bankers' acceptances issued by, Lender or any United States bank
having capital surplus and undivided profits aggregating at least
$1,000,000,000.
""Termination Date" shall mean the earlier of (i) the Scheduled
Termination Date, or (ii) the date Lender's commitment to fund Advances
hereunder is terminated pursuant to Section 9.02.
"Term A Loan" shall mean the term loan made or to be made to Borrower
by Lender pursuant to Section 2.02.
"Term B Loan" shall mean the term loan made or to be made to Borrower
by Lender pursuant to Section 2.03.
"Term Loans" shall mean the Term A Loan and the Term B Loan, and "Term
Loan" shall mean either the Term A Loan or the Term B Loan.
"Term Note" shall mean the Term Note dated June 29, 1995, executed by
Borrower and payable to the order of Lender in the original principal amount of
$1,750,000.00, and delivered pursuant to the terms of the Original Loan
Agreement, together with any renewals, extensions or modifications thereof.
"Term B Note" shall mean the Term Note executed by Borrower and
payable to the order of Lender in the original principal amount of
$2,000,000.00, and delivered pursuant to the terms of this Agreement, together
with any renewals, extensions or modifications thereof.
"Term Notes" shall mean the Term Note and the Term B Note, and "Term
Note" shall mean either the Term Note or the Term B Note.
1.02. Accounting Terms. As used in this Agreement, and in the Note,
and in any certificate, report or other document made or delivered pursuant to
this Agreement, accounting terms not defined in Section 1.01, and accounting
terms partly defined in Section 1.01 to the extent not defined, shall have, as
of any date, the respective meanings given to them under
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GAAP and all references to balance sheets or other financial statements shall
mean such statements, prepared in accordance with GAAP as of such date.
1.03. Rules of Construction. When used in this Agreement: (a) "or"
is not exclusive; (b) a reference to a law includes any amendment or
modification to such law; (c) a reference to a Person includes its permitted
successors and permitted assigns; (d) except as provided otherwise, all
references to the singular shall include the plural and vice versa; (e) except
as provided in this Agreement, a reference to an agreement, instrument or
document shall include such agreement, instrument or document as the same may
be amended, modified or supplemented from time to time in accordance with its
terms and as permitted by the Loan Documents; (f) all references to Sections
shall be to Sections of this Agreement, unless otherwise indicated; (g) all
Exhibits to this Agreement shall be incorporated into this Agreement; (h) the
words "include," "includes" and "including" shall be deemed to be followed by
the phrase "without limitation;" and (i) except as otherwise provided herein,
in the computation of time from a specified date to a later specified date, the
word "from" means "from and including" and words "to" and "until" each mean "to
but excluding."
SECTION 2
THE REVOLVING CREDIT LOAN AND THE TERM LOANS
2.01. The Revolving Credit Loan and Revolving Credit Commitment.
Subject to the terms and conditions of this Agreement, Lender agrees to extend
to Borrower, from the date hereof through the Termination Date, a revolving
line of credit which shall not exceed at any one time outstanding the lesser of
(a) $500,000.00, and (b) the Borrowing Base (the "Revolving Credit
Commitment"). Within the limits of this Section 2.01, during such period,
Borrower may borrow, repay and reborrow in accordance with this Agreement.
Borrower shall have the right, upon three (3) Business Days' prior written
notice to Lender, to permanently reduce the unutilized portion of the Revolving
Credit Commitment; provided that any partial reduction shall be in the minimum
amount of $25,000.00 or a greater integral multiple thereof.
2.02. The Term A Loan and Term A Loan Credit Commitment. Subject to
the terms and conditions of this Agreement, Lender agrees to extend to
Borrower, a term loan in multiple advances from June 29, 1995 through the
Second Conversion Date (defined below), which shall not exceed in the aggregate
$1,750,000.00 (the "Term A Loan Commitment"). Borrower may not borrow, repay
and reborrow any portion of the Term A Loan. The lesser of (a) the aggregate
amount of all Advances under the Term A Loan made between June 29, 1995 and the
earlier to occur of (i) October 31, 1995, and (ii) the date in which Advances
under the Term A Loan initially exceed $1,100,000.00 (such date being the
"Initial Conversion Date"), and (b) $1,100,000.00, is referred to herein as the
"Initial Funding Amount." The aggregate amount of all Advances under the Term
A Loan in excess of the Initial Funding Amount made between the Initial
Conversion Date and the earlier to occur of (i) May 15, 1997, and (ii) the date
in which Advances under the Term A Loan initially equal or exceed the Term A
Loan Commitment
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(such date being the "Second Conversion Date") is referred to herein as the
"Second Funding Amount."
2.03. The Term B Loan and Term B Loan Credit Commitment. Subject to
the terms and conditions of this Agreement, Lender agrees to extend to Borrower
a term loan in multiple advances from the date hereof through the Termination
Date, which shall not exceed in the aggregate $2,000,000.00 (the "Term Loan
Commitment"). Borrower may not borrow, repay and reborrow any portion of the
Term B Loan.
2.04. Manner of Borrowing.
(a) Notice of Borrowing. Borrower shall give Lender a
Notice of Borrowing on or before 10:00 a.m. (Dallas, Texas time) on
any day an Advance under the Revolving Note or the Term Loans is
requested and shall specify the aggregate amount and requested date of
such Advance.
(b) Minimum Advances. Each Advance under the Notes shall
be in an amount of $25,000.00 or a greater integral thereof.
(c) Funding. Subject the terms and conditions in this
Agreement, not later than 2:00 p.m., Dallas, Texas time, on the date
specified, subject to the terms and conditions of this Agreement,
Lender shall make available to Borrower, at Lender's offices in
Dallas, Texas, the amount of a requested Advance in immediately
available funds.
SECTION 3
FEES, NOTES, INTEREST, AND PAYMENTS
3.01. Commitment Fees. In connection with the Original Loan
Agreement, Borrower has paid to Lender a commitment fee equal to $30,000.00.
In addition, Borrower agrees to pay to Lender, on or before the date hereof, a
commitment fee equal to $10,000.00. Borrower also agrees to pay Lender a
commitment fee of one-half of one percent (.5%) per annum on the daily unused
portion of the Revolving Credit Commitment. Such commitment fee shall be
payable quarterly in arrears on the fifteenth (15th) day of each August,
November, February and May, commencing May 15, 1996, and continuing regularly
thereafter so long as the Revolving Credit Commitment is in effect, and shall
also be payable at the maturity of the Revolving Note and upon any earlier date
of termination of the Revolving Credit Commitment. Borrower acknowledges that
the commitment fees payable hereunder are bona fide commitment fees and are
intended as reasonable compensation to Lender for committing to make funds
available to Borrower as described herein and for no other purposes.
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3.02. Revolving Note and Note Payments.
(a) Note. The Advances made under Section 2.01 by Lender
shall be evidenced by the Revolving Note in form and substance
satisfactory to Lender executed by Borrower, which Revolving Note
shall (i) be dated the date hereof, (ii) be in the amount of
$500,000.00, (iii) be payable to the order of Lender, and (iv) bear
interest in accordance with Section 3.02(b).
(b) Interest Rate. The unpaid principal of the Revolving
Note shall bear interest from the date of advance to maturity at a
rate per annum which shall from day to day be equal to the lesser of:
(i) the Base Rate in effect from day to day plus one-half of one
percent (0.5%), or (ii) the Maximum Rate. Overdue principal and
interest on the Revolving Note shall bear interest, to the extent
permitted by applicable law, at a rate per annum equal to the Maximum
Rate.
(c) Payments.
(1) Principal and Interest. The unpaid principal
of the Revolving Note, and all accrued but unpaid interest thereon,
shall be due and payable on the Termination Date. Interest on the
unpaid principal Of the Revolving Note shall also be due and payable
monthly as it accrues on the fifteenth (15th) day of each month,
commencing April 15, 1996, and on the Termination Date.
(2) Optional Prepayments. Borrower shall have
the right, from time to time, to prepay the Revolving Note, in whole
or in part, without premium or penalty, upon the payment of accrued
interest on the amount prepaid to and including the date of payment;
provided, however, that partial prepayments of principal shall be in
an amount equal to $25,000.00 or any greater integral multiple thereof
(or, if less, the unpaid principal of the Revolving Note).
Prepayments of the Revolving Note shall not reduce the Revolving
Credit Commitment.
(3) Mandatory Prepayments. Notwithstanding
anything contained herein or in the Revolving Note to the contrary, if
at any time the outstanding principal balance of the Revolving Note
and all accrued unpaid interest thereon exceeds the Borrowing Base,
Borrower shall immediately prepay the Revolving Note, in immediately
available funds, in an amount equal to such excess balance.
3.03. Term Note and Note Payments.
(a) Note. The Advances made under Section 2.02 by Lender
shall be evidenced by the Term Note executed by Borrower, which Term
Note (i) is dated June 29, 1995, (ii) is in the amount of
$1,750,000.00, (iii) is payable to the order of Lender, and (iv) bears
interest in accordance with Section 3.03(b).
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(b) Interest Rate. The unpaid principal of the Term Note
shall bear interest from the date of advance to maturity at a rate per
annum which shall from day to day be equal to the lesser of. (i) the
Base Rate in effect from day to day plus one and one-half percent
(1.5%); or (ii) the Maximum Rate. Overdue principal and interest on
the Term Note shall bear interest, to the extent permitted by
applicable law, at a rate per annum equal to the Maximum Rate.
(c) Payments.
(1) Interest. Interest on the unpaid principal
of the Term Note shall be due and payable monthly on the fifteenth
(15th) day of each month, commencing July 15, 1995, and at maturity.
(2) Principal. The unpaid principal of the Term
Note shall be due and payable as follows: (i) the Initial Funding
Amount shall be due and payable in thirty-six (36) equal monthly
installments, each in an amount equal to the Initial Funding Amount
divided by thirty-six (36), commencing on the fifteenth (15th) day of
the month immediately following the Initial Conversion Date, and
thereafter on the fifteenth (15th) day of each succeeding calendar
month; and (ii) the Second Initial Funding Amount shall be due and
payable in thirty-six (36) equal monthly installments, each in an
amount equal to the Second Funding Amount divided by thirty-six (36),
commencing on the fifteenth (15th) day of the month immediately
following the Second Conversion Date, and thereafter on the fifteenth
(15th) day of each succeeding calendar month.
(3) Optional Prepayments. Borrower shall have
the right, from time to time, to prepay the Term Note, in whole or in
part, without: premium or penalty, upon the payment of accrued
interest on the amount prepaid to and including the date of payment;
provided, however, that partial prepayments of principal shall be in
an amount equal to $25,000.00 or any greater integral multiple thereof
(or, if less, the unpaid principal of the Term Note).
3.04. Term B Note and Note Payments.
(a) Note. The Advances made under Section 2.03 by Lender
shall be evidenced by the Term B Note in form and substance
satisfactory to Lender executed by Borrower, which Term B Note shall
(i) be dated the date hereof, (ii) be in the amount of $2000,000.00;
(iii) be payable to the order of Lender, and (iv) bear interest in
accordance with Section 3.04(b).
(b) Interest Rate. The unpaid principal of the Term B
Note shall bear interest from the date of advance to maturity at a
rate per annum which shall from day to day be equal to the lesser of.
(i) the Base Rate in effect from day to day plus three-quarters of one
percent (.75%); or (ii) the Maximum Rate. Overdue principal and
interest on the Term B Note shall bear interest, to the extent
permitted by applicable law, at a rate per
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annum equal to the Maximum Rate.
(c) Payments.
(1) Interest. Interest on the unpaid principal
of the Term B Note shall be due and payable monthly on the fifteenth
(15th) day of each month, commencing April 15, 1996, and at maturity.
(2) Principal. The unpaid principal of the Term
B Note shall be due and payable as follows: (i) in thirty-five (35)
equal monthly installments, each in an amount equal to the unpaid
principal balance of the Term B Note as of the Scheduled Termination
Date divided by thirty-six (36), commencing on June 15, 1997, and
thereafter on the fifteenth (15th) day of each succeeding calendar
month through and including April 15, 2000; and (ii) in one (1) final
installment, on May 15, 2000, in the amount of the unpaid principal
balance of, and interest on, the Term B Note.
(3) Optional Prepayments. Borrower shall have
the right, from time to time, to prepay the Term B Note, in whole or
in part, without premium or penalty, upon the payment of accrued
interest on the amount prepaid to and including the date of payment;
provided, however, that partial prepayments of principal shall be in
an amount equal to $25,000.00 or any greater integral multiple thereof
(or, if less, the unpaid principal of the Term B Note).
3.05. Interest and Payments in General.
(1) Manner and Application of Payments. All
payments and prepayments by Borrower on account of principal,
interest, and fees hereunder shall be made in immediately available
funds. All such payments shall be made to Lender at its principal
office in Dallas, not later than 12:00 noon, Dallas, Texas time, on
the date due and funds received after that hour shall be deemed to
have been received by Lender on the next following Business Day. If
any payment is scheduled to become due and payable on a day which is
not a Business Day, such payment shall instead become due and payable
on the immediately following Business Day and interest on the
principal portion of such payment shall be payable at the then
applicable rate during such extension. All payments made on the Notes
shall be applied first to accrued interest and then to principal (in
the inverse order of maturity in the case of prepayments).
(2) Computation of Interest and Fees. Interest
on the Notes and the fees shall be calculated on the basis of a year
of 360 days for the actual number of days (including the first but
excluding the last) elapsed, unless the Maximum Rate shall be in
effect, in which case on the basis of a year of 365 or 366 days, as
the case may be.
(3) Recapture Rate. If the applicable Contract
Rate ever exceeds the Maximum Rate thereby causing the interest
charged under any Note to be limited to the
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Maximum Rate, then any subsequent reductions in the applicable
Contract Rate shall not reduce the rate of interest charged under such
Note below the Maximum Rate until the total amount of interest accrued
on such Note equals the amounts of interest that would have accrued
thereon if the applicable Contract Rate had at all times been in
effect.
SECTION 4
COLLATERAL AND GUARANTIES
4.01. Collateral. To secure the performance of Borrower of the
payment and performance of the Obligation, Borrower and its Subsidiaries shall
grant to Lender a perfected, first priority, Lien in all of the assets of
Borrower and its Subsidiaries, now owned or hereafter acquired, subject only to
Permitted Liens, including all current and future Receivables, inventory,
equipment, machinery, equipment, fixtures, instruments, documents, contract
rights, general intangibles, of Borrower and its Subsidiaries, including,
without limitation, all of Borrower's and its Subsidiaries' trademarks,
tradenames, copyrights, patents, goodwill and other intangible assets, now
owned or hereafter acquired.
4.02. Guaranties. Payment of the Loans shall be unconditionally
guaranteed by Guarantors.
SECTION 5
CONDITIONS PRECEDENT
5.01. Initial Advance. The obligation of Lender to make its initial
Advance under the Revolving Loan or the Term Loans is subject to the conditions
precedent that, on or before the date of such Advance, (a) Borrower shall have
paid to Lender (i) all fees to be received by Lender pursuant to this Agreement
or any other Loan Document, and (ii) an amount equal to the estimated costs and
out-of-pocket expenses of Lender's counsel incurred in connection with the
preparation, execution and delivery of the Loan Documents and the consummation
of the transactions contemplated thereby, and (b) Lender shall have received
duly executed copies of each of the documents listed on Exhibit D, each in form
and substance satisfactory to Lender.
5.02. All Advances. The obligation of Lender to make any Advance
under this Agreement (including the initial Advance) shall be subject to the
conditions precedent that, as of the date of such Advance and after giving
effect thereto: (a) there exists no Potential Default or Event of Default; (b)
no change that would cause a Material Adverse Effect has occurred since the
date of the financial statements referenced in Section 6.06; (c) Lender shall
have received from Borrower a Notice of Borrowing dated as of the date of such
Advance and all of the statements contained in such Notice of Borrowing shall
be true and correct; (d) the representations and warranties contained in each
of the Loan Documents shall be true in all
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material respects as though made on the date of such Advance; and (e) the
Maximum Rate exceeds the Contract Rate.
SECTION 6
REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loans hereunder, Borrower represents and
warrants to Lender that:
6.01. Organization and Good Standing. Each of Borrower and its
Subsidiaries is a corporation duly organized and in good standing under the
laws of the state of its incorporation, is duly qualified as a foreign
corporation and in good standing in all states in which it is doing business,
except where the failure to so qualify would not have a Material Adverse
Effect, has the corporate power and authority to own its properties and assets
and to transact the business in which it is engaged in each jurisdiction in
which it operates and is or will be qualified in those states wherein it
proposes to transact business in the future, except where the failure to so
qualify could not have a Material Adverse Effect.
6.02. Authorization and Power. Each of Borrower, its Subsidiaries,
and the Guarantors has full power and authority to execute, deliver and perform
the Loan Documents to be executed by such Person, all of which has been duly
authorized by all proper and necessary corporate action.
6.03. No Conflicts or Consents. Neither the execution and delivery
of the Loan Documents, nor the consummation of any of the transactions therein
contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any provision of law, statute or
regulation to which Borrower or any Subsidiary is subject, any judgment,
license, order or permit applicable to Borrower or any Subsidiary, any
indenture, loan agreement, mortgage, deed of trust, or other agreement or
instrument binding on Borrower or any Subsidiary or any provision of the
charter or bylaws of Borrower or any Subsidiary, except where such
contravention or conflict could not have a Material Adverse Effect. Other than
consents, approvals, authorizations or orders that have been obtained, no
consent, approval, authorization or order of any court, Governmental Authority,
stockholder or third party is required in connection with the execution,
delivery or performance by Borrower or any Subsidiary of any of the Loan
Documents.
6.04. Enforceable Obligations. The Loan Documents have been duly
executed and delivered by Borrower, its Subsidiaries, and each Guarantor, as
appropriate, and are the legal and binding obligations of Borrower, its
Subsidiaries, and each Guarantor, as appropriate, enforceable in accordance
with their respective terms, except as limited by Debtor Laws.
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6.05. No Liens. Except for the Permitted Liens, all of the
properties and assets of Borrower and its Subsidiaries are free and clear of
all Liens and other adverse claims of any nature, and such Persons have good
and indefeasible title to such properties and assets.
6.06. Financial Condition. Borrower has delivered to Lender copies
of the financial statements of Borrower and its Subsidiaries, as of December
31, 1995, and of Paul Herchman as of March 17, 1995; such financial statements
are true and correct, fairly represent the respective financial condition of
Borrower, its Subsidiaries and Paul Herchman as of such date and have been
prepared in accordance with GAAP; as of the date hereof, there are no
obligations, liabilities or Indebtedness (including contingent and indirect
liabilities) of Borrower, any of its Subsidiaries or Paul Herchman which are
material and are not reflected in such financial statements; no Material
Adverse Effect has occurred since the date of such financial statements.
6.07. Full Disclosure. There is no fact known to Borrower that
Borrower has not disclosed to Lender which could have a Material Adverse
Effect. No certificate or statement delivered by Borrower to Lender in
connection with this Agreement contains any untrue statement of a material fact
or omits to state any material fact necessary to keep the statements contained
herein or therein from being misleading.
6.08. No Potential Default. No event has occurred and is continuing
which constitutes a Potential Default or an Event of Default.
6.09. Material Agreements. Neither Borrower nor any of its
Subsidiaries is in default in any material respect under any contract or
agreement to which it is a party or by which any of its properties is bound,
except where such default could not have a Material Adverse Effect.
6.10. No Litigation. Except as disclosed in writing to Lender,
there are no actions, suits or legal, equitable, arbitration or administrative
proceedings pending, or to the knowledge of Borrower threatened, against
Borrower or any of its Subsidiaries that could, if adversely determined, have a
Material Adverse Effect.
6.11. Use of Proceeds; Margin Stock. The proceeds of the Loans will
be used by Borrower solely for the purposes specified in the preamble. None of
such proceeds will be used for the purpose of purchasing or carrying any
"margin stock" as defined in Regulations G, T, U or X of the Board of Governors
of the Federal Reserve System or for any other purpose which might constitute
this transaction a "purpose credit" within the meaning of such Regulations. If
requested by Lender, Borrower will furnish to Lender a statement in conformity
with the requirements of the Federal Reserve Form U-1 referred to in said
Regulation U to the foregoing effect. No part of the proceeds of the Loans
will be used for any purpose which violates, or is inconsistent with, the
provisions of Regulation X.
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6.12. Taxes. All tax returns required to be filed by Borrower or
any Subsidiary in any jurisdiction have been filed and all taxes (including
mortgage recording taxes), assessments, fees and other governmental charges
upon Borrower or any Subsidiary or upon any of its or their properties, income
or franchises have been paid except for taxes being contested in good faith by
appropriate proceedings diligently projected and as to which adequate reserves
have been established in accordance with GAAP.
6.13. Principal Office, Etc. The principal office, chief executive
office and principal place of business of Borrower and each Subsidiary is as
set forth on Exhibit E attached hereto. Borrower and each Subsidiary maintain
their principal records and books at such addresses.
6.14. Compliance with Law. Borrower and its Subsidiaries are in
compliance with all laws, rules, regulations, orders and decrees (including all
Environmental Laws) which are applicable to Borrower or any Subsidiary, or its
or their properties, except where noncompliance could not have a Material
Adverse Effect.
6.15. Subsidiaries. Set forth on Exhibit A is a complete and
accurate list of all Subsidiaries as of the date hereof, showing as of such
date (as to each such Subsidiary) the jurisdiction of its incorporation, the
number of shares of each class of capital stock outstanding on the date hereof,
the owner of the outstanding shares of each such class owned and the
jurisdictions in which such Subsidiary is qualified to do business as a foreign
corporation. All of the outstanding capital stock of all Subsidiaries has been
validly issued, is fully paid and nonassessable and is owned by Borrower free
and clear of all Liens, other than the security interests under the Collateral
Documents.
6.16. Casualties. Neither the business nor the properties of
Borrower or any Subsidiary are affected by any environmental hazard, fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or other casualty (whether or not covered
by insurance), which could have a Material Adverse Effect.
6.17. Sufficiency of Capital. Borrower and each of its Subsidiaries
is, and after consummation of this Agreement and after giving effect to all
Indebtedness incurred and Liens created by Borrower and its Subsidiaries in
connection herewith will be, solvent.
6.18. Collateral Documents; Description and Location of Assets.
Upon the filing by Lender of all Collateral Documents to be filed or recorded,
Lender will have a perfected first priority Lien in all assets and properties
of Borrower and each of its Subsidiaries for which perfection may be
accomplished by the filing of a financing statement, subject only to Permitted
Liens. Borrower and its Subsidiaries, respectively, own no other assets or
property (whether real, personal, tangible or intangible) other than as
described in the Collateral Documents. All assets of Borrower and such
Subsidiary are located at the addresses listed on Exhibit E. Except in the
ordinary course of business, no asset of Borrower or any Subsidiary will be
kept at any other address.
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6.19. Corporate Name. As of the date hereof, neither Borrower nor
any of its Subsidiaries has, during the preceding five (5) years, (a) used any
other corporate name or tradename (except for Laser Support Services, Inc.), or
(b) been the surviving corporation of a merger or consolidation or acquired all
or substantially all of the assets of any Person.
6.20. Leases. Except for the capital leases set forth on Exhibit I
and the real estate and operating leases set forth on Exhibit J, in each case
as supplemented from time to time to reflect transactions otherwise permitted
hereunder, neither Borrower nor any Subsidiary is the lessee of any real or
personal property.
6.21. ERISA. Neither Borrower nor any ERISA Affiliate has any
Plans.
6.22. Representations and Warranties. Each Notice of Borrowing
shall constitute, without the necessity of specifically containing a written
statement, a representation and warranty by Borrower that no Potential Default
or Event of Default exists and that all representations and warranties
contained in this Section 6 or in any other Loan Document are true and correct
in all material respects on and as of the date the requested Advance is to be
made.
6.23. Labor Matters. There are no controversies pending between
Borrower or any Subsidiary and any of their employees which could have a
Material Adverse Effect.
6.24. Burdensome Contracts. Neither Borrower nor any Subsidiary is
a party to, or bound by, any contract having a Material Adverse Effect.
6.25. Licenses. As of the date hereof, Exhibit G contains a list of
all licenses of Borrower and its Subsidiaries. Neither Borrower nor any of its
Subsidiaries is in default under or has otherwise violated the terms of such
licenses, the default under or violation of which could have a Material Adverse
Effect. As of the date hereof, Borrower has advised Lender, in writing, of all
regulatory defects or deficiencies under any state laws applicable to Borrower
and its Subsidiaries of which Borrower has been advised or has actual
knowledge.
6.26. Survival of Representations and Warranties. All
representations and warranties by Borrower herein shall survive delivery of the
Notes and the making of the Loans, and any investigation at any time made by or
on behalf of Lender shall not diminish Lender's right to rely thereon.
ARTICLE 7
AFFIRMATIVE COVENANTS
So long as Lender has any commitment to make Advances hereunder, and
until payment in full of the Obligation, Borrower agrees that (unless Lender
shall otherwise consent in writing):
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7.01. Financial Statements, Reports and Documents. Borrower shall
deliver to Lender each of the following:
(a) Monthly Statements. As soon as available, and in any
event within thirty (30) days after the last day of each monthly
fiscal period of each fiscal year of Borrower, copies of the
consolidated balance sheet of Borrower and its Subsidiaries as of the
end of such monthly fiscal period, and statements of income, retained
earnings and changes in cash flow of Borrower and its Subsidiaries for
that monthly fiscal period and for the portion of the fiscal year
ending with such period, all in reasonable detail, and certified by
the chief financial officer of Borrower as being true and correct and
as having been prepared in accordance with GAAP, subject to year-end
audit adjustments;
(b) Annual Statements. As soon as available and in any
event on or before May 31 of each fiscal year of Borrower, copies of
the consolidated balance sheet of Borrower and its Subsidiaries as of
the close of such fiscal year and statements of income, retained
earnings and changes in cash flow of Borrower and its Subsidiaries for
such fiscal year, in each case setting forth in comparative form the
figures for the preceding fiscal year, all in reasonable detail and
accompanied by an opinion thereon (which shall not be qualified by
reason of any limitation imposed by Borrower) of independent public
accountants of recognized national standing selected by Borrower and
satisfactory to Lender, to the effect that (i) such consolidated
financial statements have been prepared in accordance with GAAP
(except for changes in which such accountants concur), (ii) the
examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted
auditing standards and, accordingly, includes such tests of the
accounting records and such other auditing procedures as were
considered necessary in the circumstances, and (iii) in making their
audit, such accountants have not become aware of any condition or
event which would constitute a Potential Default or an Event of
Default under any of the terms or provisions of this Agreement
(insofar as any such terms or provisions pertain to accounting
matters) and, if any such condition or event then exists, specifying
the nature and period of existence thereof;
(c) Compliance Certificate. Within thirty (30) days
after the last day of each fiscal month of Borrower hereafter, a
certificate, in the form of Exhibit F attached hereto, executed by the
chief financial officer or chief executive officer of Borrower,
stating that a review of the activities of Borrower during such fiscal
quarter has been made under his supervision and that Borrower has
performed each and every obligation and covenant contained herein and
is not in default under any of the same or, if any such default shall
have occurred, specifying the nature and status thereof, and setting
forth a computation in reasonable detail as of the end of the period
covered by such statements, of compliance with Sections 8.14, 8.15,
8.16, 8.17 and 8.18;
(d) Borrowing Base Report and Equipment Summary.
Concurrently with the delivery of each of the financial statements
pursuant to paragraphs (a) and (b) above, a
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Borrowing Base Report and a summary accounts receivable aging report
(and, upon request by Lender, a listing of each Receivable, the
account debtor, the age of such Receivable and the amount of such
Receivable) and a summary of all equipment of Borrower and each
Subsidiary; and
(e) Other Information. Such other information concerning
the business, properties or financial condition of Borrower, any
Subsidiary or any Guarantor as Lender shall reasonably request
including audit reports, registration statements or other reports or
notices provided to shareholders of Borrower or filed with the
Securities and Exchange Commission.
7.02. Guarantor Statements. Borrower shall cause Paul Herchman to
deliver to Lender personal annual financial statements within one hundred and
twenty (120) days after the last day of each calendar year, in a form
prescribed by Lender or otherwise reasonably acceptable to Lender.
7.03. Payment of Taxes and Other Indebtedness. Borrower shall, and
shall cause each of its Subsidiaries to, pay and discharge (i) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any property belonging to it, before delinquent,
(ii) all lawful claims (including claims for labor, materials and supplies),
which, if unpaid, might give rise to a Lien upon any of its property, and (iii)
all of its other Indebtedness, except as prohibited under the Loan Documents;
provided, however, that Borrower and each of its Subsidiaries shall not be
required to pay any such tax, assessment, charge, levy or claim if and so long
as the amount, applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings and appropriate accruals and cash
reserves therefor have been established in accordance with GAAP.
7.04. Maintenance of Existence and Rights: Conduct of Business.
Borrower shall, and shall cause each of its Subsidiaries to, preserve and
maintain its corporate existence and, except where the failure to preserve or
maintain could not have a Material Adverse Effect, all of its rights,
privileges and franchises necessary or desirable in the normal conduct of its
business, and shall conduct its business in an orderly and efficient manner
consistent with good business practices and in accordance with all valid
regulations and orders of any Governmental Authority, except where the failure
to so conduct business could not have a Material Adverse Effect.
7.05. Notice of Default. Borrower shall furnish to Lender,
immediately upon becoming aware of the existence of any condition or event
which constitutes a Potential Default or an Event of Default, written notice
specifying the nature and period of existence thereof and the action which
Borrower is taking or proposes to take with respect thereto.
7.06. Other Notices. Borrower shall, and shall cause each of its
Subsidiaries to, promptly notify Lender of (i) any material adverse change in
its financial condition or its business, (ii) any default under any material
agreement, contract or other instrument to which it is a party or by which any
of its properties are bound, where such default could have a
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Material Adverse Effect, or any acceleration of the maturity of any
Indebtedness owing by Borrower or any Subsidiary, (iii) any material adverse
claim against or affecting Borrower or any Subsidiary or any of its Properties,
if such claim could have a Material Adverse Effect, and (iv) the commencement
of, and any material determination in, any litigation with any third party or
any proceeding before any Governmental Authority affecting Borrower or any
Subsidiary, if such litigation or proceeding could have a Material Adverse
Effect.
7.07. Operations and Properties. Borrower shall, and shall cause
each of its Subsidiaries to, (i) act prudently and or in accordance with
customary industry standards in managing and operating its assets and
properties, and (ii) keep in good working order and condition, ordinary wear
and tear excepted, all of its assets and properties which are necessary to the
conduct of its business.
7.08. Books and Records, Access. Borrower shall give any
representative of Lender access during all business hours to, and permit such
representative to examine, copy or make excerpts from, any and all books,
records and documents in the possession of Borrower and relating to its
affairs, and to inspect any of the properties of Borrower. Borrower shall, and
shall cause each of its Subsidiaries to, maintain complete and accurate books
and records of its transactions in accordance with good accounting practices.
7.09. Compliance with Law. Borrower shall, and shall cause each of
its Subsidiaries to, comply with all applicable laws, rules, regulations, and
all orders of any Governmental Authority, a breach of which could have a
Material Adverse Effect.
7.10. Insurance. Borrower shall, and shall cause each of its
Subsidiaries to, keep all insurable property, real and personal, adequately
insured at all times in such amounts and against such risks as are customary
for Persons in similar businesses operating in the same vicinity, specifically
to include a policy of hazard, casualty, fire and extended coverage insurance
covering all assets, liability insurance and worker's compensation insurance,
in every case under a policy with a financially sound and reputable insurance
company and with only such deductibles as are customary, and all (other than
worker's compensation insurance) to contain a mortgagee or loss payee clause
naming Lender as its interest may appear. Without limiting the foregoing,
Borrower shall maintain (a) product liability insurance of at least
$1,000,000.00 per occurrence and $3,000,000.00 in the aggregate, and (b) life
insurance on the life of Paul Herchman of at least $1,000,000.00.
7.11. Authorizations and Approvals. Borrower shall, and shall cause
each of its Subsidiaries to, promptly obtain, from time to time at its own
expense, all such governmental licenses, authorizations, consents, permits and
approvals as may be required to enable it to comply with its obligations
hereunder and under the other Loan Documents.
7.12. Further Assurances. Borrower shall, and shall cause each of
its Subsidiaries to, make, execute and deliver or file or cause the same to be
done, all such notices, additional agreements, mortgages, assignments,
financing statements or other assurances, and take any and
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all such other action, as Lender may, from time to time, deem reasonably
necessary or proper in connection with any of the Loan Documents, the
obligations of Borrower or any Subsidiary thereunder.
7.13. Indemnity by Borrower. Borrower shall indemnify, defend and
hold harmless Lender and its directors, officers, agents, attorneys, and
employees (individually, an "Indemnitee" and collectively, the "Indemnitees")
from and against any and all loss, liability, obligation, damage, penalty,
judgment, claim, deficiency and expense (including interest, penalties,
attorneys' fees and amounts paid in settlement) to which the Indemnitees may
become subject arising out of this Agreement and the other Loan Documents other
than those which arise by reason of the gross negligence or willful misconduct
of Lender, BUT SPECIFICALLY INCLUDING ANY LOSS, LIABILITY, OBLIGATION, DAMAGE,
PENALTY, JUDGMENT, CLAIM, DEFICIENCY OR EXPENSE ARISING OUT OF THE SOLE OR
CONCURRENT NEGLIGENCE OF LENDER. Borrower shall also indemnify, protect and
hold each Indemnitee harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
proceedings, costs, expenses (including without limitation all reasonable
attorneys' fees and legal expenses whether or not suit is brought), and
disbursements of any kind or nature whatsoever which may at any time be imposed
on, incurred by, or asserted against such Indemnitee, with respect to or as a
direct or indirect result of the violation by Borrower of any Environmental
Law; or with respect to or as a direct or indirect result of Borrower's use,
generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of a Hazardous Material on, under, from or
about real property. The provisions of and undertakings and indemnifications
set forth in this Section 7.13 shall survive (i) the satisfaction and payment
of the Obligation in termination of this Agreement, and (ii) the release of any
Liens held by Lender on real property or the extinguishment of such Liens by
foreclosure or action in lieu thereof.
ARTICLE 8
NEGATIVE COVENANTS
So long as Lender has any commitment to make Advances hereunder, and
until payment in full of the Obligation, Borrower agrees that (unless Lender
shall otherwise consent in writing):
8.01. Limitation on Indebtedness. Borrower shall not, and shall not
permit any of its Subsidiaries to, incur, guarantee or otherwise be or become,
directly or indirectly, liable in respect of any Indebtedness, except (i)
Indebtedness arising out of this Agreement, (ii) Indebtedness secured by the
Permitted Liens (except for liabilities borrowed or guaranteed after the date
hereof), (iii) current liabilities for taxes and assessments incurred in the
ordinary course of business, (iv) Indebtedness in respect of current accounts
payable or accrued (other than for borrowed funds or purchase money
obligations) and incurred in the ordinary course of business, provided that all
such liabilities, accounts and claims shall be promptly paid and discharged
when due or in conformity with customary trade terms, (v) Indebtedness in
respect of operating
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leases, provided that the payment obligations thereunder do not exceed
$300,000.00 in the aggregate in any year during the term hereof, (vi)
Indebtedness of Borrower and its Subsidiaries as reflected in the audited
consolidated financial statement of Borrower and its Subsidiaries as of
December 31, 1995, (vii) the capital leases set forth on Exhibit I, and (viii)
the operating leases set forth on Exhibit J.
8.02. Negative Pledge. Borrower shall not, and shall not permit any
of its Subsidiaries to, create, incur, permit or suffer to exist any Lien upon
any of its property or assets, now owned or hereafter acquired, except for
Permitted Liens.
8.03. Negative Pledge Agreements. Borrower shall not, and shall
permit any of its Subsidiaries to, enter into any agreement (excluding this
Agreement or any other Loan Documents) prohibiting the creation or assumption
of any Lien upon any of its property, revenues or assets, whether now owned or
hereafter acquired, or the ability of any Subsidiary to make any payments,
directly or indirectly, to Borrower by way of dividends, advances, repayments
of loans, repayments of expenses, accruals or otherwise.
8.04. Restrictions on Dividends. Borrower shall not directly or
indirectly declare or make, or incur any liability to make, any Dividend, other
than Permitted Dividends. Borrower shall not permit any of its Subsidiaries to
directly or indirectly declare or make, or incur any liability to make, any
Dividend, except Dividends to Borrower.
8.05. Limitation on Investments. Borrower shall not, and shall not
permit any of its Subsidiaries to, make or have outstanding any Investments in
any Person, except for Borrower's and its Subsidiaries' ownership of stock of
Subsidiaries existing on the date hereof, Temporary Cash Investments and such
other "cash equivalent" investments as Lender may from time to time approve in
writing. Borrower shall not, and shall not permit any of its Subsidiaries to
make any advance of funds to any Person, or have any outstanding advance of
funds to any Person, except for loans to officers of Borrower or a Subsidiary
not to exceed $5,000.00 individually or $20,000.00 in the aggregate at any time
outstanding.
8.06. Certain Transactions. Borrower shall not, and shall not
permit any of the Subsidiaries to, enter into any transaction with, or pay any
management fees to, any Affiliate; provided, however, that Borrower and its
Subsidiaries may enter into transactions with Affiliates upon terms not less
favorable to Borrower and its Subsidiaries than would be obtainable at the time
in comparable, arms-length transactions with Persons other than Affiliates.
8.07. Executive Personnel. Borrower will not, and will not permit
any of its Subsidiary to, substantially change its present executive
management.
8.08. Issuance of Shares. Without the prior written consent of
Lender, such consent not to be unreasonably withheld, Borrower shall not, and
shall not permit any of its Subsidiaries to, issue, sell or otherwise dispose
of, any shares of its capital stock or other securities, or rights, warrants or
options to purchase or acquire any shares or securities, except for issuances
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of stock of Borrower (a) pursuant to options held by officers approved by
Borrower's Board of Directors prior to June 29, 1995, (b) to employees of
Borrower pursuant to an employee stock ownership plan, and (c) pursuant to an
initial public offering of Borrower's capital stock.
8.09. Limitation on Sale of Properties. Borrower shall not, and
shall not permit any of its Subsidiaries to (i) sell, assign, exchange, lease
or otherwise dispose of any of its properties, rights, assets or business,
whether now owned or hereafter acquired, except in the ordinary course of its
business and for a fair consideration, or (ii) sell, assign or discount any
accounts receivable.
8.10. Limitation on Subsidiaries. Borrower shall not, and shall not
permit any of its Subsidiaries to, form, incorporate, acquire or make any
Investment in any Subsidiary, except the Subsidiaries listed on Exhibit A.
8.11. Liquidation, Mergers, Consolidations and Dispositions of
Substantial Assets. Borrower shall not, and shall not permit any of its
Subsidiaries to, dissolve or liquidate, or become a party to any merger or
consolidation, or acquire by purchase, lease or otherwise all or substantially
all of the assets or capital stock of any Person, or sell, transfer, lease or
otherwise dispose of all or any substantial part of its property or assets or
business; provided, however, that the foregoing shall not operate to prevent
mergers or consolidations of any Subsidiary into Borrower or a Subsidiary (if
such transaction does not reduce the tangible net worth of the survivor), or a
sale, transfer or lease of assets by any Subsidiary to Borrower.
8.12. Lines of Business, Receivables Policy. Borrower shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly, engage in
any business other than those in which it is presently engaged, or discontinue
any of its material existing lines of business. Borrower shall not, and shall
not permit any of its Subsidiaries to, make any material change in its credit
and collection policies, which change would materially impair the
collectibility of the Receivables, or rescind, cancel or modify any Receivable,
except in the ordinary course of business.
8.13. Guaranties. Borrower shall not, and shall not permit any of
its Subsidiaries to, become or be liable in respect of any Guaranty.
8.14. Minimum Consolidated Tangible Net Worth. Borrower shall not
permit the sum of (a) Consolidated Tangible Net Worth, plus (b) Permitted
Subordinated Debt, at any time during any of the following periods, to be less
than $2,500,000.00.
8.15. Leverage Ratio. Borrower shall not permit, as of the last day
of each month during the term hereof, the ratio of (a) all Indebtedness (other
than Permitted Subordinated Debt) of Borrower and its Subsidiaries reflected on
the balance sheet of Borrower as of such date in accordance with GAAP, to (b)
the sum of (i) Consolidated Tangible Net Worth, plus (ii) Permitted
Subordinated Debt, to be greater than 2.5 to 1.0.
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8.16. Senior Funded Debt to EBITDA. Borrower shall not permit, as
of the last day of each month during the term hereof, the ratio of (a)
Consolidated Funded Debt (other than Permitted Subordinated Debt) of Borrower
and its Subsidiaries as of such date, to (b) EBITDA for the twelve (12) month
period ending on the date of determination, to be greater than 2.0 to 1.0.
8.17. Current Maturity Coverage Ratio. Borrower shall not permit,
the Current Maturity Coverage Ratio, as of the last day of each fiscal quarter
of Borrower, commencing on March 31, 1996, during the term of this Agreement,
to be less than 1.3 to 1.0.
8.18. Fixed Charge Coverage Ratio. Borrower shall not permit, as of
the last day of each month during the term hereof, the ratio of (a) the sum of
Consolidated Adjusted Net Income, plus federal, state, local and foreign income
taxes deducted from Consolidated Adjusted Net Income in accordance with GAAP,
plus Fixed Charges, to (b) Fixed Charges, in each case for the twelve (12)
month period ending on the date of determination, to be less than 1.5 to 1.0.
8.19. ERISA. Neither Borrower nor any ERISA Affiliate will create
any Plan.
8.20. Subordinated Debt. Borrower shall not amend, waive or in any
manner change any terms of any Permitted Subordinated Debt.
ARTICLE 9
EVENTS OF DEFAULT
9.01. Events of Default. An "Event of Default" shall exist if any
one or more of the following events (herein collectively called "Events of
Default") shall occur and be continuing:
(a) Borrower shall fail to pay when due the Obligation or
any part thereof, and such failure shall continue for five (5) days
after such payment became due; or
(b) any representation or warranty made under this
Agreement, or any of the other Loan Documents, shall prove to be
untrue or inaccurate in any material respect as of the date on which
such representation or warranty is made or deemed to have been made;
or
(c) default shall occur in the performance of any of the
covenants or agreements of Borrower, any Subsidiary or any Guarantor
contained herein, or in any of the other Loan Documents, and such
failure shall continue for thirty (30) days after the occurrence
thereof; or
(d) default shall occur in the payment of any
Indebtedness which individually or in the aggregate exceeds
$100,000.00 (other than the Obligation) of Borrower, any Subsidiary or
any Guarantor or default shall occur in respect of any note or credit
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agreement relating to any such Indebtedness and such default shall
continue for more than the period of grace, if any, specified therein;
or
(e) any of the Loan Documents shall cease to be legal,
valid and binding agreements enforceable against the Person executing
the same in accordance with its terms, shall be terminated, become or
be declared ineffective or inoperative or cease to provide the
respective liens, security interests, rights, titles, interests,
remedies, powers or privileges intended to be provided thereby; or
Borrower, any Subsidiary or any Guarantor shall deny that such Person
has any further liability or obligation under any of the Loan
Documents; or
(f) Borrower, any Subsidiary or any Guarantor shall (i)
apply for or consent to the appointment of a receiver, trustee,
custodian, intervenor or liquidator of itself or of all or a
substantial part of such Person's assets, (ii) file a voluntary
petition in bankruptcy, admit in writing that such Person is unable to
pay such Person's debts as they become due or generally not pay such
Person's debts as they become due, (iii) make a general assignment for
the benefit of creditors, (iv) file a petition or answer seeking
reorganization of an arrangement with creditors or to take advantage
of any bankruptcy or insolvency laws, (v) file an answer admitting the
material allegations of, or consent to, or default in answering, a
petition filed against such Person in any bankruptcy, reorganization
or insolvency proceeding, or (vi) take corporate action for the
purpose of effecting any of the foregoing; or
(g) An involuntary proceeding shall be commenced against
Borrower, any Subsidiary or any Guarantor seeking bankruptcy or
reorganization of such Person or the appointment of a receiver,
custodian, trustee, liquidator or other similar official of such
Person, or all or substantially all of such Person's assets, and such
proceeding shall not have been dismissed within sixty (60) days of the
filing thereof; or an order, order for relief, judgment or decree
shall be entered by any court of competent jurisdiction or other
competent authority approving a petition or complaint seeking
reorganization of Borrower, any Subsidiary or any Guarantor or
appointing a receiver, custodian, trustee, liquidator or other similar
official of such Person, or of all or substantially all of such
Person's assets; or
(h) any final judgment(s) for the payment of money in
excess of the sum of $25,000.00 in the aggregate shall be rendered
against Borrower, any Subsidiary or any Guarantor and such judgment(s)
shall not be satisfied or discharged at least ten (10) days prior to
the date on which any of such Person's assets could be lawfully sold
to satisfy such judgment; or
(i) any Guarantor of the Obligation shall (if an
individual) have died, or shall (if not an individual) have dissolved,
merged, reorganized, restructured or consolidated; or
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(j) any (i) shareholder or shareholders shall, in the
aggregate, sell, transfer or convey, directly or indirectly, more than
twenty percent (20%) of the issued and outstanding capital stock of
Borrower, or (ii) third person who is not a current shareholder of
Borrower becomes the beneficial owner of more than twenty percent
(20%) of the issued and outstanding capital stock of Borrower.
9.02. Remedies Upon Event of Default. If any Event of Default shall
occur Lender may, without notice (except as provided herein), exercise any one
or more of the following rights and remedies, and any other remedies provided
in any of the Loan Documents, as Lender in its sole discretion may deem
necessary or appropriate: (i) terminate Lender's commitment to lend hereunder,
(ii) declare the Obligation or any part thereof to be forthwith due and
payable, whereupon the same shall forthwith become due and payable without
presentment, demand, protest, notice of default, notice of acceleration or of
intention to accelerate or other notice of any kind, all of which Borrower
hereby expressly waives, anything contained herein or in the Note to the
contrary notwithstanding, (iii) reduce any claim to judgment, or (iv) without
notice of default or demand, pursue and enforce any of Lender's rights and
remedies under the Loan Documents, or otherwise provided under or pursuant to
any applicable law or agreement; provided, however, that if any Event of
Default specified in Sections 9.01(f) or (g) shall occur, the Obligation shall
thereupon become due and payable concurrently therewith, and Lender's
obligation to lend shall immediately terminate hereunder, without any further
action by Lender and without presentment, demand, protest, notice of default,
notice of acceleration or of intention to accelerate or other notice of any
kind, all of which Borrower hereby expressly waives.
9.03. Performance by Lender. Should Borrower fail to perform any
covenant, duty or agreement contained in any of the Loan Documents, Lender may
perform or attempt to perform such covenant, duty or agreement on behalf of
Borrower. In such event, Borrower shall, at the request of Lender, promptly
pay any amount expended by Lender in such performance or attempted performance
to Lender at its principal office in Dallas, Texas together with interest
thereon at the Maximum Rate from the date of such expenditure until paid.
Notwithstanding the foregoing, it is expressly understood that Lender shall not
assume any liability or responsibility for the performance of any duties of
Borrower hereunder or under any of the Loan Documents and none of the covenants
or other provisions contained in this Agreement shall, or shall be deemed to,
give Lender the right or power to exercise control over the management and
affairs of Borrower.
ARTICLE 10
MISCELLANEOUS
10.01. Accounting Reports. All financial reports or projections,
furnished by any Person to Lender pursuant to this Agreement shall be prepared
in such form and such detail as shall be satisfactory to Lender, shall be
prepared on the same basis as those prepared by such Person in prior years and,
where applicable, shall be the same financial reports and projections
-27-
<PAGE> 28
as those furnished to such Person's officers and directors.
10.02. Waiver. No failure to exercise, and no delay in exercising,
on the part of Lender, any right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights of Lender
under the Loan Documents shall be in addition to all other rights provided by
law. No modification or waiver of any provision of any Loan Document, nor
consent to departure therefrom, shall be effective unless in writing and no
such consent or waiver shall extend beyond the particular case and purpose
involved. No notice or demand given in any case shall constitute a waiver of
the right to take other action in the same, similar or other instances without
such notice or demand.
10.03. Payment of Expenses. Borrower agrees to pay Lender on demand
all costs and expenses of Lender (including, without limitation, the reasonable
attorneys' fees of Lender's counsel) incurred in connection with the
preservation and enforcement of Lender's rights under the Loan Documents, and
all reasonable costs and expenses of Lender (including without limitation the
reasonable fees and expenses of Lender's counsel) in connection with the
negotiation, preparation, execution, delivery and administration of the Loan
Documents.
10.04. Notices. Any communications required or permitted to be given
by any of the Loan Documents must be (i) in writing and personally delivered or
mailed by prepaid certified or registered mail, or (ii) made by facsimile
transmission delivered or transmitted, to the party to whom such notice of
communication is directed, to the address of such party shown opposite its name
on the signature pages hereof. Any such communication shall be deemed to have
been given (whether actually received or not) on the day it is personally
delivered or, if transmitted by facsimile transmission, on the day that such
communication is transmitted as aforesaid subject to telephone confirmation of
receipt; provided, however, that any notice received by Lender after 10:00 a.m.
Dallas, Texas time on any day from Borrower pursuant to Section 2.02 or Section
3.02 (with respect to a Notice of Borrowing) shall be deemed for the purposes
of such Section to have been given by Borrower on the next succeeding day, or
if mailed, on the third day after it is marked as aforesaid. Any party may
change its address for purposes of this Agreement by giving notice of such
change to the other parties pursuant to this Section 10.04.
10.05. Governing Law. This Agreement has been prepared, is being
executed and delivered, and is intended to be performed in the State of Texas
and the substantive laws of such state and the applicable federal laws of the
United States of America shall govern the validity, construction, enforcement
and interpretation of this Agreement and all of the other Loan Documents.
10.06. Choice of Forum, Consent to Service of Process and
Jurisdiction. Any suit, action or proceeding against Borrower with respect to
this Agreement, the Note or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
or in the United States courts located in the State of Texas as Lender
-28-
<PAGE> 29
in its sole discretion may elect and Borrower hereby irrevocably submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding. Borrower hereby irrevocably consents to the service of
process in any suit, action or proceeding in said court by the mailing thereof
by Lender by registered or certified mail, postage prepaid, to Borrower's
address shown opposite its name on the signature pages hereof Nothing herein or
in any of the other Loan Documents shall affect the right of Lender to serve
process in any other manner permitted by law or shall limit the right of Lender
to bring any action or proceeding against Borrower or with respect to any of
its property in courts in other jurisdiction. Borrower hereby irrevocably
waives any objections which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this Agreement
or any Note brought in the courts located in the State of Texas, County of
Dallas, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in any
inconvenient forum. Any action or proceeding by Borrower against Lender shall
be brought only in a court located in Dallas County, Texas.
10.07. Invalid Provisions. Any provision of any Loan Document held
by a court of competent jurisdiction to be illegal, invalid or unenforceable
and shall not invalidate the remaining provisions of such Loan Document which
shall remain in full force and effect and the effect thereof shall be confined
to the provision held invalid or illegal.
10.08. Maximum Interest Rate. Regardless of any provision contained
in any of the Loan Documents, Lender shall never be entitled to receive,
collect or apply as interest on the Notes any amount in excess of interest
calculated at the Maximum Rate, and, in the event that any Lender ever
receives, collects or applies as interest any such excess, the amount which
would be excessive interest shall be deemed to be a partial prepayment of
principal and treated hereunder as such; and, if the principal amount of the
Obligation is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or payable under any
specific contingency exceeds interest calculated at the Maximum Rate, Borrower
and Lender shall, to the maximum extent permitted under applicable law, (i)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest; (ii) exclude voluntary prepayments and the effects thereof; and
(iii) amortize, prorate, allocate and spread, in equal parts, the total amount
of interest throughout the entire contemplated term of the Notes; provided
that, if the Notes are paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period
of existence thereof exceeds interest calculated at the Maximum Rate, Lender
shall refund to Borrower the amount of such excess or credit the amount of such
excess against the principal amount of the Notes and, in such event, Lender
shall not be subject to any penalties provided by any laws for contracting for,
charging, taking, reserving or receiving interest in excess of interest
calculated at the Maximum Rate.
10.09. Nonliability of Lender. The relationship between Borrower and
Lender is, and shall at all times remain, solely that of Borrower and Lender
and Lender has no fiduciary or other special relationship with Borrower.
-29-
<PAGE> 30
10.10. Offset. Borrower hereby grants to Lender the right of offset,
to secure repayment of the Obligation, upon any and all moneys, securities or
other property of Borrower and the proceeds therefrom, now or hereafter held or
received by or in transit to Lender or its agents, from or for the account of
Borrower or any Guarantor, whether for safe keeping, custody, pledge,
transmission, collection or otherwise, and also upon any and all deposits
(general or special) and credits of Borrower, and any and all claims of
Borrower against Lender at any time existing.
10.11. Successors and Assigns. The Loan Documents shall be binding
upon and inure to the benefit of Borrower and Lender and their respective
successors, assigns and legal representatives; provided, however, that Borrower
may not, without the prior written consent of Lender, assign any rights,
powers, duties or obligations thereunder. Lender reserves the right to sell
all or a portion of its interest in the Loan and Lender shall have the right to
disclose any information in its possession regarding Borrower, any Subsidiary,
any Guarantor or any assets pledged to Lender in connection herewith to any
potential transferee of the Loan or any part thereof.
10.12 Conflicts. If any provisions of the Loan Documents conflict
with the provisions of this Agreement, the provisions of this Agreement shall
control.
10.13. Article 15.10(b). Borrower and Lender hereby agree that,
except for Section 15.10(b) thereof, the provisions of Art. 5069-15.01 et seq.
of the Revised Civil Statutes of Texas, 1925, as amended (regulating certain
revolving credit loans and revolving tri-party accounts) shall not apply to the
Loan Documents.
10.14. Entirety. THIS AGREEMENT, THE NOTE, AND THE OTHER LOAN
DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. THE
PROVISIONS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH BORROWER IS
A PARTY MAY BE AMENDED OR WAIVED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE
PARTIES HERETO.
10.15. Headings. Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Agreement.
10.16. Survival. All representations and warranties made by Borrower
herein shall survive delivery of the Note and the making of the Loan.
-30-
<PAGE> 31
10.17. Participations. Lender shall have the right to enter into
participation agreements with other banks with respect to the Note, and grant
participations in the rate of other loan documents but such participation shall
not affect the rights and duties of such Lender hereunder vis-a-vis Borrower.
Each actual or proposed participant shall be entitled to receive all
information received by Lender regarding the creditworthiness of Borrower,
including, without limitation, information required to be disclosed to a
participant pursuant to Banking Circular 181 (Rev., August 2, 1984), issued by
the Comptroller of the Currency (whether the actual or proposed participant is
subject to the circular or not).
10.18. No Third Party Beneficiary. The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall any Loan
Document or any course of conduct by any party hereto be construed to make or
render Lender or any of its officers, directors, agents or employees liable (i)
to any materialman, supplier, contractor, subcontractor, purchaser or lessee of
any property owned by Borrower, or (ii) for debts or claims accruing to any
such Persons against Borrower.
10.19. Capital Adequacy. If, after the date hereof, Lender shall
have determined that either (i) the adoption of any applicable law, rule,
regulation or guideline regarding capital adequacy, or any change therein, or
any change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or (ii) compliance by Lender (or any lending office of
Lender) with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on Lender's
capital as a consequence of its or Borrower's obligations hereunder to a level
below that which Lender could have achieved but for such adoption, change or
compliance (taking into consideration Lender's policies with respect to capital
adequacy) by an amount deemed by Lender to be material, then from time to time,
within ten (10) days after demand by Lender, Borrower shall pay to Lender such
additional amount or amounts as will adequately compensate Lender for such
reduction. Lender will promptly notify Borrower of any event of which it has
actual knowledge, occurring after the date thereof, which will entitle Lender
to compensation pursuant to this Section 10.19. A certificate of Lender
claiming compensation under this Section 10.19 and setting forth the additional
amount or amounts to be paid to it hereunder, together with the description of
the manner in which such amounts have been calculated, shall be conclusive in
the absence of manifest error. In determining such amount, Lender may use any
reasonable averaging and attribution methods.
10.20. Multiple Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same agreement, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
10.21. Arbitration. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM
BASED ON OR ARISING FROM AN
-31-
<PAGE> 32
ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE
FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE
RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
ENDISPUTE, INC. (D/B/A J.A.M.S./ENDISPUTE) ("JAM.S."), AND THE "SPECIAL RULES"
SET FORTH BELOW, IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL
CONTROL, JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION, ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER
SUCH ACTION.
(A) SPECIAL RULES, THE ARBITRATION SHALL BE CONDUCTED IN
THE CITY OF AGENT'S DOMICILE AT THE TIME OF THE ARBITRATION AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE, ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR
UP TO AN ADDITIONAL 60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT;
OR (II) BE A WAIVER BY LENDERS OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C.
Section 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT
OF LENDERS OR AGENT HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SET-OFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF OR THE APPOINTMENT OF A
RECEIVER. AGENTS AND LENDERS MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE
UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,
DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO
THIS AGREEMENT, AT AGENTS AND LENDERS OPTION, FORECLOSURE UNDER A DEED OF TRUST
OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING: THE EXERCISE OF A
POWER OF SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL SALE UNDER
THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE, NEITHER THIS
EXERCISE OF SELF HELP
-32-
<PAGE> 33
REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
-33-
<PAGE> 34
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
Address for Notice: BORROWER:
8200 Springwood Drive MEDICAL ALLIANCE, INC.,
Suite 200 a Texas corporation
Irving, Texas 75063
Attn: Mr. Paul Herchman
Telecopy No.: (214) 432-8959 By: /s/ PAUL HERCHMAN
---------------------------------
Paul Herchman
President
Address for Notice: LENDER:
901 Main Street, 7th Floor NATIONSBANK OF TEXAS, A.
P.O. Box 831000
Dallas, Texas 75283-1000
Attn: Mr. Russell Hartsfield By: /s/ RUSSELL P. HARTSFIELD
---------------------------------
Telecopy No. (214) 508-0388 Russell P. Hartsfield
Senior Vice President
-34-
<PAGE> 35
EXHIBITS
Exhibit A - Subsidiaries
Exhibit B - Form of Notice of Borrowing (Revolving Loan)
Exhibit C - Form of Notice of Borrowing (Term Loan)
Exhibit D - Closing Documents
Exhibit E - Principal Office, Chief Executive Office, Principal Place of
Business and Location of Assets
Exhibit F - Compliance Certificate
Exhibit G - Licenses
Exhibit H - Borrowing Base Report
Exhibit I - Capital Leases
Exhibit J - Real Estate Leases
<PAGE> 36
EXHIBIT A
SUBSIDIARIES
<TABLE>
<CAPTION>
NUMBER OF
CLASS SHARES FOREIGN
SUBSIDIARY JURISDICTION OF SHARES OUTSTANDING OWNER OF SHARES JURISDICTIONS
- ---------- ------------ --------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Physicians Marketing Texas Common 100 Medical Alliance, Inc. None
Services, Inc.
MAI Safety Compliance Texas Common 100 Medical Alliance, Inc. None
Services, Inc.
</TABLE>
<PAGE> 37
EXHIBIT B
NOTICE OF BORROWING
(REVOLVING LOAN)
1. Submission Pursuant To Loan Agreement. This Notice of Borrowing
Request is executed and delivered by Medical Alliance, Inc., a Texas
corporation ("Borrower"), to NationsBank of Texas, N.A. ("Lender"), pursuant to
Section 2.04 of the Amended and Restated Revolving Credit and Term Loan
Agreement dated as of March 20, 1996, between Borrower and Lender (the
"Agreement"). Any capitalized terms used and not defined herein shall have the
meanings assigned to them in the Agreement.
2. Request For Borrowing. Borrower hereby requests that Lender make
an Advance under the Revolving Loan pursuant to the Agreement as follows:
(a) Amount of Advance: ________________
(Minimum of $25,000.00)
(b) Date of Advance: ________________
3. Representations, Warranties and Certifications. Borrower hereby
represents, warrants, and certifies to Lender that, as of the date of the
Advance requested herein:
(a) There exists no Potential Default or Event of Default.
(b) Borrower has performed and complied with all agreements
and conditions contained in the Agreement that are
required to be performed or complied with by Borrower.
(c) The representations and warranties of a continuing nature
contained in the Agreement and each of the other Loan
Documents are true and correct in all material respects,
with the same force and effect as though made on and as of
the date of the Advance.
4. Execution Authorized. This Notice of Borrowing is executed on
________ 19_, by an authorized officer of Borrower. The undersigned, in such
capacity, hereby certifies each and every matter contained herein to be true
and correct.
________________________________________
________________________________________ of
MEDICAL ALLIANCE, INC., a Texas corporation
<PAGE> 38
EXHIBIT C
NOTICE OF BORROWING
(TERM LOAN)
1. Submission Pursuant To Loan Agreement. This Notice of Borrowing
Request is executed and delivered by Medical Alliance, Inc., a Texas
corporation ("Borrower"), to NationsBank of Texas, N.A. ("Lender"), pursuant to
Section 2.04 of the Amended and Restated Revolving Credit and Term Loan
Agreement dated as of March 20, 1996, between Borrower and Lender (the
"Agreement"). Any capitalized terms used and not defined herein shall have the
meanings assigned to them in the Agreement.
2. Request For Borrowing. Borrower hereby requests that Lender make
an Advance under the [Term A Loan] [Term B Loan] pursuant to the Agreement as
follows:
(a) Amount of Advance: ________________
(Minimum of $25,000.00)
(b) Date of Advance: ________________
3. Representations, Warranties and Certifications. Borrower
hereby represents, warrants, and certifies to Lender that, as of the date of
the Advance requested herein:
(a) There exists no Potential Default or Event of Default.
(b) Borrower has performed and complied with all agreements
and conditions contained in the Agreement that are
required to be performed or complied with by Borrower.
(c) The representations and warranties of a continuing nature
contained in the Agreement and each of the other Loan
Documents are true and correct in all material respects,
with the same force and effect as though made on and as of
the date of the Advance.
4. Execution Authorized. This Notice of Borrowing is executed on
________ 19_, by an authorized officer of Borrower. The undersigned, in such
capacity, hereby certifies each and every matter contained herein to be true
and correct.
________________________________________
________________________________________ of
MEDICAL ALLIANCE, INC., a Texas corporation
<PAGE> 39
EXHIBIT D
CLOSING DOCUMENTS
1. Loan Agreement.
2. Revolving Note.
3. Term Note.*
4. Term B Note.
5. Security Agreements executed by Borrower and each Subsidiary.*
6. Confirmations of Security Agreements executed by Borrower and each
Subsidiary.
7. Assignment of Life Insurance Policy.*
8. Financing Statements executed and delivered by Borrower and each
Subsidiary, as debtor, in favor of Lender, as secured party, to be filed
in the States of Texas*, Alabama*, Arizona*, California*, Colorado,
Delaware*, Georgia*, Iowa*, Illinois*, Indiana*, Kansas*, Kentucky*,
Louisiana*, Maryland*, Minnesota*, Missouri*, Nebraska*, Nevada*, New
Jersey*, New York*, North Carolina*, Ohio*, Oklahoma*, Oregon,
Pennsylvania*, South Carolina*, Tennessee*, Utah, Virginia*, Washington,
Washington, D.C.*, and Wisconsin*.
9. Guaranties executed by Guarantors.*
10. Confirmation of Guaranty executed by Guarantors.
11. Opinion of Borrower's Counsel.
12. Officers' Certificate certifying (i) the truth and accuracy of that all
of the representations and warranties contained in the Loan Documents,
and (ii) that no event has occurred and is continuing, or would result
from the Advance, which constitutes a Potential Default or an Event of
Default.
13. Resolutions of Borrower approving the execution, delivery and
performance of the Loan Documents delivered at closing and the
transactions contemplated therein, duly adopted by Borrower's Board of
Directors and accompanied by a certificate of the Secretary of Borrower
stating that such resolutions are true and correct, have not been
altered or repealed and are in full force and effect.
14. Resolutions of each Subsidiary approving the execution, delivery and
performance of the Loan Documents delivered at closing to be executed by
such Person and the transactions contemplated therein, duly adopted by
such Subsidiary's Board of Directors and accompanied by a certificate of
the Secretary of such Subsidiary stating that such resolutions are true
and correct, have not been altered or repealed and are in full force and
effect.
15. Incumbency Certificate of Borrower and each Subsidiary certifying the
names of the officers of Borrower and each Subsidiary authorized to sign
each of the Loan Documents delivered at closing to be executed by such
Person.
16. Certificates of incorporation and good standing for Borrower and each
Subsidiary issued by the state of incorporation of each such
corporation.
17. Certificates of qualification and good standing for Borrower and each
Subsidiary issued by each of the states wherein Borrower and each
Subsidiary is qualified to do business as a foreign corporation.*
18. A copy of the Articles of Incorporation of Borrower and each Subsidiary,
and all amendments thereto, certified by the state of incorporation and
a copy of the bylaws of Borrower and each Subsidiary, and all amendments
thereto, certified by the Secretary of Borrower or each Subsidiary, as
appropriate, as being true, correct and complete as of the date of such
certification.
19. A copy of the licenses listed on Exhibit G attached hereto.
* Delivered in connection with Original Loan Agreement.
<PAGE> 40
20. Evidence satisfactory to Lender that Borrower and the Subsidiaries have
obtained the insurance policies required by the Loan Documents.
21. UCC-3 Termination Statements.*
22. Such other information as may be reasonably required by Lender.
* Delivered in connection with Original Loan Agreement
<PAGE> 41
EXHIBIT E
PRINCIPAL OFFICE, CHIEF EXECUTIVE OFFICE,
PRINCIPAL PLACE OF BUSINESS AND LOCATION
OF MATERIAL ASSETS
Medical Alliance, Inc.:
Principal Office: 8200 Springwood Drive, Suite 200
Irving, Texas 75063
Chief Executive Office: 8200 Springwood Drive, Suite 200
Irving, Texas 75063
Principal Place of Business: see attached
Location of Material Assets: see attached
Physicians Marketing Services, Inc.:
Principal Office: 8200 Springwood Drive, Suite 200
Irving, Texas 75063
Chief Executive Office: 8200 Springwood Drive, Suite 200
Irving, Texas 75063
Principal Place of Business: see above
Location of Material Assets: none
MAI Safety Compliance Services, Inc.:
Principal Office: 8200 Springwood Drive, Suite 200
Irving, Texas 75063
Chief Executive Office: 8200 Springwood Drive, Suite 200
Irving, Texas 75063
Principal Place of Business: see above
Location of Material Assets: none
<PAGE> 42
EXHIBIT E (Continued)
MEDICAL ALLIANCE
EQUIPMENT LOCATIONS
<TABLE>
<CAPTION>
ATLANTA MINNEAPOLIS KANSAS CITY NEW ORLEANS
<S> <C> <C> <C>
Matt Gasque - District Manager Lance Everson - District Manager Greg Cromer - District Manager Mickey Harris
3781 Presidential Parkway 15500 Wayzata Blvd. 6901 West 63rd 141 Robert E. Lee Blvd.
Suite 12 604-105 Twelve Oaks Center Building #3, Suite 205 Suite 266
Atlanta, GA 30340 Wayzata, MN 55931 Overland Park, KS 66202 New Orleans, LA 70124
</TABLE>
<TABLE>
<CAPTION>
CHICAGO PHILADELPHIA FLORIDA SOUTH FLORIDA
<S> <C> <C> <C>
Pat Sheehy - District Manager Tom Brady - District Manager Mark Rubino 1876 North University
188 Industrial Drive 34 West Avenue 225 S. Swoope #106 Suite 1D1-A
Suite 31 Suite 12 Maitland, FL 32751 Plantation, FL 33322
Elmhurst, IL 60126 Wayne, PA 19087
</TABLE>
<TABLE>
<CAPTION>
DALLAS OKLAHOMA CALIFORNIA UTAH
<S> <C> <C> <C>
Andy Schlehr - District Manager Dave Acosta - District Manager Brian Lohr - District Manager 188 West River Park
12075 Denton Drive 9726 East 42nd St. South 25002 Hidden Hills, Apt. P Drive, Suite 200
Dallas, TX 75234 Suite 137 Laguna Niguel, CA 92677 Provo, Utah 84604
Tulsa, OK 74146
</TABLE>
<TABLE>
<CAPTION>
HOUSTON ST. LOUIS TORONTO
<S> <C> <C>
Steve Anderson - District Manager Andy Touchette - District Manager David McCrory -
4219 Richmond Ave. 7730 Carondelet Avenue 2 Broadway, Apt 7
Suite 218 Carondelet West Bldg Suite 107 Toronto, Ontario M4P1T4
Houston, TX 77027 Clayton, MO 63105
</TABLE>
<TABLE>
<CAPTION>
CINCINNATI WASHINGTON DC NEW YORK
<S> <C> <C>
John Twomey - District Manager Scott Carroll - District Manager John Haeberlen - District Manager
10921 Reed Hartman Hwy 1880 Howard Ave., 302B Meadows Office Complex
Suite 1041 Vienna, VA 22182-2611 201 Route 17, Suite 200
Cincinnati, OH 45242 Rutherford, NJ 07070
</TABLE>
<PAGE> 43
EXHIBIT F
COMPLIANCE CERTIFICATE
FOR MONTH ENDED ________________ (THE "SUBJECT PERIOD")
LENDER: NationsBank of Texas, N.A.
BORROWER: Medical Alliance, Inc.
This certificate is delivered under the Amended and Restated Revolving
Credit and Term Loan Agreement (the "Loan Agreement") dated as of March 20,
1996, between Borrower and Lender. Capitalized terms when used in this
certificate shall, unless otherwise indicated, have the meanings set forth in
the Loan Agreement. I certify to Lender that, on the date of this certificate,
(a) the Financial Statements of Borrower attached to this certificate were
prepared in accordance with GAAP, and present fairly the financial condition
and results of operations of Borrower as of the end of and for the Subject
Period, (b) no Potential Default or Event of Default currently exists or has
occurred which has not been cured or waived by Lender, and (c) the status of
compliance by Borrower with certain covenants of the Loan Agreement at the end
of the Subject Period is as set forth below:
In Compliance as of
End of Subject Period
(Please Indicate)
1. Financial Statements and Reports
(a) Provide annual audited FYE financial statements
before May 31 of each year. Yes No
(b) Provide monthly financial statements within 30
days after the last day of each month. Yes No
(c) Provide a monthly Compliance Certificate, Borrowing
Base Report, summary accounts receivable aging,
and equipment summary within 30 days after the
last day of each month. Yes No
(d) Provide a balance sheet, cash flow statement, and
statement of contingent liabilities for Paul
Herchman of each calendar year. Yes No
2. Additional Indebtedness
None, except Indebtedness permitted by Section 8.01 of
the Loan Agreement. Yes No
<PAGE> 44
3. Liens and Encumbrances: Negative Pledge Agreements
None at any time, except Permitted Liens. Yes No
4. Dividends.
None without prior written consent of Bank, except
for Permitted Dividends. Yes No
5. Investments.
None, except Temporary Cash Investments and
Investments in Subsidiaries. Yes No
6. Change in Executive Management
None at any time without prior written consent
of Lender. Yes No
7. Issuance of Shares
None, except issuances permitted by Section 8.08 of
the Loan Agreement. Yes No
8. Disposal of Material Assets other than in the Ordinary
Course of Business
None at any time without prior written consent
of Lender. Yes No
9. Subsidiaries
None, except the subsidiaries listed on Exhibit A
to the Loan Agreement. Yes No
10. Limitation of Acquisitions and Mergers
None at any time without prior written consent
of Lender.
11. Changes in Business of Borrower, Receivables Policy
None at any time without prior written consent
of Lender. Yes No
12. Guarantors of Third Party Indebtedness
None at any time without prior written consent
of Lender. Yes No
13. Tangible Net Worth (TNW) Plus Permitted
Subordination
Debt Minimum of $2,500,000.00 at
all times. (TNW is defined as consolidated total
stockholders' equity less Intangible Assets)
TNW=________________ Yes No
14. Leverage Ratio
Maximum of 2.5 to 1.0 at all times. (Defined as
total liabilities (other than Permitted
Subordinated Debt) divided by Tangible
Net Worth plus Permitted Subordinated Debt) Yes No
___________________ / ______________ = ________
Total Liabilities TNW
<PAGE> 45
15. Senior Funded Debt to EBITDA
Maximum 2.0 to 1.0.
(Defined as Consolidated Funded Debt (other
than Permitted Subordinated Debt) to EBITDA)
Calculated on a rolling 12-month basis. Yes No
___________________ / ______________ = ________
Senior Funded Debt EBITDA
16. Current Maturity Coverage
Minimum of 1.3 to 1.0.
(Defined as net income plus/minus non-cash
items to current maturities of long term debt)
Calculated quarterly on a rolling 12-month basis. Yes No
__________________ +- ______________ / ________ = ________
Net Income Non-Cash Items Current
Maturities
17. Fixed Charge Coverage Ratio (FC)
Minimum of 1.5 to 1.0. (Defined as pre-tax
income plus rent and lease expenses plus interest
expense divided by rent and lease expense plus
interest expense) Calculated on a rolling
12-month basis. Yes No
FC=____________ + __________ + _________ / _________ _______ = _______
Pre-Tax Income Rent & Lease Interest Rent & Lease Interest
MEDICAL ALLIANCE, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 46
EXHIBIT G
LICENSES
None.
<PAGE> 47
EXHIBIT H
BORROWING BASE REPORT
FOR MONTH ENDED ________________, 199_ (THE "SUBJECT MONTH")
LENDER: NationsBank of Texas, N.A.
BORROWER: Medical Alliance, Inc.
This certificate is delivered under the Amended and Restated Revolving
Credit and Term Loan Agreement dated as of March 20, 1996, between Borrower and
Lender (the "Loan Agreement"). Capitalized terms used in this certificate
shall, unless otherwise indicated, have the meanings set forth in the Loan
Agreement. On behalf of Borrower, the undersigned certifies to Lender on the
date hereof that (a) no Potential Default or Event of Default has occurred and
is continuing, (b) a review of the activities of Borrower during the Subject
Month has been made under my supervision with a view to determining the amount
of the current Borrowing Base, (c) the accounts receivable of Borrower included
in the Borrowing Base below meet all conditions to qualify for inclusion
therein as set forth in the Loan Agreement, and all representations and
warranties set forth in the Loan Agreement with respect thereto are true and
correct, and (d) the information set forth below hereto is true and correct as
of the last day of the Subject Month.
AT END OF
LINE SUBJECT MONTH
- ---- -------------
1. Total Receivables (less discounts) $
2. Ineligible Receivables
(a) Receivables with invoices more
than 90 days from invoice date $
(b) Receivables placed with an attorney for
collection $
(c) Receivables for consignments and
non-final sales $
(d) Receivables from suppliers $
(e) Foreign Receivables (unless secured by a
Letter of Credit $
(f) Receivables due from the U.S. Government
or subdivision thereof $
(g) Receivables subject to specific
assignment restrictions $
<PAGE> 48
(h) Other Ineligible Receivables disallowed
by Lender in its reasonable discretion $
3. Total Ineligible Receivables
add Lines 2(a) through 2(h) $
4. Total Eligible Receivables
Line 1 minus Line 3 $
5. Multiplied by: Borrowing Base factor 75%
6. Borrowing Base
Line 4 x Line 5 $
7. Principal Balance of Line of Credit
(not to exceed $250,000) $
8. Amount available for advances, if positive, or
amount to be repaid, if negative
Line 6 minus Line 7 $
MEDICAL ALLIANCE, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 49
EXHIBIT I
CAPITAL LEASES
Capital Leases of equipment evidenced by the following Financing Statements:
1. National Westminster Bank USA, as Agent (The First National Bank of
Chicago, as assignee), Filing No. 3318465, Illinois Secretary of State.
2. Comerica Bank-Texas, Filing No. 3388334, Illinois Secretary of State.
3. National Westminster Bank USA, as Agent, Filing No. 2482186, Missouri
Secretary of State.
4. National Westminster Bank USA, as Agent, Filing No. AL43230, Ohio
Secretary of State.
5. Lease America Corporation, Filing No. 90-044641, South Carolina
Secretary of State.
6. Northwest Financial Leasings, Filing No. 91-001998, South Carolina
Secretary of State.
7. Continental Bank, Filing No. 91-041492, South Carolina Secretary of
State.
8. Summit National Bank, Filing No. 101355A, South Carolina Secretary of
State.
9. Medical Device Capital Company (The First National Bank of Chicago, as
assignee), Filing No. 94-152361, Texas Secretary of State.
10. Medical Device Capital Company (The First National Bank of Chicago, as
assignee), Filing No. 94-199863, Texas Secretary of State.
11. Medical Device Capital Company (The First National Bank of Chicago, as
assignee), Filing No. 94-199864, Texas Secretary of State.
12. National Westminster Bank USA, as Agent, (The First National Bank of
Chicago, as assignee) Filing No. 94-224724, Texas Secretary of State.
13. National Westminster Bank USA, as Agent, (The First National Bank of
Chicago, as assignee) Filing No. 94-224725, Texas Secretary of State.
14. Orix USA, Filing No. 94-232967, Texas Secretary of State.
15. DVI Financial Services, Inc., Filing No. 95-002103, Texas Secretary of
State.
16. National Westminster Bank USA, as Agent, Filing No. 95-051312, Texas
Secretary of State.
<PAGE> 50
17. National Westminster Bank USA, as Agent, Filing No.122-95-380, Georgia
Secretary of State.
18. American Business Credit Corporation, Filing No. 95-147572, Texas
Secretary of State.
19. American Business Credit Corporation, Filing No. 95-233011, Texas
Secretary of State.
20. Associates Leasing Inc., Filing No. 95-232262, Texas Secretary of State.
21. Associates Leasing Inc., Filing No. 95-004589, Texas Secretary of State.
22. Vanguard Financial Service Corp., Filing No. 95-027149, Texas Secretary
of State.
23. Finova Capital Corporation, Filing No. 95-241215, Florida Secretary of
State.
24. Coherent, Inc. (BA Credit Corporation, as assignee, Filing No. 442657,
Utah Secretary of State.*
25. Zions First National Bank, Filing No. 459583, Utah Secretary of State.*
- ---------------
* To be released.
<PAGE> 51
EXHIBIT J
OPERATING LEASES
<PAGE> 52
EXHIBIT J
Operating Leases
MEDICAL ALLIANCE
OFFICE LEASES
AS OF MAY 31, 1995
<TABLE>
<CAPTION>
Leasing Office Monthly Date Lease
Source Location Rental Started Term
============================================================================================================
<S> <C> <C> <C> <C>
Hinsdale Management Hinsdale, Illinois $329.25 03\15\95 25 mos.
Park Avenue of Wayzata Wayzata, Minnesota $210.00 03\01\95 12 mos.
Centerco Properties Clayton, Missouri $240.00 04\01\95 12 mos.
S&R Multi Services Wayne, Pennsylvania $275.00 04\01\95 12 mos.
Resource Realty Atlanta, Georgia $334.08 04\01\95 12 mos.
Reed Hartman Cincinnati, Ohio $185.00 05\01\95 Month-to-Month
Rico Partnership (Del Trust) Houston, Texas $378.65 05\01\95 36 mos.
Jam Enterprises Vienna, Virginia $395.00 05\01\95 12 mos.
Colonial Self Storage Coppell, Texas $135.00 05\05\95 Month-to-Month
Integrated Security Systems Irving, Texas $2,500.00 11\01\93 50 mos.
Lester Kalmanson Maitland, Florida $466.40 9\01\95 8\31\96
Koger Equity Tulsa, Oklahoma $225.00 12\01\95 12 mos.
Bear & Bear Assoc. Overland Park, Kansas $300.00 01\01\96 12 mos.
Class Rutherford, New Jersey $425.00 02\15\96 6 mos.
Mercede Exec. Park Plantation, Florida $318.00 03\01\96 12 mos.
</TABLE>
<PAGE> 53
EXHIBIT J (Continued)
Medical Alliance
Operating Leases
As of March 8, 1996
<TABLE>
<CAPTION>
Leasing Equipment Equipment Monthly Date Lease
Source Type Location Rental Started Term
- ------- --------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
COHERENT Ultrapulse All Markets Varies April 1995 Month-to-Month
Lasers
CABOT Video All Markets Varies June 1995 Month-to-Month
Endoscopy
AMERICAN Copier Corp Office $1,500 - May 1995 Month-to-Month
BUSINESS $2,000
CREDIT
DR. SIEMIAN Ultrapulse Orlando $3,500 Nov 1995 36 Months
DR. SAMUELS KTP Laser St. Louis $3,500 Sept 1995 36 Months
DR. KALLMAN Ultrapulse Miami $3,592 Nov 1995 36 Months
CCJ Ultrapulse Orlando $3,500 Nov 1995 24 Months
</TABLE>
Note: Coherent The lease agreement with Coherent states that Medical
Alliance pays Coherent a monthly amount equal to 40% of the
Ultrapulse gross revenues for that market up to $15,000 of
Ultrapulse revenues. Any revenues in excess of $15,000 will
be calculated at a 20% rate. The January 1996 monthly rent
was $80,917.
Cabot The lease agreement with Cabot states that Medical Alliance
pays Cabot a per procedure rental ranging from $50 to $120
per case.
Palomar The lease agreement with Palomar states that Medical Alliance
pay Palomar, or its affiliate, 50% of the revenue generated
by the Epilaser product.
<PAGE> 54
[MAI MEDICAL ALLIANCE INC. LOGO] [MAI CUSTOMER DRIVEN LOGO]
FINANCIAL OUTLOOK
<TABLE>
<CAPTION>
Unit # District Description of Vehicle In Service Date Lease Term Cost Monthly Pymt.
- ------ -------- ---------------------- --------------- ---------- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
14461 CHI 93' Ford Aerostar Van 11-01-92 48 MOS 15,998 393.57
14462 CNC 93' Ford Aerostar Van 12-01-92 48 MOS 15,056 393.54
14463 NTX 93' Ford Aerostar Van 01-01-93 48 MOS 16,560 409.96
14464 KC 93' Ford Aerostar Van 12-01-92 48 MOS 15,508 383,95
14465 ATL 93' Ford Aerostar Van 11-13-92 48 MOS 15,172 391.90
14466 BTL 93' Ford Aerostar Van 11-01-92 48 MOS 15,953 392.47
14468 ATL 93' Ford Aerostar Van 11-01-92 48 MOS 15,838 369.65
14469 PHL 93' Ford Aerostar Van 12-01-92 48 MOS 15,147 405.18
17711 NTX 93' GMC Safari Van 05-01-93 48 MOS 19,861 488.08
17979 OKL 93' Ford Aerostar Van 05-01-93 48 MOS 15,919 391.51
18722 BTX 93' Ford Aerostar Van 06-11-93 48 MOS 17,317 411.59
18375 DC 94' Chevy Astro Van 12-15-93 48 MOS 18,444 476.43
18976 CHI 94' Chevy Astro Van 12-01-93 48 MOS 19,556 483.80
18377 PHL 94' Chevy Astro Van 12-10-93 48 MOS 19,423 461.68
19100 STX 94' Chevy Astro Van 12-09-93 48 MOS 18,660 448.55
9639188 STX 94' Ford E-150 Cargo Van w/Bubble Top 02-01-94 48 MOS 22,213 527.98
9638695 CHI 94' Ford Aerostar Van 01-13-94 48 MOS 17,109 406,67
9844187 STL 94' Ford Aerostar Van 05-13-94 48 MOS 16,744 417.72
9644204 MPLS 94' Ford Aerostar Van 05-27-94 48 MOS 16,941 417.72
9644408 MPLS 94' Ford Aerostar Van 08-08-94 48 MOS 16,753 449.25
9644787 CHI 94' Chevy G-20 Cargo Van 07-18-94 48 MOS 21,303 536.39
9645089 SFL 94' Ford F-35CC Box Truck 08-15-94 48 MOS 28,396 716.04
9645340 NTX 94' Chevy G-20 Cargo Van 07-29-94 48 MOS 22,743 572.67
9645770 PHL 95' Chevy G-20 Cargo Van 09-25-94 48 MOS 21,950 556.05
9647378 STL 95' Chevy G-20 Cargo Van 10-03-94 48 MOS 21,637 548.07
9647388 CNC 95' Chevy G-20 Cargo Van 01-20-94 48 MOS 22,388 599.73
9647562 ATL 95' Chevy G-20 Cargo Van 09-21-94 48 MOS 22,337 582.11
9663260 STL 95' Chevy G-20 Cargo Van 10-30-84 48 MOS 22,960 635.84
9652283 MPLS 95' Chevy G-20 Cargo Van 01-20-95 48 MOS 22,483 617.34
9653060 STX 95' Chevy G-20 Cargo Van 03-10-95 48 MOS 23,855 620.83
9653061 NTX 95' Chevy G-20 Cargo Van 03-10-95 48 MOS 23,856 620.33
9653062 ATL 95' Chevy G-20 Cargo Van 03-23-95 48 MOS 22,524 615.01
9653082 DNC 95' Chevy G-20 Cargo Van 03-22-95 48 MOS 23,711 650.51
9653083 STL 95' Chevy G-20 Cargo Van 03-22-95 48 MOS 22,807 631.83
9653086 CHI 95' Chevy G-20 Cargo Van 03-22-95 48 MOS 24,368 634.20
9653087 PHL 95' Chevy G-20 Cargo Van 03-20-95 48 MOS 24,595 639.51
9653177 CHI 95' Chevy G-20 Cargo Van 03-30-95 48 MOS 25,245 656.49
9653298 DC 95' Chevy G-20 Cargo Van 04-12-95 48 MOS 23,313 606.24
</TABLE>
8200 Springwood Dr. - Suite 200 - Irving, TX 75063
(214) 432-8171 - (800) 255-3355 - Fax (214) 432-8559
<PAGE> 55
[MEDICAL ALLIANCE, INC. LOGO] FINANCIAL OUTLOOK [CUSTOMER DRIVEN LOGO]
<TABLE>
<CAPTION>
UNIT # DISTRICT DESCRIPTION OF VEHICLE IN SERVICE DATE LEASE TERM COST MONTHLY PYMT.
------ -------- ---------------------- --------------- ---------- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
9653297 CHI 95' Chevy G-20 Cargo Van 04-15-96 48 MOS 24,280 831.38
9659095 CNC 95' Chevy G-20 Cargo Van 05-24-96 36 MOS 22,489 740.28
9659150 NCAL 95' Chevy G-20 Cargo Van w/ Bubble Top 05-15-95 36 MOS 30,301 997.40
9659170 SCAL 95' Chevy G-20 Cargo Van w/ Bubble Top 05-16-95 36 MOS 30,301 997.40
9659287 OKL 95' Chevy Astro Van 05-25-95 36 MOS 17,383 572.50
9659268 STX 95' Chevy G-20 Cargo Van 05-25-95 36 MOS 23,825 784.34
9659288 MPLS 95' Chevy G-20 Cargo Van 05-25-96 36 MOS 24,418 803.78
9659685 SCAL 96' Ford Astrostar XLT Van 05-25-95 36 MOS 16,981 441.57
9650096 CNC 95' Ford Astrostar XLT Van 05-28-95 36 MOS 18,217 597.50
9860097 ATL 95' Ford Astrostar XLT Van 05-26-95 36 MOS 18,098 583.50
9650424 NTX 95' Chevy G-20 Cargo Van w/ Bubble Top 11-01-95 36 MOS 30,805 1010.38
9680425 KC 95' Chevy G-20 Cargo Van 05-10-95 36 MOS 26,483 867.88
9660426 OKL 95' Chevy G-20 Cargo Van 05-25-95 36 MOS 25,988 852.75
9680592 SFL 95' Chevy G-20 Cargo Van 11-04-95 36 MOS 25,741 844.31
9680583 DC 95' Chevy G-20 Cargo Van 11-01-95 36 MOS 28,757 877.52
9683190 NCL 95' Chevy G-20 Cargo Van w/ Bubble Top 12-15-95 36 MOS 29,354 959.39
9664049 OKL 95' Chevy G-20 Cargo Van w/ Bubble Top 12-29-95 36 MOS 30,879 1008.24
9684065 MPLS 95' Chevy G-20 Cargo Van 12-28-95 36 MOS 27,743 906.74
9684124 PHL 95' Chevy Astro Van (Deluxe) 12-07-96 36 MOS
9684158 TOR, CN 95' Chevy G-20 Cargo Van w/ Bubble Top 12-19-95 36 MOS 27,854 910.35
9654157 NY 95' Chevy G-20 Cargo Van w/ Bubble Top 12-19-95 36 MOS 27,619 902.70
9684158 CHI 95' Chevy Astro Van (Deluxe) 01-17-96 36 MOS 19,832 551.47
9684207 NFL 95' Chevy G-20 Cargo Van w/ Bubble Top 01-02-95 36 MOS 27,569 901.05
9664208 DC 95' Chevy G-20 Cargo Van 01-24-96 36 MOS 26,894 879.00
9664213 NY 95' Chevy G-20 Cargo Van 01-24-96 36 MOS 27,148 586.66
9664225 NTX 95' Chevy Astro Van (Deluxe) 01-04-96 36 MOS 18,772 818.53
9664227 ATL 95' Chevy G-20 Cargo Van 01-04-96 36 MOS 25,519 834.06
Leased NFL 95' Ford Contour Sedan 06-03-95 24 MOS 6,604 275.76
N/A NOL 95' Chevy G-20 Cargo Van 03-05-96 36 MOS
Owned NFL 95' Nissan UD-1300 Cargo Box Truck 10-01-96 Owned
Turned In 94' Ford F-250 Cargo Van 01-05-95 Expired
</TABLE>
8200 Springwood Dr. o Suite 200 o Irving, TX 75083
(214) 432-8171 o (800) 268-3288 o Fax (214) 432-8959
<PAGE> 1
EXHIBIT 10.2
TERMS OF AGREEMENT
between
MEDICAL ALLIANCE, INC,
and
COHERENT MEDICAL GROUP
Coherent will provide:
(1) UltraPulse 5000C CO(2) laser systems including the laser console, the
0.2 mm and 1.0 mm handpieces, the TrueSpotTM 3.0 mm handpiece, the
Oral Pharyngeal Accessory System, and a "cradle" to facilitate
transportation of the laser systems.
(2) Seven laser systems for the initial pool. The lasers will be located
in the following territories: Dallas, Chicago, South Texas, Atlanta,
Washington DC, St. Louis and Cincinnati. Additional laser systems may
be added by mutual consent if both parties' agree that their
anticipated financial return justifies the addition. The schedule for
delivery of the seven systems, provided Medical Alliance meets the
criteria for shipping each system, is:
System #1 Delivered Dallas
System #2 4/1/95 South Texas
System #3 4/1/95 Atlanta
System #4 4/1/95 Chicago
System #5 4/15/95 Philadelphia
System #6 4/22/95 St. Louis
System #7 4/29/95 Cincinnati
(3) One Computerized Pattern Generator ("Scanner") when it is available
and cleared by FDA. We anticipate the first deliveries of this
product in June, 1995. Medical Alliance may purchase additional
Scanners, upgrades and other accessories at normal prices.
(4) Maintenance and service, including parts, labor and on-site
maintenance, to keep the laser systems operating at factory
specifications.
(5) Support for each Medical Alliance course including course binders and
attendance by the local Coherent sales representative. Coherent
Clinical Educators will attend selected courses where the faculty is
not experienced in laser safety and physics presentations.
(6) Practice enhancement material, including patient videos, patient
brochures, and mailers, at the normal Coherent restocking prices for
UltraPulse customers. Medical Alliance may resell this material to
their customers.
<PAGE> 2
Medical Alliance will provide:
(1) A minimum of two physician training courses in each territory to
qualify surgeons to use the UltraPulse system. The UltraPulse system
will be shipped for the first workshop. The second workshop must
occur within 30 days of the UltraPulse shipment. The goal is a
minimum attendance of 15 surgeons at each workshop. If this goal is
not met, then Medical Alliance will schedule additional training
courses in the territory.
(2) A monthly report, within 30 days of each calendar month end, of gross
revenue earned by UltraPulse procedures. The report is to be
summarized by territory, with customer names, number of procedures
performed and revenue amounts for each customer. The first report is
due for the month of February 1995.
(3) A payment ("revenue sharing amount") with each monthly report equal to
40% of the gross revenue earned from UltraPulse procedures, up to a
maximum gross revenue of $15,000 times the number of laser systems
that have been provided by Coherent plus 20% of the amount by which
gross revenue earned from UltraPulse procedures exceeds $15,000 times
the number of laser systems that have been provided by Coherent.
Example #1: Assuming that Coherent has provided two laser systems and
that gross revenue from UltraPulse procedures for the two systems
totals $28,000. The payment to Coherent would be $11,200 computed as
follows:
(40% x $28,000) $11,200
Example #2: Assuming that Coherent has provided two laser systems and
that gross revenue from UltraPulse procedures for the two systems
totals $34,000. The payment to Coherent would be $12,800 computed as
follows:
(40% x $15,000 x 2 laser systems) $12,000
(20% x ($34,000 - $30,000)) + 800
-------
Total $12,800
=======
(4) Until the South Texas territory unit is delivered, the System #1
revenue sharing payment will equal 20% of the gross revenue earned
from procedures done with that system. After the system is delivered
for the South Texas territory, System #1 will be included in the
revenue sharing described in item 3.
(5) Transportation cost for the equipment is to be paid for by Medical
Alliance.
(6) Medical Alliance will be responsible for any sales or use taxes.
(7) Certificate of insurance under property insurance policies for the
value of laser systems and accessories provided under this agreement.
Page 2
<PAGE> 3
Other agreements:
(1) This agreement is effective February 10, 1995.
(2) Medical Alliance and Coherent will review the revenue sharing after
six months. If the average revenue sharing from the pool is less than
$4,000 per laser then the appropriate down-sizing of the pool will be
negotiated. If the pool is down-sized, then the option price for the
pool will be reduced by the market value of the returned laser(s) less
refurbishing, warranty and sales expenses, but in any case however the
reduction to the option pool will not be less than the pre-reduction
total option pool adjusted to remove accessories and delivery systems,
divided by the number of lasers in the pool prior to the downsizing
less the refurbishing costs.
(3) This agreement may be canceled by either party with 90 days prior
written notice.
(4) While this agreement is in effect, Medical Alliance will have the
option to purchase the pool of lasers provided under this agreement at
any time. This option may only be exercised to purchase the entire
pool of laser systems, unless Coherent has given 90 days notice of
cancellation per item 3 above. The method of determining the option
price is described in Attachment A.
(5) If Coherent has given 90 days notice of cancellation per item 3 above,
Medical Alliance may exercise the option described in item 4 above for
the entire pool or any portion of the pool of laser systems. If
Medical Alliance elects to purchase only a portion of the pool, the
accrued "option credits" (defined in Attachment A) may be applied to
purchase the oldest lasers in the pool.
(6) If the agreement is canceled by either party, and if Medical Alliance
decides not exercise their option to purchase the pool of lasers
provided under this agreement, Medical Alliance may continue this
arrangement for any individual laser systems,, not purchased, beyond
the termination of this agreement for a maximum of nine months from
the date the unit was shipped to Medical Alliance. This right for any
particular laser system not purchased by Medical Alliance may be
revoked by Coherent with 30 days written notice if the revenue sharing
amount for such laser system is less than $4,000 per laser in any
month after contract termination. Medical Alliance has the option to
supplement revenue sharing amounts to Coherent in order to avoid such
cancellation.
(7) Laser systems and accessories provided under this agreement shall
remain the property of Coherent until the buyout option described
above is exercised and all payments owed have been made.
(8) Coherent will have access, upon request, to Medical Alliance's
accounting and other records necessary to verify the monthly report
and payment amounts.
Page 3
<PAGE> 4
(9) Coherent agrees during the term of this agreement to keep all
information provided by Medical Alliance confidential and secret
including but not limited to customer lists, financial and marketing
information, business documents, and any other information deemed
confidential by Medical Alliance which may be learned by Coherent in
the course of its business relationship with Medical Alliance.
Information deemed confidential must be marked confidential or if
disclosed orally must be confirmed in writing within ten days of
disclosure. Such information, with the exception of Medical
Alliance's customer list, will remain confidential for a period of two
years following the date of termination of this agreement. Medical
Alliance's customer list will remain confidential for a period of five
years following the date of termination of this agreement. Coherent
may use Medical Alliance's customer lists internally for sales of
laser equipment only, and agrees not to make available such list in
its entirety to any single Coherent area sales manager. Coherent
agrees to notify any employee of Coherent upon disclosure of this
confidential information, as to its confidential nature and will take
all steps necessary to ensure that such employees and agents comply
with the terms hereof. Upon the termination of this agreement,
Coherent will return to Medical Alliance, at Medical Alliance's
request, all copies, notes and abstracts of confidential information
provided during the course of this contract, with the exception of
customer lists and monthly reports as outlined in item 2 of the
section entitled "Medical Alliance will provide:". All written
information provided by Medical Alliance to Coherent prior to this
agreement,, whether marked confidential or not, will be treated as ff
marked confidential and handled in the same manner as confidential
information provided for in this paragraph.
(10) Coherent agrees not to start, purchase, manage, or operate a mobile
laser company which competes with Medical Alliance during the course
of this contract. If the contract is canceled by Medical Alliance,
either through written notice or by exercising the option to purchase
the entire pool of lasers, then these restrictions will not continue
after the termination date. Also if, after the initial six months of
this agreement, Coherent cancels the contract because the average
revenue sharing payment by Medical Alliance over any three month
period is less than $4,000 per laser in the pool, then the
restrictions will not continue after the termination date. Medical
Alliance has the option to supplement revenue sharing amounts to
Coherent in order to avoid such cancellation. If the contract is
canceled by Coherent for any other reason, then these restrictions
will continue for a period of 12 months following the termination
date.
(11) Indemnity and Insurance
(a) Coherent shall indemnify, defend and hold harmless Medical
Alliance and its employees and agents (and any successors)
against any liability, damage, loss or expense (including
reasonable attorney's fees and expenses of litigation)
incurred by or imposed upon them or any one of them in
connection with any claims, suits, actions demands or
judgments arising out of any theory of product liability
concerning any Coherent equipment being supplied hereunder.
This
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<PAGE> 5
indemnification shall not apply to any liability, damage, loss
or expense which arises out of an illness or injury
attributable to the negligent activities, reckless misconduct
or intentional misconduct of Medical Alliance. Coherent shall
maintain product liability insurance during the term of this
Agreement in aggregate amounts of at least $3 million and to
name Medical Alliance as an additional insured under such
policies.
(b) Medical Alliance shall indemnify, defend and hold harmless
Coherent and its employees and agents (and any successors)
against any liability, damage, loss or expense (including
reasonable attorney's fees and expenses of litigation)
incurred by or imposed upon them or any one of them in
connection with any claims, suits, actions demands or
judgments arising out of any negligent activities, reckless
misconduct or intentional misconduct of Medical Alliance, its
employees and agents. Medical Alliance shall maintain general
liability insurance during the term of this Agreement in
aggregate amounts of at least $3 million and to name Coherent
as an additional insured under such policies.
(c) Any party seeking indemnification hereunder, shall promptly
notify the other party of any claim or suit for which
indemnification is being sought and shall fully cooperate with
the indemnifying party in handling any such claim.
(d) The foregoing commitments shall survive termination of this
Agreement.
/s/ Paul Herchman
- ------------------------------------- ----------------------------------
Paul Herchman Kenneth G. Witte
President Director, Surgical Business Unit
Medical Alliance Inc. Coherent Medical Group
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<PAGE> 6
MEDICAL ALLIANCE
ATTACHMENT A
A portion of payments received each month will be credited (referred to as
"option credits") against the original list price of the equipment provided
under the agreement. The remaining "balance" equals the option price.
The "list price" of the equipment is determined from Coherent's price list in
effect at the time the equipment is shipped to Medical Alliance. The list
price of the UltraPulse 5000C CO2 aesthetic laser system package defined in the
agreement is $115,000 as of the date of this agreement. This amount includes
the UltraPulse 5000C CO2 laser with 0.2 mm and 1.0 mm handpieces, TrueSpotTM
3.0 mm handpiece and Oral Pharyngeal Accessory System. (The Oral Pharyngeal
Accessory System has been substituted for training normally included in this
package.)
The scanner price is $5,000. The list price for the Cradle has not yet been
determined, but current estimates are $7,500 to $10,000.
The amount of "option credits" will be the total "revenue sharing amount" less
charges for (1) interest, (2) property taxes paid by Coherent, and (3) a charge
for maintenance, service and administration.
The charge for interest will be computed monthly as if Coherent's lease funding
source had discounted leases for a credit worthy customer over a 36 month
period during the month each laser system was provided under this agreement.
As new equipment is added to the pool, a single blended interest rate will be
computed for subsequent computations (the interest rate in effect for February,
1995 transactions is 10.65%).
The charge for maintenance, service and administration will be $1,000 per month
for each laser, beginning in the first full month each laser system is provided
under this agreement.
The following worksheet (Attachment B) provides an example of how the purchase
option will be computed.
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<PAGE> 1
EXHIBIT 10.3
CONFIDENTIAL
UNAUTHORIZED DUPLICATION
PROHIBITED
MASTER LEASE AGREEMENT
This Master Lease Agreement ("Agreement") is made and effective as of
the 20th day of July, 1995, by and between CABOT MEDICAL CORPORATION, a New
Jersey corporation ("CABOT") having its principal place of business located at
2150 Cabot Boulevard West, Langhorne, Pennsylvania 19047 and MEDICAL ALLIANCE,
INC., a Texas corporation ("MAI") having its principal place of business
located at 8200 Springwood Drive, Suite 200, Irving, Texas 75063.
Background
Cabot is a developer, manufacturer and distributor of, among other
things, office endoscopy systems. MAI is a provider of surgical equipment and
related services to medical offices for use in out-patient endoscopy procedures
(individually, a "PROCEDURE" and, collectively, the "PROCEDURES"). Subject to
the terms and conditions set forth below, Cabot desires to lease to MAI, and
MAI desires to lease from Cabot, certain endoscopic equipment systems, as set
forth on Exhibit A attached hereto and made a part hereof (individually, a
"REPLACEMENT SYSTEM" and collectively, the "REPLACEMENT SYSTEMS") to replace
certain endoscopic equipment systems currently utilized by MAI in certain
geographical regions set forth on Exhibit B attached hereto and made a part
hereof (the "REPLACEMENT TERRITORIES") and currently owned by MAI.
In addition, from time to time MAI may request Cabot to lease (i)
additional endoscopic system(s) (i.e., in addition to the Replacement System)
in the Replacement Territory, (ii) additional endoscopic systems for new
territories outside the Replacement Territories (individually, a "NEW
TERRITORY" and, collectively, the "NEW TERRITORIES"), and/or (iii) new
endoscopic systems for new endoscopic Procedures (in any case, individually, a
"NEW SYSTEM" and, collectively, the "NEW SYSTEMS"), as will be more fully set
forth on one or more additions to Exhibit A and/or Exhibit B to be initialled
by both parties from time to time during the term of this Agreement, all upon
the terms and conditions set forth below.
The Replacement Systems and the New Systems are hereinafter referred
to individually as a "System" and collectively as the "SYSTEMS". The
Replacement Territories and the New Territories are hereinafter referred to
individually as a "TERRITORY" and collectively as the "TERRITORIES."
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement, and intending to be legally bound hereby, the parties to this
Agreement agree as follows:
1. DEFINITIONS.
<PAGE> 2
For purposes of this Agreement, in addition to those terms defined in
the recitals to and elsewhere in this Agreement, the following terms shall have
the following meanings unless the context clearly otherwise requires:
(a) "Certificate of Acceptance" shall have the meaning ascribed
thereto in Section 5(a) hereof.
(b) "Depreciated Asset Value" shall mean the asset value of a
System, net of depreciation (as set forth beside each System reference on
Exhibit A attached hereto), determined using the straight-line method with no
residual value in accordance with generally accepted accounting principles
applied on a, consistent basis.
(c) "Person" means any individual, sole proprietorship, joint
venture, partnership, corporation, associations joint-stock company,
unincorporated organization, cooperative, trust, estate, or any other entity of
any kind or nature whatsoever.
(d) "Term" shall have the meaning ascribed thereto in Section 2(b)
hereof.
(e) "Transfer Invoice Price" shall mean the retail list price normally
charged by Cabot if a System were purchased outright.
2. LEASE; TERM; TERMINATION.
(a) Lease. Cabot hereby leases to MAI, and MAI hereby leases from
Cabot, the Systems described and set forth on Exhibit A attached hereto and
made a part hereof, on the terms and conditions set forth herein. Upon
execution of this Agreement, Cabot and MAI shall mutually agree upon which
Systems shall be delivered by Cabot hereunder and when such Systems shall be
shipped and delivered. Thereafter, MAI shall give Cabot at least thirty (30)
days written notice prior to the desired delivery date of its intent to lease
any New System hereunder, and Cabot and MAI shall then mutually agree on a
delivery date. Any and all Systems delivered to MAI pursuant to this Section
2(a) shall be delivered F.O.B Cabot's facility.
(b) Term. The term of this Agreement (the "TERM") shall commence
on the date of execution hereof and shall remain in effect until otherwise
terminated as provided herein.
(c) Termination.
(1) Subject to the provisions set forth below, either
party may terminate this Agreement without cause at any time by giving the
other party at least ninety (90) days prior written notice of such termination.
(A) In the event Cabot desires to terminate this
Agreement, MAI shall, at MAI's election, either (i) return to Cabot all Systems
then being leased hereunder, with all costs associated with such return
(including but not limited to freight, carriage and insurance) to be born by
Cabot, or (ii) purchase and take title to all of the Systems then being leased
hereunder at a price equal to the Depreciated Asset Value thereof. MAI shall
provide Cabot
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<PAGE> 3
written notice at least fifteen (15) days prior to the expiration of the
above-referenced ninety (90) day period informing Cabot of its election
hereunder.
(B) In the event MAI desires to terminate this
Agreement, Cabot shall, at Cabot's election, either (i) obtain return of all
Systems then being leased to MAI hereunder, with all costs associated with such
return (including but not limited to freight, carriage and insurance) to be
born by MAI, and receive from MAI, immediately upon demand, payment for all
Systems then being leased to MAI hereunder at a price equal to the Depreciated
Asset Value of such Systems or (ii) require MAI to purchase and take title to
all of the Systems then being leased to MAI hereunder at the aggregate Transfer
Invoice Prices for such Systems. Cabot shall provide MAI written notice at
least fifteen (15) days prior to the expiration of the above-referenced ninety
(90) day period informing MAI of its election hereunder.
(2) In the event that Cabot and MAI mutually agree to
terminate this Agreement, MAI shall either (i) return to Cabot all (or any
number) of the Systems then being leased hereunder, with all costs associated
with such return (including but not limited to freight, carriage and insurance)
to be born equally by Cabot and MAI, or (ii) purchase and take title to all
(or, if some Systems are returned to Cabot pursuant to the preceding clause,
the remainder) of the Systems then being leased hereunder at a price equal to
the lesser of (1) 1.6 times the aggregate Depreciated Asset Value of such
purchased Systems or (2) the aggregate Transfer Invoice Prices for such Systems
less twenty percent (20%) of such amount.
(3) In the event that either parry desires to terminate
this Agreement upon the default by the other party pursuant to Section 12
below, the provisions of Section 12 shall apply.
(d) Rights and Obligations Upon Termination. Upon the termination
of this Agreement for any reason, any and all Fees due to Cabot shall be
immediately due and payable as of the date of such termination, and all other
obligations of the parties incurred through the effective date of such
termination will be fulfilled by the parties fully in accordance with the terms
and conditions of this Agreement notwithstanding termination hereof.
3. RENTAL FEE; PAYMENT TERMS.
(a) Rental Fee. Rental fees hereunder shall be based on
per-Procedure fee schedule applicable to each System, as set forth on Exhibit C
attached hereto and made a part hereof (singly or collectively, the "FEE").
The Fee applicable to any New System shall be set forth on Exhibit C, as the
same may be amended and initialled by both parties from time to time. MAI
shall pay Cabot the applicable Fee regardless of whether MAI receives payment
from a third party payor for the supply of the Systems or the provision of
MAI's services.
(b) Fees Applicable to New Systems. It is understood by the
parties hereto that the Fee schedule attached at Exhibit C hereto references
different Fees applicable to New Systems than those applicable to Replacement
Systems and that the initial Fees applicable to New Systems are gradually
reduced as the volume of Procedures performed utilizing any New System
increases, all as set forth on Exhibit C.
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<PAGE> 4
(c) Payment Terms. The first Fee payment shall be due no later
than the 15th day of the second full calendar month following the date when a
System is first used in a Procedure (except that, if the date when a System is
first used in a Procedure is on or after the first day of such second full
calendar month, then such Fee payment shall be due no later than the 15th day
of the third succeeding calendar month) and shall cover Fees attributable to
Procedures performed through the last day of the month immediately preceding
the month when payment is due. Thereafter during the Term of this Agreement,
Fee payments shall be made no later than the 15th day of each calendar month
and shall cover Fees attributable to Procedures performed through the last day
of the month immediately preceding the month when payment is due. If any
scheduled date for payment shall be a Saturday, Sunday or legal holiday in
Philadelphia, Pennsylvania or Dallas, Texas, payment shall be due on the
business day next preceding the date when payment would otherwise be due.
(d) Reports, Audits. MAI shall submit a report with each Fee
payment setting forth with reasonable particularity the calculation of the Fee
and the basis of the calculation. Upon request by Cabot, MAI shall allow Cabot
and its employees and advisors reasonable access to MAI's facilities no more
than four (4) times per year on a quarterly basis, during normal working hours
and upon reasonable notice for the purpose of auditing the books and records of
MAI relating to the Systems being leased hereunder in order to enable Cabot to
verify the calculation and payment of the Fee in accordance with this Section.
(e) Late Fee. In addition to Cabot's rights under Section 12 (as
to Events of Default), MAI shall pay Cabot, as liquidated damages and not as a
penalty, an additional amount equal to one and one-half percent (1.5%) of the
applicable Fee for every month in which payment of the Fee is overdue under
subsection (c) above, but not in excess of the amount Cabot is entitled to
receive under any applicable law,
(f) Place of Payment. All payments required under this Agreement
shall be made to Cabot (or any successor or assignee of Cabot pursuant to
Section 13(a)) at the address set forth on the first page hereof or at such
other place as Cabot (or such successor or assignee) may designate in writing
to MAI.
(g) No Right of Set-Off. All Fee payments or other sums payable
by MAI hereunder shall be its unconditional obligation and shall be made
without right of abatement, reduction or set-off of any nature, including but
not limited to rights of abatement, reduction or set-off arising out of any
present or future claim that MAI may have against Cabot or any of its
successors or assignees or any third party manufacturers or vendors of the
Systems.
4. TAXES: INDEMNITY.
(a) Taxes, Assessments. MAI shall pay, promptly when due, all
license fees and assessments, and all sales, use, property, excise and other
taxes or charges (including any interest and penalties), now or hereafter
imposed by any governmental body or agency upon MAI as the lessee or operator
of the Systems and, if MAI purchases any Systems, any applicable sales tax on
such purchases. MAI also agrees to prepare and file promptly with the
appropriate offices any and all and other similar returns required to be filed
with respect thereto (sending
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<PAGE> 5
copies thereof to Cabot) or, if requested by Cabot, notify Cabot of such
requirement and furnish Cabot with all information required by Cabot so that it
may effect such filing.
(b) Indemnification by MAI. MAI further agrees to and shall
indemnify and save Cabot, its affiliates, directors, officers, employees,
agents, successors and assigns harmless from and against, and to defend them
against, any and all liabilities, damages, losses and expenses (including
reasonable attorney's fees and expenses of litigation), incurred by or imposed
upon them or any one of them in connection with any claims, suits, actions,
demands or judgments arising out of any reckless or negligent act or willful
misconduct of or any of its employees or agents.
(c) Indemnification by Cabot. Cabot agrees to and shall indemnify
and save MAI, its affiliates, directors, officers, employees, agents,
successors and assigns harmless from and against, and to defend them against,
any and all liabilities, damages, losses and expenses (including reasonable
attorney's fees and expenses of litigation), incurred by or imposed upon them
or any one of them in connection with any claims, suits, actions, demands or
judgments arising out of (i) any theory of product liability concerning any
Systems being supplied hereunder or (ii) any reckless or negligent act or
willful misconduct of Cabot or any of its employees or agents in connection
with the maintenance of the Systems as provided in Section 8(d) below;
provided, however, that this indemnification shall not apply to any liability,
damage, loss or expense which arises out of an illness or injury attributable
to the reckless or negligent acts or willful misconduct of MAI, its employees
or agents. Notwithstanding anything stated herein to the contrary, Cabot shall
not have any liability under this subsection if (1) MAI failed to properly
inspect and test a System prior to a Procedure to ensure that such System was
in good working order and repair, where such inspection could have revealed any
defect in or need for repair of such System or (2) MAI failed to give Cabot
prompt written notice of the need for maintenance of a System in accordance
with Section 8(d).
(d) Indemnification Notice; Survival. Any party seeking
indemnification pursuant to this Section 4 shall promptly notify the other
party of any claim or suit for which indemnification is being sought and shall
fully cooperate with the indemnifying party in handling any such claim. MAI
and Cabot's respective obligations contained in this Section 4 shall survive
the termination of this Agreement.
5. ACCEPTANCE.
Promptly after delivery of any System to be leased under Exhibit A to
MAI, and in any event within fourteen (14) days of receipt thereof, MAI shall
inspect the Systems and (a) if fully satisfied therewith, execute and deliver
to Cabot a "CERTIFICATE OF ACCEPTANCE" in form and content satisfactory to
Cabot, or (b) notify Cabot in writing of the unacceptability of any System,
setting forth with reasonable particularity the reasons for such
unacceptability. No claim for any defect then existing and discoverable upon
inspection shall be allowed unless made in writing to Cabot within the fourteen
(14) day period. Any notification that any one System unit is unacceptable
shall not be construed to mean that any other System unit is unacceptable
unless Cabot is so notified in writing. On every Certificate of Acceptance
Cabot shall reference (1)
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<PAGE> 6
the asset value initially attributable to the subject System, (2) the "Transfer
Invoice Price", and (3) the serial number for the subject System.
6. INSURANCE; RISK OF LOSS.
(a) Insurance.
(1) MAI shall at its sole cost and expense obtain and
maintain insurance covering the Systems and the utilization thereof. Exhibit E
attached hereto and made a part hereof sets forth the types of insurance that
will initially be maintained by MAI, and the initial amounts of coverage
afforded thereby. As additional Systems are leased hereunder, MAI shall obtain
additional insurance coverage as may be necessary to insure against additional
risks. MAI shall provide Cabot with evidence of such insurance upon request.
The policies for such insurance shall (i) name Cabot as an additional insured
and loss payee, and (ii) provide that Cabot shall receive thirty (30) days'
prior notice of any termination, cancellation, or alteration of the terms of
such insurance, and, if permitted by the insurance carrier, that the coverage
afforded to Cabot shall not be rescinded, impaired, or invalidated by any act
or neglect of MAI.
(2) Cabot shall at its sole cost and expense obtain and
maintain product liability insurance covering design and manufacturing defects
in the Systems. Cabot shall provide MAI with evidence of such insurance upon
request. The policies for such insurance shall (i) name MAI as an additional
insured and loss payee, and (ii) provide that Cabot and MAI shall receive
thirty (30) days' prior notice of any termination, cancellation, or alteration
of the terms of such insurance, and, if permitted by the insurance carrier,
that the coverage afforded to MAI shall not be rescinded, impaired, or
invalidated by any act or neglect of Cabot.
(b) Risk of loss. Except as otherwise provided in Sections
2(c)(1)(A) and 8(c) hereof, the Systems, until returned to Cabot, shall be held
at all times at the sole risk of MAI for injury, damage (including damage to
third parties and their property), loss, destruction, theft, expropriation or
requisition (as to either tide or use). If the Systems or any of them are
destroyed, lost, stolen, damaged beyond repair, or permanently rendered unfit
for normal use for any reason whatsoever, MAI shall promptly notify Cabot in
writing and in such notice shall state that a System requires replacement and
the reasons therefor. Cabot shall supply MAI the replacement System, F.O.B.
Cabot's facility, at a price equal to Cabot's actual cost therefor (determined
immediately prior to such occurrence and otherwise in accordance with Cabot's
normal accounting procedures) plus an additional ten percent (10%) of such
cost, which amounts MAI shall pay Cabot on demand. Upon such replacement,
however, Cabot shall continue to supply the subject System at the scheduled Fee
rate in effect at the time of the event necessitating the replacement.
7. TITLE.
(a) Title. Unless MAI purchases any System from Cabot pursuant to
Section 2(c) above or Section 11(b), 12(a)(1) or 12(c) below, (1) the ownership
of the Systems is and at all times shall remain in Cabot, (ii) the Systems are
and shall remain personal property and shall not be attached to or become part
of any realty, and (iii) MAI will not sell, secrete, mortgage,
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<PAGE> 7
assign, transfer, lease, sublet, loan, part with possession of, or encumber the
Systems or permit any liens or charges to become effective thereon or permit or
attempt to do any of the acts aforesaid, except that MAI may transport and set
up such Systems in physicians' offices, hospitals and clinics for the purpose
of allowing physicians to utilize the Systems for Procedures, demonstrations
and training. MAI agrees, at MAI's own expense, to take such action as may be
necessary (1) to remove any such encumbrance, lien or charge, and (2) to
prevent any third party from acquiring any other interest in any Systems
(including, without limitation, by reason of such Systems being deemed to be a
fixture or a part of any realty).
(b) Financing Statements. MAI acknowledges that Cabot may, at
Cabot's expense, affix and maintain on the Systems a plate indicating Cabot's
ownership thereof for the purpose of, among other things, noticing MAI's
creditors. MAI shall execute and deliver to Cabot and permit Cabot to file
informational financing statements in all applicable jurisdictions covering the
Systems and referencing Cabot as lessor, as provided in Section 9-408 of the
Uniform Commercial Code (or any corresponding provision of the Texas Uniform
Commercial Code).
8. LIMITED WARRANTY; LIMITATION OF REMEDIES; MAINTENANCE.
(a) Limited Warranty. Cabot makes no warranty, express or
implied, with respect to the Systems except as set forth in this Section 8(a).
Cabot warrants from the date of the Certificate of Acceptance executed by MAI,
according to specific product warranties and time limitations as contained in
the applicable users' manual, that the Systems shall be free from defects in
material and workmanship when properly maintained, handled and used for the
intended purpose. This warranty applies only to MAI. This warranty does not
cover any Limited Life Components (as defined in Section 8(e)(3) below) or
damage resulting from (i) use or installation other than in strict accordance
with manufacturer's written instructions, (ii) disassembly or repair by an
unauthorized Person, (iii) misuse, misapplication or abuse, (iv) alteration,
(v) lack of reasonable care or (vi) wind, ice, snow, rain, lightning, or any
other weather conditions or acts of God (hereinafter referred to collectively
as "MISUSE, MISHANDLING OR MODIFICATION"), and any such misuse, mishandling or
modification of the Systems shall render the warranty set forth in this Section
8(a) null and void; provided, however, that if MAI repairs the condition caused
by such misuse, mishandling or modification to Cabot's satisfaction, this
limited warranty shall be reinstated but the original term applicable thereto
shall not be extended and this limited warranty shall terminate immediately
upon the expiration of the original warranty period.
(b) Disclaimer of Implied Warranties. OTHER THAN THE WARRANTIES
SET FORTH ABOVE, CABOT MAKES NO OTHER WARRANTIES OR REPRESENTATIONS OF ANY
KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR AS TO ANY
OTHER MATTER. THE EXPRESS WARRANTIES CONTAINED HEREIN SUPERSEDE ANY AND ALL
ORAL OR WRITTEN WARRANTIES OR REPRESENTATIONS MADE OR IMPLIED BY CABOT OR ANY
OF CABOT'S EMPLOYEES OR REPRESENTATIVES OR IN ANY OF CABOT'S BROCHURES,
MANUALS, CATALOGUES, LITERATURE OR OTHER MATERIALS.
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<PAGE> 8
(c) Limitation of Remedy. EXCEPT AS OTHERWISE PROVIDED IN SECTION
4(C) HEREOF, MAI'S SOLE AND EXCLUSIVE REMEDY AND CABOT'S SOLE OBLIGATION FOR
ANY BREACH OF THE EXPRESS WARRANTIES CONTAINED HEREIN SHALL BE LIMITED TO THE
REPAIR OR REPLACEMENT OF THE DEFECTIVE SYSTEM, AS CABOT IN ITS SOLE DISCRETION
SHALL DETERMINE (with a new or factory reconditioned product, as Cabot may
determine). Cabot reserves the right to make an examination and make the
necessary repair or replacement in its own factory, at any authorized repair
station, or at MAI's place of business. To obtain service under this warranty,
MAI must follow all applicable procedures for return of Systems as set forth
herein. EXCEPT AS OTHERWISE PROVIDED IN SECTION 4(C) HEREOF, CABOT SHALL IN NO
EVENT AND UNDER NO CIRCUMSTANCES BE LIABLE OR RESPONSIBLE FOR ANY
CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE, DIRECT OR SPECIAL DAMAGES BASED
UPON BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, OR OTHERWISE OR ANY
OTHER LEGAL THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE SALE, USE, OR
FAILURE OF ANY SYSTEM LEASED OR ACQUIRED BY MAI FROM CABOT HEREUNDER (INCLUDING
BUT NOT LIMITED TO LOSS OF INCOME, LOSS OF TIME, LOSS OF SALES, OR INJURY TO
PERSONAL PROPERTY).
(d) Maintenance. During the Term of this Agreement (and
notwithstanding any time limitation on warranty obligations set forth in
subsection (a) above), provided that (1) the Systems are not being subject to
misuse, mishandling or modification and are being used for their intended
purpose according to applicable instructions and this Agreement, and (2) MAI
provides Cabot with written notice of the need for maintenance of any System
within two (2) business days after the occurrence of any malfunction Cabot
shall at its own cost and expense (i) maintain the Systems in good working
order and condition and (ii) at Cabot's sole election, repair or replace any
component or components of any System that may require repair or replacement
from time to time to the extent necessary to maintain, preserve, and keep the
Systems in good working order and condition. In order to satisfy its
maintenance obligations hereunder Cabot must either (i) perform maintenance
with respect to any System in need of repair or (ii) provide MAI temporarily
with an adequate loaner system within seventy-two (72) hours after Cabot has
received written notice that maintenance is required. If, however, any System
requires repair or replacement due to breakage which occurs during shipping and
handling or misuse, mishandling or modification, MAI shall promptly notify
Cabot in writing of such occurrence (before any return of a System to Cabot for
repair or replacement), and MAI shall be fully responsible for the repair or
replacement of such System, at MAI's sole cost and expense, as provided in
subsection (e) below. Notwithstanding anything stated in this Section 8(d) to
the contrary, Cabot shall not be responsible for maintaining any System once it
is acquired by MAI pursuant to the provisions of Section 2(c) or 11(b) of this
Agreement, and the time period applicable to the warranty set forth in
subsection (a) above shall be deemed to have commenced as of the date the
Certificate of Acceptance for such System was executed by MAI.
(e) Repairs/Replacements Not Covered by Cabot's Warranty or
Maintenance Obligations.
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<PAGE> 9
(1) If a System requires repair that is not covered by
Cabot's warranty or maintenance obligations as set forth under this Section 3,
MAI shall have the option of (i) engaging Cabot to repair the System at a
charge equal to Cabot's cost of parts (determined immediately prior to the
repair and otherwise in accordance with Cabot's normal accounting procedures)
plus $100 per hour for labor, which amounts MAI shall pay Cabot within thirty
(30) days after invoice by Cabot or (ii) engaging a qualified third parry to
repair the item at MAI's sole cost and expense, provided, however, that if
Cabot's prior written authorization as to such third party's engagement is not
obtained (which authorization shall not be unreasonably withheld), Cabot shall
have no obligation to continue to maintain the System component requiring
repair, as otherwise would be required by this Section 8(e). Before returning
a System to Cabot for repair or engaging the third party to conduct the repair,
as the case may be, MAI shall give prior written notice of such election to
Cabot. Upon such repair, however, Cabot shall continue to supply the subject
System at the scheduled Fee rate in effect at the time of the event
necessitating the repair.
(2) If a System requires replacement that is not covered
by Cabot's warranty or maintenance obligations as set forth in this Section 8,
Cabot shall supply MAI the replacement System, F.O.B. Cabot's facility, at a
charge equal to Cabot's actual cost therefor (determined immediately prior to
such occurrence and otherwise in accordance with Cabot's norm al accounting
procedures) plus an additional ten percent (10%) of such cost, which amounts
MAI shall pay Cabot within thirty (30) days after invoice by Cabot. Upon such
replacement, however, Cabot shall continue to supply the subject System at the
scheduled Fee rate in effect at the time of the event necessitating the
replacement.
(3) Notwithstanding anything stated in this Section 8 to
the contrary, MAI shall be fully responsible for, and bear the sole cost and
expense for (i) any and all sterile, disposable and consumable items used in
connection with the Systems (collectively, "CONSUMABLES") and (ii) any and all
normal limited life components of Systems, as set forth on Exhibit D attached
hereto and made a part hereof (the "LIMITED LIFE COMPONENTS"). As New Systems
are added to Exhibit A from time to time during the Term of this Agreement, any
additional Limited Life Components applicable to such Systems shall be added
from time to time to Exhibit D, to be initialled by both parties.
Notwithstanding anything stated in this Section 8 to the contrary, Cabot shall
have no continuing maintenance obligations with respect to the Limited Life
Components.
(A) MAI hereby agrees that if Cabot can supply
any Consumable or Limited Life Component at a price that is not less favorable
than the best price charged MAI by a third party supplier based upon similar
volume commitments and not less favorable than provisions regarding performance
specifications and delivery schedules, then MAI shall purchase its requirements
for any such Consumables and Limited Life Components supplied by Cabot at such
prices and upon such similar terms and conditions as Cabot and MAI shall
mutually agree in writing. In connection with the foregoing, if MAI receives
an offer from another Person to supply any Consumables and/or Limited Life
Components, MAI must first provide Cabot with the opportunity to supply MAI
with such Consumables and/or Limited Life Components in accordance with this
subsection, by giving prompt written notice of the offer to Cabot (the "OFFER
NOTICE") and including in the Offer Notice a copy of the terms and conditions
of such
- 9 -
<PAGE> 10
offer, including but not limited to price terms, but excluding any names, so
that Cabot may indicate its acceptance or rejection of the terms of such offer.
If Cabot does not accept such terms within five (5) business days after the
date of its receipt of the Offer Notice, then MAI shall be free to enter into
an agreement with the other Person with respect to the Consumables and/or
Limited Life Components set forth in the Offer Notice upon the same terms and
conditions as communicated to Cabot in such Offer Notice, but Cabot and MAI
shall continue to remain bound by the terms and conditions of this subsection
with respect to new offers to supply or purchase Consumables or Limited Life
Components.
9. ACCESSIONS; INSPECTION: ALTERATIONS. All replacements or
substitutions of parts, of or in any of the Systems leased hereunder shall
constitute accessions thereto and shall become part of the Systems owned by
Cabot; provided, however, that MAI may add components to the Systems if such
act would not cause material damage (as defined below) to the System during
use. Any components added by MAI to the Systems shall remain the property of
MAI and may be removed by MAI upon the termination of the lease of any System
hereunder if (i) MAI removes such components, at MAI's sole cost and expense,
at the end of the applicable Term and (ii) such removal can be effected without
causing material damage (as defined below) to the System. The term "material
damage" as used in the preceding sentences shall mean damage the nature of
which has a measurable effect on the economic value or resaleability of the
System in question. Upon Cabot's request, MAI will permit Cabot to have access
to the Systems at all reasonable times for the purpose of inspection and
examination. MAI shall make no material alterations in the Systems without the
prior written consent of Cabot. MAI will permit the Systems to be operated and
repaired only by qualified personnel.
10. USE OF EQUIPMENT; COMPLIANCE WITH LAWS. MAI shall be entitled to the
right to exclusive possession and control of the Systems and the use thereof
during the Term of this Agreement so long as no Event of Default (as defined in
Section 12 below) has occurred. MAI will comply with all present and future
federal, state and local laws, regulations and ordinances, and all applicable
requirements of the manufacturer of the Systems, applicable to the physical
possession, operation, condition, use and maintenance of the Systems, including
but not limited to any and all applicable regulations of the Joint Commission
on Accreditation of Hospitals (JCAH) (including but not limited to regulations
applicable to the maintenance of medical equipment). MAI agrees to obtain all
permits and licenses necessary for the operation of the Systems.
11. SYSTEM UTILIZATION.
(a) Required Utilization. Before Cabot will supply another System
in an established Territory, MAI must be able to show that the utilization rate
for the System then in use (which may be a Replacement System or a New System)
must be a minimum of thirty (30) procedures per month. If Cabot does supply
such a System, MAI will pay a per-Procedure Fee (for all Procedures done in the
Territory and regardless of which System is used in any given Procedure), equal
to the average of
- 10 -
<PAGE> 11
(i) the Fee applicable to the existing System and (ii) the Fee applicable
to a New System as will be more fully set forth on one or more additions to
Exhibit C to be initialled by both parties from time to time during the term of
this Agreement.
(b) Failure to Achieve Utilization Rate. If within six (6) months
after MAI delivers the Certificate of Acceptance for any individual System, MAI
fails to achieve a utilization rate of fifteen (15) Procedures per month for
such System in the applicable Territory, Cabot may, at its sole option, by
giving MAI at least ninety (90) days prior written notice thereof, cause MAI to
return such System. If Cabot elects to have the System returned, MAI shall
then have the option to re-lease such System at a rental equal to the sum of
(i) the Depreciated Asset Value of the System (paid in a lump sum when the
election is made) and (ii) continuing payments during the Term of this
Agreement equal to the lowest Fee applicable to such System, as set forth on
Exhibit C, provided, however, that Cabot's maintenance obligations as set forth
in Section 8(d) above shall no longer apply. If MAI does not elect to purchase
such System as set forth above and elects, instead, to return such System to
Cabot,
(1) MAI shall have no further responsibility to adhere to
the utilization requirements set forth in this Section 11, but MAI shall pay
Cabot upon demand any and all Fees accrued and accruing with respect to such
System through the date of return of such System to Cabot; and
(2) MAI shall cooperate with Cabot in arranging the
return of such System, with all costs associated with such return (including
but not limited to freight, carriage and insurance) to be born by MAI.
12. EVENTS OF DEFAULT; REMEDIES; EXPENSES.
(a) Default by MAI. In the event that:
(1) MAI shall default in the payment of any installment
of any Fee payment or other sum payable hereunder when due and such
default is not cured within fifteen (15) days after written notice
from Cabot to MAI; or
(2) MAI shall default in the observance or performance of
any other material covenant or agreement in this Agreement and such
default shall continue for a period of fifteen (15) days (unless
another period is specified herein) after written notice from Cabot to
MAI; or
(3) MAI shall dissolve or become insolvent (however
evidenced) or bankrupt, commit any act of bankruptcy, make an
assignment for the benefit of creditors, suspend the transaction of
its usual business or consent to the appointment of a trustee or
receiver, or a trustee or a receiver shall be appointed for MAI or for
a substantial part of its property, or bankruptcy, reorganization,
insolvency, or similar proceedings shall be instituted by or against
MAI; or
- 11 -
<PAGE> 12
(4) an order, judgment, or decree shall be entered
against MAI by a court of competent jurisdiction and such order,
judgment or decree shall continue unpaid or unsatisfied and in effect
for any period of sixty (60) consecutive days without a stay of
execution, or any execution or writ of process shall be issued in
connection with any action or proceeding against MAI or its property
whereby the Systems or any substantial part of MAI's property may be
taken or restrained;
then, and in any such event, Cabot may, by written notice ("CABOT TERMINATION
NOTICE") to MAI (to the extent legally permitted to do so), do the following:
(I) at Cabot's option, immediately terminate this
Agreement (in whole as to all Systems or in part as to only a portion
of the Systems), and MAI's rights hereunder with respect thereto, in
which event Cabot shall (unless prohibited by applicable law or court
order), at Cabot's election, either (i) obtain return of all Systems
then being leased to MAI hereunder, with all costs associated with
such return (including but not limited to freight, carriage and
insurance) to be born by MAI, and receive from MAI, immediately upon
demand, payment for all Systems then being leased to MAI hereunder at
a price equal to the Depreciated Asset Value of such Systems or (ii)
require MAI to purchase and take title to all of the Systems then
being leased to MAI hereunder at the aggregate Transfer Invoice Prices
for such Systems. Cabot shall inform MAI of its election hereunder in
the Cabot Termination Notice, and MAI shall have fifteen (15) business
days within which to perform pursuant to such election; and
(II) declare immediately due and payable all Fees and other
sums due and payable;
provided, however, that if MAI does not comply with the provisions of
Subsections 12(a)(1) and (U) above, Cabot may (to the extent legally permitted
to do so) do the following:
(Y) proceed by appropriate court action or actions either
at law or in equity, to enforce performance by MAI of the applicable
covenants of this Agreement or to recover damages for the breach
thereof; and/or
(Z) without necessity of process or other legal action,
enter onto the premises of MAI or such other premises as the Systems
may then be located and take possession of the Systems.
(b) Cumulative Cabot Remedies. In addition, MAI shall continue to
be liable for all indemnities and all reasonable legal fees and other costs and
expenses resulting from the foregoing defaults or the exercise and enforcement
of Cabot's remedies hereunder, including placing any Systems in good working
order and condition. No remedy referred to in subsection (a) above is intended
to be exclusive but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Cabot at law or in equity.
(c) Default by Cabot. In the event that:
- 12 -
<PAGE> 13
(1) Cabot shall default in the observance or performance
of a material covenant or agreement in this Agreement and such default
shall continue for a period of fifteen (15) days (unless another
period is specified herein) after written notice from MAI to Cabot; or
(2) Cabot shall dissolve or become insolvent (however
evidenced) or bankrupt, commit any act of bankruptcy, make an
assignment for the benefit of creditors, suspend the transaction of
its usual business or consent to the appointment of a trustee or
receiver, or a trustee or a receiver shall be appointed for Cabot or
for a substantial part of its property, or bankruptcy, reorganization,
insolvency, or similar proceedings shall be instituted by or against
Cabot; or
(3) an order, judgment, or decree shall be entered
against Cabot by a court of competent jurisdiction and such order,
judgment or decree shall continue unpaid or unsatisfied and in effect
for any period of sixty (60) consecutive days without a stay of
execution, or any execution or writ of process shall be issued in
connection with any action or proceeding against Cabot or its property
whereby the Systems or any substantial part of Cabot's property may be
taken or restrained;
then, and in any such event, MAI may, by written notice ("MAI TERMINATION
NOTICE") to Cabot (to the extent legally permitted to do so), at MAI's option,
immediately terminate this Agreement (in whole as to all Systems or in part as
to only a portion of the Systems), and Cabot's rights hereunder with respect
thereto, in which event MAI shall (unless prohibited by applicable law or court
order), at MAI's election, either (i) return to Cabot all Systems then being
leased hereunder, with all costs associated with such return (including but not
limited to freight, carriage and insurance) to be born by Cabot, or (ii)
purchase and take title to all of the Systems then being leased hereunder at a
price equal to the Depreciated Asset Value thereof. MAI shall inform Cabot of
its election hereunder in the MAI Termination Notice, and Cabot shall have
fifteen (15) business days within which to perform pursuant to such election.
If Cabot does not comply with the provisions of this Subsection 12(c), MAI may
(to the extent legally permitted to do so) proceed by appropriate court action
or actions either at law or in equity, to enforce performance by Cabot of the
applicable covenants of this Agreement or to recover damages for the breach
thereof.
(d) Cumulative MAI Remedies. In addition, Cabot shall continue to
be liable for all indemnities and all reasonable legal fees and other costs and
expenses resulting from the foregoing defaults or the exercise and enforcement
of MAI's remedies hereunder. No remedy referred to in subsection (c) above is
intended to be exclusive but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to MAI at law or in
equity.
13. MISCELLANEOUS.
(a) Assignment. MAI shall not assign (including by operation of
law) this Agreement or any interest herein, or sublease any Systems, or part
with possession of any Systems, without the prior written consent of Cabot,
which consent shall not be unreasonably withheld. Cabot
- 13 -
<PAGE> 14
shall not assign (including by operation of law) this Agreement or any interest
herein wi the prior written consent of MAI, provided that Cabot may assign this
Agreement to Circon Corporation ("CIRCON") upon giving notice thereof to MAI
and provided that Circon executes an agreement whereby it agrees to be bound by
all of the terms and conditions hereof. Any permitted assignee shall have all
the rights, powers, privileges, and remedies of the assigning party hereunder.
(b) Return of Systems. If at any time pursuant to the provisions
of this Agreement MAI is required or elects to return any System or component
thereof to Cabot (whether for return, replacement or repair), MAI shall crate
the Systems to Cabot in a proper manner, adequately protected for shipment.
Unless a System is being returned to Cabot specifically for repair or
replacement purposes, the Systems shall be in good operating condition.
(c) Entire Agreement. This Agreement and Exhibits executed
pursuant hereto represent the entire agreement between Cabot and MAI as to the
Systems, and may not be altered, amended, changed, or terminated without a
written agreement signed by authorized officers of Cabot and MAI.
(d) Notices. Any notice required to be given hereunder by either
party shall be in writing and may be given by hand delivery, by delivery to a
nationally recognized overnight courier, or by sending the same by facsimile or
telex or by registered air mail, postage prepaid, addressed to the other at the
respective numbers, places or addresses set forth below, or to such other
facsimile number, telex number, address, place or places as the parties, or
either of them from time to time may designate in writing. All such notices,
demands and communications shall be deemed to have been duly given or made: (1)
on the date delivered if hand delivered; or (2) five days after the date
deposited via U.S. mail if mailed certified mail, return receipt requested; or
(3) two days after the date deposited via overnight courier, charges prepaid;
or (4) on the date sent if sent by telex or facsimile transmission provided
that (i) in the case of a telex transmission, the receipt of the telex is
confirmed by way of the callback signal; (ii) in the case of a facsimile
transmission, receipt of confirmation from the facsimile transmitter at the
conclusion of the transmission of complete and uninterrupted transmission of
the facsimile, on the day of transmission at the place where the recipient is
located except when it is transmitted after 5:00 p.m. Pennsylvania time at that
place, then on the next business day. All notices shall be sent to the
following addresses:
If to, Cabot: Cabot Medical Corporation
2150 Cabot Boulevard West
Langhorne, PA 19047
Attention: Glenn Stahl, Senior Vice
President, Strategic Development
Telecopier No.: 215-750-0161
If to MAI: Medical Alliance, Inc.
8200 Springwood Drive, Suite 200
Irving, Texas 75063
Attention: Paul Herchman, President
- 14 -
<PAGE> 15
Telecopier No.: 214-432-8959
(e) Non-Waiver. No failure by either party to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise by either party of any right hereunder
preclude any other further exercise thereof or the exercise of any other right.
(f) Headings. Headings in this Agreement are for convenience only
and shall not be used to interpret or construe its provisions.
(g) Binding Arbitration. If good faith negotiations among the
parties do not resolve any claim, dispute or other matter arising out of or
relating to this Agreement or the alleged breach hereof within sixty (60) days
after Notice of such claim, dispute or other matter is provided to the other
party (the "CLAIM NOTICE"), such claim, dispute or other matter shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, by one arbitrator, who shall be an
attorney, selected by mutual agreement of the parties or, if the parties are
unable to agree upon an arbitrator, then an arbitrator selected by the American
Arbitration Association in accordance with its rules (the "ARBITRATOR"). The
Arbitrator shall be authorized to retain experts and the costs therefor and of
such arbitration shall be paid as directed by the Arbitrator. The parties
agree that all matters of fact and law shall be decided exclusively by the
Arbitrator, and the Arbitrator shall not have the power to refer to any
applicable court any issues for determination by such court. The parties
irrevocably agree that the arbitration shall be held in the jurisdiction of the
party delivering the Claim Notice. The Arbitrator shall be obliged to render
an award (the "AWARD") within sixty (60) days of his or her appointment, which
Award shall be final and binding on the parties hereto. Each party hereto
expressly waives the right to appeal the Award to the extent permitted by
applicable law and agrees that judgment upon the Award rendered in any such
arbitration may be made to such court for a judicial acceptance of any such
award made in any such arbitration, or any order of enforcement made therein as
the case may be. Service of process, notices and demands of such arbitration,
and any other notices or other communications required or permitted under this
Section, shall be given in accordance with Section 13(d) hereof. Under no
circumstances shall the Arbitrator have the power to award punitive or similar
damages to any party hereto.
(h) Severability. If any term or other provision of this
Agreement is invalid, illegal, or unenforceable by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not substantially
affected.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to choice of law principles.
(j) Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
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<PAGE> 16
(k) Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of Cabot and MAI and their respective
legal representatives successors, and permitted assigns.
(l) Further Assurance. MAI shall promptly execute and deliver to
Cabot (or any successor or assignee of Cabot pursuant to Section 13(a)) such
further documents and take such further action as Cabot or such assignee may
request in order to more effectively carry out the intent and purpose hereof
and to fully protect Cabot's or any such successor or assignee's interest
hereunder in accordance with the Uniform Commercial Code or other applicable
law, including out limitation, the filing of financing and continuation
statements, whether for informational purposes or otherwise.
(m) Definition of "Agreement".. "Agreement," as used herein, shall
be deemed to refer to this Agreement and any and all Exhibits now or hereafter
executed pursuant hereto.
(n) Force Majeure. Neither MAI nor Cabot shall be penalized under
any nonperformance standards contained in this Agreement by reason, directly or
indirectly, from fire, explosion, strike, freight embargo, Act of God, or of
the public enemy, war, civil disturbances, quarantine, or epidemic. MAI and
Cabot agree, however, to use their best efforts to remedy such mishaps and
restore normal business activities within a reasonable period of time.
(o) No Agency Created. This Agreement shall not constitute either
party an affiliate, joint venturer, partner, agent, employee or representative
of the other for any purpose.
IN WITNESS WHEREOF, Cabot and MAI have caused this Agreement to be
duly executed and is effective as of the date and year first above written.
CABOT MEDICAL CORPORATION
By: /s/ Glenn H. Stahl
----------------------------------
Glenn Stahl, Senior Vice President,
Strategic Development
MEDICAL ALLIANCE, INC.
By: /s/ Paul Herchman
----------------------------------
Name: Paul Herchman
Title: President & CEO
- 16 -
<PAGE> 17
EXHIBIT A
Systems
<TABLE>
<CAPTION>
Applicable
Depreciation
New Systems Replacement Systems Schedule
----------- ------------------- --------
<S> <C> <C> <C>
1. Endoscopic Video System
Includes: DigiCam DigiCam 36 Months
Xenon Light Xenon Light
Light Cable Light Cable
Monitor
Cart
Printer
2. Hysteroscopy System
Includes: 2.7mm scope (30 2.7mm scope (30 degrees) 24 Months
degrees) Sheath
Sheath
Hysteroflator
</TABLE>
MAI: CABOT:
By: By:
---------------------------- ----------------------------
Date: Date:
-------------------------- --------------------------
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<PAGE> 18
EXHIBIT B
Replacement Territories
1. North Texas
2. Atlanta
3. Minneapolis
4. Philadelphia
5. Chicago
6. Cincinnati
7. Kansas City
8. Houston
New Territories
1. Washington D.C.
2. St. Louis
3. State of Oklahoma
MAI: CABOT:
By: By:
--------------------------- --------------------------
Date: Date:
------------------------- ------------------------
- 18 -
<PAGE> 19
EXHIBIT C
Fee Schedules
<TABLE>
<CAPTION>
New System Replacement Systems
---------- -------------------
<S> <C>
1. Endoscopic Video System
Per-Procedure Fee to Cabot:
First 100 Procedures: $75/Procedure $40/Procedure
Procedure 101 - 600: $55/Procedure
Greater than 600 Procedures: $40/Procedure
2. Hysteroscopy System
Per-Procedure Fee to Cabot:
First 100 Procedures: $20/Procedure $10/Procedure
Procedure 101 - 300: $15/Procedure
Greater than 300 Procedures: $10/Procedure
</TABLE>
MAI: CABOT:
By: By:
------------------------- -------------------------
Date: Date:
----------------------- -----------------------
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<PAGE> 20
EXHIBIT D
Limited Life Components
(Not covered by Cabot's maintenance
obligation as set forth in Section 8(d) of the Agreement)
1. Light Source Bulbs
MAI: CABOT:
By: By:
--------------------------- ----------------------------
Date: Date:
------------------------- --------------------------
- 20 -
<PAGE> 21
EXHIBIT E
MAI Insurance Coverages
Medical Alliance, Inc. carries a $1,000,000 commercial general liability
insurance policy and a $2,000,000 excess liability policy. The current
policies effective periods are from January 29, 1995 - January 29, 1996 and are
carried through Chubb Insurance and Pacific Insurance Company (Hartford
Insurance), respectively.
Medical Alliance, Inc. carries an "actual cash value" equipment floater through
Hartford Insurance Co. Effective dates on this policy are September 13, 1994 -
September 13, 1995.
MAI: CABOT:
By: By:
--------------------------- ----------------------------
Date: Date:
------------------------- --------------------------
- 21 -
<PAGE> 1
EXHIBIT 10.4
MASTER SERVICES AGREEMENT
BETWEEN
COSMETIC TECHNOLOGIES INTERNATIONAL
AND MEDICAL ALLIANCE. INC.
AGREEMENT entered into this 3rd day of June, 1996 between Cosmetic
Technologies International, a division of Palomar Medical Technologies,
Inc., a Delaware corporation ("CTI") located at 13 55 Stratford Court, #19, Del
Mar, CA 92014 (telephone: 619/793-1109; fax: 619/793-1124), and Medical
Alliance, Inc. ("MAI") a Texas corporation, located at 8200 Springwood Drive,
Suite 200, Irving, Texas 75063 (telephone: 214/432-8171; fax: 214/432-8959).
WHEREAS, CTI provides services related to aesthetic lasers and other
medical devices and makes such lasers and devices available to third parties
for ultimate use in the performance of cosmetic procedures by health care
professionals.
WHEREAS, MAI is in the business of providing medical devices through
specialized mobile delivery services (referred to herein as "Mobile Medical
Services") which allows selected procedures to be performed by physicians or
other health care professionals under the supervision of physicians. and has
established a delivery network and customer base for such services; and
WHEREAS, Spectrum Medical Technologies. Inc. ("Spectrum") has
developed, in prototype, a laser device for use in hair removal. known as the
Epilaser(TM) (the "Product") and has entered into an agreement with CTI
pursuant to which CTI has been granted the exclusive right to market and
distribute the Product to providers of Mobile Medical Services, and
WHEREAS, CTI desires to make the Products available to MAI on an
exclusive basis for mobile medical service and to provide certain other
services in connection therewith; and
WHEREAS, MAI desires to obtain the Products from CTI in order to
provide services to physicians with respect to the utilization of the Products.
NOW, THEREFORE, in consideration of the mutual covenants and upon the
terms and conditions hereinbelow set forth, the parties hereto agree as
follows:
1. Services Provided to MAI.
(a) Subject to the Sections 3 and 5 below and otherwise in
accordance with the terms of this Agreement. CTI will deliver Products to MAI,
together with all fibres, hand pieces, and other peripherals necessary for the
operation thereof, for use by MAI in the provision of Mobile Medical Services
in the areas in which MAI as of the date hereof has mobile medical services
established and operating as set forth on Exhibit A hereto (the "Approved
Locations"). Products shall be delivered to MAI for use in the Approved
Locations upon not less than sixty (60) days advance request therefor from MAI.
Each Product shall be delivered by CTI pursuant to a
<PAGE> 2
Products Schedule (the form of which is attached hereto as Exhibit B) and each
such Products Schedule shall constitute a separate agreement between CTI and
MAI (and "Products Contract") having a term of sixty (60) months as set forth
in Section 9.
(b) CTI shall be responsible for the repair and maintenance of the
Products delivered to MAI pursuant to this Agreement in accordance with the
provisions of the service and maintenance obligations attached hereto as
Exhibit C.
(c) CTI shall make available to MAI operation manuals, training
materials, marketing information. public relations materials and other
information available to CTI with respect to the use and marketing of the
Products in order to permit the effective promotion of MAI's business within
the Approved Locations.
(d) CTI will pass through to MAI the standard manufacturer's
warranty with respect to the Products, provided however, that nothing herein
contained shall be deemed to limit the right of CTI, as the owner of the
Products, to rely upon such warranty in its own right.
(e) During the first forty eight (48) months of any Products
Schedule CTI will provide to MAI the upgrades and enhancements to the Products
subject to such Products Contract which are generally made available by
Spectrum to its customers, up to an aggregate cost to CTI of $15,000 per
Product. After the foregoing dollar limitation has been reached with respect
to any Product, CTI will provide additional upgrades or enhancements only upon
such terms as may be mutually acceptable to both parties. No enhancements or
upgrades other than those made available at no cost to CTI will be provided
during the final twelve (12) months of any Products Contract unless the parties
shall have reached a mutually acceptable agreement. Notwithstanding any other
provision of this Agreement, CTI reserves the right, at its own expense, at any
time during the term of the Products Contract to replace Products or to install
upgrades or enhancements to the extent CTI shall reasonably determine to be
necessary to prevent the obsolescence of the Products.
2. Deployment of Products by MAI. MAI shall make the Products
available to its professional customers on a "fee for use" basis or on such
other basis as MAI shall deem appropriate in the conduct of business, provided
that in no event shall Products be placed permanently with any customer or
other person. MAI agrees to use reasonable commercial efforts including the
active marketing of the Products and the procedures which may be performed
therewith to maximize the use of the Products within the Approved Locations.
Within 15 days of the date on which MAI is notified that FDA approval of the
Product has been received MAI will notify CTI of the number of Approved
Locations at which it desires to deploy Products and a timetable for such
deployment.
3. Availability of Products. (a) CTI represents and
warrants that it has entered into an agreement with Spectrum (the "Spectrum
Agreement") pursuant to which Spectrum has granted to CTI the exclusive right
to market and distribute the Products for use in the provision of Mobile
Medical Services. Pursuant to the Spectrum Agreement, Spectrum has also
committed
2
<PAGE> 3
to make available to CTI, for purposes of fulfilling CTI's obligations under
this Agreement, not less than twenty percent (20%) of the Products produced by
Spectrum until such time as twenty four (24) Products have been made available
to MAI in accordance with the provisions of this Agreement.
(b) The parties hereto acknowledge that the Products have not yet
been approved for sale by the United States Food & Drug Administration ("FDA")
and that no Products are currently under commercial manufacture. CTI shall
give written notice to MAI promptly following the receipt of FDA approval for
the sale of the Products.
(c) CTI hereby agrees that it will not permit any changes or
modifications to be made to the Spectrum Agreement which would adversely affect
in any material manner the rights granted to MAI pursuant to this Agreement,
including, without limitation, changes or modifications of the indemnification
provisions of the Spectrum Agreement.
4. Exclusivity. Except as set forth in this Section or in
Section 5, CTI agrees, subject to the performance by MAI of its obligations
under this Agreement not to knowingly sell, lease, rent or otherwise provide or
make available Products to any person other than MAI for use in the Mobile
Medical Services business within the United States. Except to the extent set
forth in this Section or in Section 5, MAI agrees not to provide Mobile Medical
Services within the United States using, or to otherwise deal in, any laser
hair removal device other than the Products unless CTI fails to perform its
obligations under this Agreement. Upon the expiration of this Agreement, the
parties' respective rights of exclusivity hereunder shall be limited to those
Approved Locations with respect to which a Products Contract remains in effect.
5. Additional Approved Locations and Products.
(a) In the event that MAI desires to install Products in areas
other than those Approved Locations set forth in Exhibit A, MAI shall so notify
CTI. CTI will review, in consultation with MAI, the financial feasibility and
business prospects of providing Products for use in such area. If such review
is satisfactory to CTI, such area shall become an Approved Location within the
meaning of this Agreement and CTI shall make the Products and services
described in Section 1 available to MAI with respect to such Approved Location.
(b) In the event that CTI is approached by another provider of
Mobile Medical Services seeking to obtain Products for use in an area which has
not yet become an Approved Location hereunder, CTI will give MAI thirty (30)
days written notice of any such offer, during which period MAI may elect to
become the vendor for that area as described in Section 5(a) above. Such area
shall become an Approved Location within the meaning of this Agreement and CTI
shall make the Products and services described in Section 1 available to MAI
with respect to such Approved Location.
3
<PAGE> 4
(c) If the parties fail to reach agreement with respect to an area
pursuant to either Section 5(a) or 5(b), then MAI and CTI shall each be
relieved of its obligations with respect to exclusivity with respect to such
area only.
6. Mutual Marketing Assistance. CTI agrees that if it becomes
aware of any potential customers who do not wish to acquire Products to be
placed at a fixed location (a "Permanent Placement") it will inform such
customers of the availability of MAI's mobile medical laser services as an
alternative method of obtaining use of the Products. MAI agrees that it will
refer to CTI any current or potential customer who desires to obtain Products
on a Permanent Placement Basis.
7. Use of Trademarks and Logos. Pursuant to the Spectrum
Agreement. Spectrum has granted to CTI a non- exclusive right and license to
use, and to sublicense others to use, the trademark Epilaser(TM), the trademark
Lasertrolysis(TM) and such other of Spectrum's trademarks, trade names and
logos as Spectrum shall determine to be advisable (the "Trademarks") for use in
the advertising, promotion and sale of Mobile Medical Services. CTI hereby
grants to MAI a non-exclusive, personal and non-transferable sublicense to use
the Trademarks in the advertising, promotion and sale of MAI's services during
the term of this Agreement and any Products Contract but only insofar as such
services relate to the use of the Products and the hair removal procedures to
be performed through the use of the Products. Except as provided in this
Agreement, MAI shall not at any time acquire any rights in the Trademarks by
virtue of any use it may make thereof, and all such uses shall inure to the
benefit of CTI and Spectrum. MAI shall clearly indicate Spectrum's ownership
of the Trademarks whenever the Trademarks are used by MAI. MAI shall provide
to CTI for approval samples of all advertising, promotional and other
literature prepared by or for MAI in which the Trademarks appear. CTI shall
have the right to withhold approval of the use of such Trademarks if such use
in not in compliance with the provisions of this Section or if such use, in the
reasonable opinion of CTI, abrogates or diminishes the value of the Trademarks.
8. Fees.
(a) MAI shall pay to CTI on the 15th day following the last day of
each month an amount equal to fifty percent (50%) of the gross revenues it has
been paid for procedures performed through the use of the Products during the
preceding calendar month. Each party shall pay those fees and costs for which
it is responsible from its share of such gross revenues. Without limiting the
foregoing, MAI shall pay any taxes or other charges levied on its income, CTI
shall pay any personal property taxes levied on the Products, and each party
shall be responsible for the cost of the repair and maintenance obligations
assumed by it under the maintenance and service obligations set forth in
Exhibit C.
(b) In consideration for the right of exclusivity herein granted,
MAI agrees to pay a mum payment of $5.000 per Product per month for procedures
performed through the use of Products during each month of the respective
Products Contracts (the "Minimum Payment"). The Minimum Payment shall be due
and payable at the time on which payments are to be made
4
<PAGE> 5
pursuant to Section 8(a) above. The Minimum Payment shall be subtracted from
the monthly payment due under Section 8(a) above to the extent that such
monthly payment for such Product exceeds the Minimum Payment. The parties
agree that with respect to all Approved Locations, whether original or
additional, there shall be established under each Products Contract a ninety
(90) day ramp up period prior to the time at which the full amount of the
Minimum Payment becomes payable. In the event that any Product is or becomes
inoperable, through no fault of MAI, for more than twenty percent (20%) of the
normal operating days during any calendar month, the Minimum Payment required
with respect to such Product shall be adjusted accordingly.
(c) MAI shall be responsible for billing all fees for procedures
performed through the use of the Products and will collect payment for the full
amount of such fees. MAI will record and report to CTI in the format described
on Exhibit D hereto all procedures performed through the use of the Products.
Such reports shall be submitted monthly via facsimile on the fifteenth (15th)
day after the end of each month for procedures performed during the prior
month. MAI shall maintain its books and records in accordance with generally
accepted accounting principles. CTI shall have the right to audit the records
of MAI. during normal business hours and upon reasonable advance notice,
insofar as such records relate to procedures performed through the use of the
products and the receipts of MAI with respect thereto.
For each month during the term of this Agreement or any Products
Contract, MAI will provide for each patient who has undergone a procedure using
the Products, MAI's patient identity number, the description of procedures
performed and the amount charged and received from each patient, by day. The
information described in this Section shall be provided by the end of the
fifteenth (15th) day after the end of each month.
9. Term. This Agreement shall have a term of sixty (60) months
commencing on the date on which the first Product is delivered to MAI pursuant
to this Agreement. Each of the Products Contracts shall likewise have a term
of sixty (60) months commencing on the date on which the Product to be provided
pursuant to such Products Contract is delivered to MAI. This Agreement shall
be automatically renewed for successive terms of twelve (12) months, provided
that neither party shall have given notice to the other of its intention to
terminate this Agreement within ninety (90) days prior to the expiration of the
then current term hereof. Neither the expiration nor the renewal of this
Agreement shall affect the term of any Products Contract nor shall the
expiration, termination, or extension of any Products Contract affect the term
of this Agreement.
10. Insurance. (a) At all times during the term of this Agreement
and any Products Contract, MAI shall maintain in effect policies of insurance
with insurers reasonably acceptable to CTI as follows:
(i) General liability insurance in amounts not less than
$1,000,000 with CTI as an additional named insured;
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<PAGE> 6
(ii) Insurance against theft and other casualty damage to
the Products in an amount not less than the full replacement cost of
the Products which are then in the possession of MAI with CTI as an
additional named insured;
(iii) Worker's compensation insurance in statutory limits;
and
(iv) Automobile liability insurance in amounts not less
than $500,000 for each occurrence with a combined limit of $1,000,000.
(b) CTI represents that the Spectrum Agreement requires Spectrum
to maintain product liability insurance with respect to the Products in an
amount not less than $2,000,000 with MAI as an additional named insured. CTI
shall ensure than such insurance is maintained during the term of this
Agreement and any Products Contract.
(c) All policies of insurance required to be maintained in
accordance with the provisions of this paragraph shall provide that the insurer
will give thirty (30) days prior written notice (i) to CTI with respect to the
policies of insurance described in subparagraph (a) hereof and (ii) to MAI with
respect to the policies of insurance described in subparagraph (b) hereof prior
to any cancellation, termination or loss of any such policy.
11. Indemnification.
(a) CTI hereby indemnifies MAI and agrees to defend and hold it
harmless from any expense, damage, loss or cost (including reasonable
attorney's fees) resulting from any claim, action or proceedings brought
against MAI insofar as such claim, action or proceeding is based on or arises
from the malfunction of the Products or the failure of the Products to perform
as warranted except to the extent that any such claim, action or proceeding is
attributable to the negligent or willful misconduct of MAI or its customers, or
the failure of MAI to properly maintain the Products (to the extent that
maintenance thereof is an obligation of MAI pursuant to the service and
maintenance obligations set forth in Exhibit C).
Pursuant to the Spectrum Agreement, Spectrum has agreed with CTI, upon
receipt of any notice with respect to any claim, suit, or proceeding asserting
that the sale, manufacture, or use of any Product manufactured or provided by
Spectrum infringes a patent, copyright, or other proprietary right of a third
parry, Spectrum shall, at its own expense and option, (a) settle the claim; (b)
procure for CTI and its customers the right to continue use of the Product; (c)
replace or modify the Product to avoid infringement; (d) defend against such
claim; or (e) remove the Product. Spectrum has further agreed that should any
court of competent jurisdiction hold in a final decision that the sale,
manufacture, or use of such Product constitutes infringement. Spectrum shall
pay to CTI any costs and damages finally awarded against it or its customers on
account of such infringement, and if the use of such Product is enjoined,
Spectrum shall take one more of the actions under (b), (c), or (e) above. CTI
hereby indemnifies MAI with respect to the foregoing matters to the extent of
the indemnification received by Spectrum.
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<PAGE> 7
(b) MAI hereby indemnifies Spectrum and agrees to defend and hold
it harmless from any expense, damage, loss or cost (including reasonable
attorney's fees) resulting from any claim, action or proceedings brought
against CTI or its affiliates insofar as such claim, action or proceeding is
based on or arises from the negligent or willful misconduct of MAI, the failure
of MAI to properly maintain the Products (to the extent that maintenance
thereof is an obligation of MAI pursuant to the service and maintenance
obligations set forth in Exhibit C), or any unauthorized modification made to
the Products by MAI. MAI further agrees to indemnify CTI and agrees to defend
and hold it harmless from any expense, damage, loss or cost (including
reasonable attorney's fees) resulting from any claim. action or proceedings
brought against CTI or its affiliates insofar as such claim, action or
proceeding is based on or arises from the negligent or willful misconduct of
MAI's customers to the extent that MAI has been indemnified by such customers.
MAI represents that it has provided to CTI a copy of the standard form of
indemnity which it requires from its customers and agrees that it will continue
to require customers to execute such form of indemnity.
(c) The provisions of this Section 11 shall survive the
termination or expiration of this Agreement and the Products Contracts for a
period of three years.
12. Confidentiality. The parties recognize that in the performance
of their obligations hereunder each of them may become privy to information
which is confidential and proprietary to the disclosing party and which is not
otherwise made available to the public ("Confidential Information"). Anything
in this Agreement to the contrary notwithstanding, each party shall hold in a
fiduciary capacity, for the benefit of the other, and shall not in any manner
reveal or disclose to any third party, any confidential information which shall
have been obtained or disclosed to it in connection with the performance of
this Agreement. Upon termination of this Agreement, all memoranda, documents
or other papers or media which describe or embody Confidential Information
shall be promptly returned to the disclosing party. If any party shall be
served with legal process seeking to compel the disclosure of Confidential
Information, such party shall immediately inform the other of such process, but
no party shall be deemed to be in violation of its obligations under this
paragraph if it discloses Confidential Information under compulsion of law.
13. Conditions to Obligations. The obligations of the parties
pursuant to this Agreement are expressly subject to the completion of
commercial development of the Product, the receipt of approval from the FDA
with respect to the manufacture and sale thereof, and the absence of any
material adverse change in the financial condition or business prospects of
MAI, CTI or Spectrum. If FDA approval of the Products has not been received on
or before August 15, 1996, the parties agree within a reasonable period of time
thereafter to negotiate mutually acceptable modifications to this Agreement.
If the parties are unable to agree upon such modifications, this Agreement
shall terminate.
14. Non-Solicitation/Non-Competition. During the term of this
Agreement and for a period of one year thereafter, all parties hereto shall
refrain from hiring or soliciting for hire any employee of the other party
without such party's written consent. CTI, on its own behalf
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<PAGE> 8
and on behalf of its affiliates. agrees not to purchase, manage, invest in, or
operate any entity which provides Mobile Medical Services during the term of
this Agreement and for a period of four (4) months following the termination
hereof.
15. Defaults.
(a) MAI shall be in default under this Agreement and any Products
Contract if it (i) fails to pay the Minimum Payment and such failure is not
cured within five (5) days following written notice thereof, (ii) fails to make
timely payments of any other payment as required herein or in any Products
Contract and such failure is not cured within five (5) days following written
notice, (iii) fails to use the Products in the manner provided herein and such
failure is not cured within thirty (30) days following written notice thereof,
(iv) violates its agreement to use the Products exclusively in the Approved
Locations, (v) fails to maintain insurance as herein provided, (vi) breaches
any other provision hereof or of the Products Contract which breach is not
cured within thirty (30) days following written notice thereof, (vii) transfers
all or a substantial part of its business assets (other than as permitted
pursuant to Section 25), dissolves, ceases its business operations or (viii)
becomes insolvent, makes an assignment for the benefit of creditors, or files
for or suffers to exist for more than thirty (30) days a petition in bankruptcy
or under any other insolvency law. Any default listed above shall constitute a
default only as to the Products Contracts under which such default has
occurred.
(b) CTI shall be in default if it (i) fails to provide Products or
service as set forth herein and such failure is not cured within thirty (30)
days following written notice thereof, (ii) violates its agreement to make the
Products exclusively available to MAI for Mobile Medical Services as provided
herein, (iii) fails to maintain insurance as herein provided, (iv) breaches any
other provision hereof which breach is not cured within thirty (30) days
following written notice thereof, (v) transfers all or a substantial part of
its business assets (other than as permitted pursuant to Section 25),
dissolves, ceases its business operations, or (vi) becomes insolvent, makes an
assignment for the benefit of creditors, or files for or suffers to exist for
more than thirty (30) days a petition in bankruptcy or under any other
insolvency law. Any default listed above shall constitute a default only as to
the Products Contract under which such default has occurred.
16. Effect of Default or Expiration.
(a) Upon default by MAI of Section 15(a), CTI may require MAI, at
the election of MAI, to either (i) terminate the Products Contract with respect
to which such default has occurred and surrender possession of the Products
subject thereto and MAI shall be prohibited from using any laser hair removal
device within the Approved Location covered by such Products Contract for a
period of one year or (ii) purchase the Product at an amount equal to the value
of the revenues to be received by CTI during the remaining term of the Products
Contract discounted to present value. In all such events the exclusivity
provisions of this Agreement shall cease as to a particular Approved Location
upon default of Section 15(a)(i) or (ii) and as to the entirety of the United
States upon default of any other clause of Section 15(a).
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<PAGE> 9
(b) Upon default by CTI of Section 15(b) MAI may require CTI, at
the election of CTI, to either (i) terminate the Products Contract with respect
to which such default has occurred and accept return of the Products subject
thereto and CTI shall be prohibited from placing Products with any other
provider of Mobile Medical Services within the Approved Location covered by
such Products Contract for a period of one year or (ii) sell the Product to MAI
at an amount equal to twenty five percent (25%) of the original retail price of
the Product. In all such events the exclusivity provisions of this Agreement
shall cease as to a particular Approved Location upon default of Section
15(b)(i) and as to the entirety of the United States upon default of any other
clause of Section 15(b).
(c) Upon the expiration of any Products Contract without renewal
or extension, MAI shall either (i) return to CTI the Products subject thereto
or purchase the Product at an amount equal to the then fair market value of the
Product as determined by an independent third party mutually agreed to by MAI
and CTI.
17. Title. MAI shall have no right, title or interest in the
Products, except as expressly set forth in this Agreement unless MAI shall have
purchased such Products. All Products shall remain personal property and the
title thereto shall at all times remain in CTI exclusively. All documents of
title and evidences of delivery shall be delivered to CTI. MAI will not change
or remove any insignia or lettering which is on the Products at the time of
delivery thereof or which is thereafter placed thereon indicating CTI's
ownership or interest therein, and will at any time during the term of any
rental agreement. upon request of CTI, allow CTI to affix to the Products in a
prominent place, labels, plates or other markings supplied by CTI stating that
the Products are owned by CTI. Upon the execution of each Products Contract,
MAI shall execute a UCC Form-1 Financing Statement constituting a so-called
"notice filing" to be filed or recorded and refiled and re-recorded with such
public records as CTI may determine. MAI shall not move the Products from the
jurisdiction in which the Products are to be placed pursuant to the Products
Contract without CTI's prior written consent. Upon any such removal, MAI shall
execute and deliver such additional notice filings as shall be requested by
CTI. MAI shall at its own expense protect and defend CTI's title against all
persons claiming against or through MAI, at all times keeping the Products free
from any legal process or encumbrances whatsoever, including, but not limited
to, liens, attachments, levies and executions. and shall give CTI immediate
written notice of any such legal process or encumbrance and shall indemnify CTI
from any loss caused thereby.
18. Limitation of Liability.
(a) Except for the Manufacturer's warranty made available to MAI
pursuant to this Agreement. and CTI's obligations to repair and maintain the
Products as set forth in the service and maintenance obligations set forth in
Exhibit C, and any other obligations expressly assumed by CTI hereunder, CTI
MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER CONCERNING THE
EQUIPMENT WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE DESIGN OR CONDITION OF
THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR CAPACITY OR DURABILITY
FOR ANY
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<PAGE> 10
PARTICULAR PURPOSE. THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE
EQUIPMENT OR CONFORMITY OF THE EQUIPMENT TO ANY SPECIFICATIONS, CONDITIONS OR
WARRANTIES MADE BY THE MANUFACTURER, AND EXPRESSLY DISCLAIMS THE SAME. CTI
SHALL HAVE NO LIABILITY TO MAI FOR ANY CLAIM, LOSS OR DAMAGE CAUSED OR ALLEGED
TO BE CAUSED DIRECTLY, INDIRECTLY, INCIDENTALLY OR CONSEQUENTIALLY BY THE
EQUIPMENT, BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN, BY ANY
INCIDENT WHATSOEVER IN CONNECTION THEREWITH, ARISING IN STRICT LIABILITY,
NEGLIGENCE, CONTRACT OR OTHERWISE, MAI HAVING AGREED TO LOOK ONLY TO THE
MANUFACTURER WITH RESPECT TO ANY SUCH CLAIMS.
(b) After delivery of the Products to MAI, MAI shall bear the
entire risk of loss with respect to any damage, destruction, loss, theft, or
governmental taking of any Products (herein "Loss or Damage"). MAI shall
promptly notify CTI of any Loss or Damage and to the extent that the proceeds
of insurance with respect to the affected Products shall be less than the full
replacement cost thereof shall promptly pay to CTI any difference between the
proceeds of such insurance and such replacement cost. CTI and MAI agree that
to the extent income or revenue is lost or foregone because equipment is
inoperable, CTI and MAI will, except as specifically provided herein, each bear
its own cost and damages and not seek monetary recovery from the other with
respect thereto, and neither CTI nor MAI shall have any liability to the other
for any indirect, incidental, or consequential damages with respect to any
breach of this Agreement.
19. Maintenance, Repair and Use.
(a) CTI shall be responsible for the repair and maintenance of the
Products, including any fibers, hand pieces or other peripherals as well as
service charges, travel and shipping associated therewith to the extent set
forth in service and maintenance obligations set forth in Exhibit C. To the
extent that repairs not covered by the manufacturer's warranty or the service
and maintenance obligations of CTI as set forth in Exhibit C is required by
reason of damage to the Products caused by MAI or its customers, MAI shall be
responsible, at its own expense, for the cost of service and repair of the
Products. MAI shall protect the Products from deterioration, other than normal
wear and tear, shall use the Products in the regular course of its business
only, within its normal capacity, without abuse and in the manner specified in
writing by the manufacturer, shall not make any modification, alteration or
addition to the Products (other than normal operating accessories or controls)
without the consent of CTI.
(b) The Products shall be used by MAI only in accordance with
manufacturer's written instructions and MAI shall perform such routine
calibrations and testing and day to day maintenance of the Products as may be
required under such instructions to maintain the Products in first class
operating condition. MAI recognizes that the Products are designed to be
moveable under normal circumstances but are not specifically designed to
withstand rough handling. MAI shall perform such additional calibration or
retesting as may be necessary and as are outlined by the Manufacturer to ensure
proper functioning of the equipment in a mobile environment.
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<PAGE> 11
(c) The Products shall be used by MAI only in accordance with
applicable federal laws and the laws of each jurisdiction in which the Products
are to be used. MAI shall not modify the Products, allow repair or maintenance
functions to be performed by unauthorized personnel or take any action which
would void the warranty or the obligation of CTI to provide service and
maintenance in accordance with Exhibit C. MAI shall not make any
representation with respect to the use or capability of the Products other than
as set forth in the manufacturer's literature with respect to the Products.
MAI shall not allow the Products to be used or operated by any person other
than a properly trained and licensed practitioner or, to the extent permissible
under local law, under the direct supervision of a properly trained and
licensed practitioner, it being understood by all parties hereto that neither
MAI not CTI is engaged in the practice of medicine.
(d) MAI shall not so affix the Products to realty so as to change
its nature to real property. MAI agrees that the Products shall remain
personal property at all times regardless of how attached or installed. All
modifications, repairs, alterations, additions, operating accessories and
controls shall accrue to the Products and become the property of CTI. MM
agrees to make the Products available to CTI upon reasonable request for
inspection, repair and maintenance at locations reasonably convenient to both
MAI and CTI.
20. Authority. MAI and CTI each warrants that the execution of
this Agreement and of each Products Contract have been and will be duly
authorized. MAI and CTI each further warrants that no provision herein is
inconsistent with its charter, by-laws or any loan or credit agreement or other
instrument to which it is a party or by which it or its property may be bound
or affected.
21. Surrender of Equipment. At the expiration of the term or upon
termination of each Products Contract. MAI shall to the extent that Products
are not purchased by MAI deliver the Products to CTI (at the location
designated by CTI and reasonably convenient to both parties) in the same
condition as received less normal wear.
22. Amendments. This Agreement, the exhibits attached hereto and
the Products Contracts constitute the entire agreement between CTI and MAI and
may not be contradicted by evidence of prior, contemporaneous or subsequent
oral discussions, negotiations or agreements of any kind. This Agreement and
Product Contracts may be amended only by a written instrument signed by CTI and
MAI.
23. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts.
24. Independent Contractor Status. The relationship of the
parties hereunder is that of independent contractors, and nothing herein
contained shall be construed to create a partnership, joint venture, or agency
relationship between the parties hereto.
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<PAGE> 12
25. Assignment. CTI shall not assign this Agreement, the Products
Contracts or any rights hereunder or thereunder or delegate any of its
obligations to any third party, provided, however, that (i) the service and
maintenance obligations of CTI may be performed by the Manufacturer or a
service provider selected by CTI, (ii) CTI may assign such of its rights under
this Agreement or the Products Contracts as may be necessary in order to enable
CTI to obtain financing with respect to its business operations, and (iii) CTI
may assign this Agreement and the Products Contracts to an affiliate reasonably
acceptable to MAI. MAI shall not assign this Agreement, the Products Contracts
or any rights hereunder or thereunder or delegate any of its obligations to any
third party, provided, however, that MAI may assign its rights and obligations
hereunder or under the Products Contracts to an entity affiliated with it or to
a successor entity which is reasonably acceptable to CTI. A consolidation or
merger of a party hereto shall constitute an assignment pursuant to this
Section. For purposes of this Section. the parties shall be entitled to
consider the financial condition, business prospects and the nature of the
business conducted by any proposed assignee in making a determination as to
whether such assignee is reasonably acceptable. No consent requested hereunder
shall be unreasonably withheld or delayed. No such assignment shall relieve
the assignor of any liability with respect to its obligations hereunder and any
assignee, legal representative or successor in interest of any party shall be
bound by the provisions of this Agreement.
26. Notices. All notices required or permitted hereunder shall be
sent in writing by certified mail, return receipt requested, by express mail
service or by telecopier (with answerback confirmation and hard copy mailed
within twenty four hours), addressed to the parties at the addresses set forth
in the preamble hereto, in each case, to the attention of the president.
Either party may designate a different address or person at which or to whom
notice is required to be delivered by notice given in accordance with the
provisions of this section.
27. Waiver. The provisions of this Agreement and the Products
Contracts may be waived only by written instrument making specific reference to
this Agreement and signed by the party against whom enforcement of any such
waiver is sought. The failure of either party to assert any claim or right
against the other party regarding its obligations hereunder, in any one or more
instances, shall not constitute a waiver of such claim or right with respect to
the future performance of such obligations under this Agreement.
28. Severability. If any of the provisions of this Agreement or
the application thereof to any person or circumstance shall be held to be
invalid or unenforceable, the remainder of this Agreement shall not be affected
thereby and shall be valid and enforceable to the fullest extent permitted by
law, provided that the essential purpose of this Agreement shall not have been
frustrated by such invalid or unenforceable provision.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto, as of the date and year first above written.
COSMETIC TECHNOLOGIES INTERNATIONAL MEDICAL ALLIANCE, INC.
a division of Palomar Medical
Technologies, Inc.
By: By: /s/ Paul Herchman
--------------------------------- -----------------------------------
13
<PAGE> 14
LIST OF EXHIBITS
A. Approved Locations
B. Form of Equipment Schedule
C. Service and Maintenance Obligations of CTI
D. Reporting Requirements
14
<PAGE> 15
EXHIBIT A
Approved Locations
To be determined within 30 days of execution of this Agreement
<PAGE> 16
EXHIBIT B
EQUIPMENT SCHEDULE NO. ____
dated as of _____________
under MASTER SERVICES AGREEMENT (the "MASTER AGREEMENT")
dated as of _____________
between COSMETIC TECHNOLOGIES INTERNATIONAL, INC. ("CTI")
located at 1355 Stratford Court, #19, Del Mar, California 92014
and MEDICAL ALLIANCE, INC. ("Lessee")
located at 8200 Springwood Drive, Suite 200
Irving, Texas 75063
1. EQUIPMENT DESCRIPTION:
----------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. EQUIPMENT LOCATION: The Equipment shall be principally located
at
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
for use in the following Approved Location
-------------------------------------
The site at which preventative maintenance services are to be
performed in accordance with the Master Agreement is
----------------------------
- -------------------------------------------------------------------------------.
3. TERM AND DATE OF DELIVERY: The term of the Products Contract
evidenced by this Schedule shall be sixty (60) months from the date of delivery
of the Product which is subject hereto. The date of delivery is hereby agreed
to be:
-------------------------------------------------------------------------.
4. MINIMUM PAYMENT: The Minimum Payment (as defined in the Master
Agreement) with respect to the Equipment subject to this Equipment Schedule
shall be $5,000.00 per month, achieved as follows:
(i) For the first calendar month following the Delivery Date, the
Minimum Payment shall be $0.00.
(ii) For the second calendar month following the Delivery Date, the
Minimum Payment shall be $1,000.00.
(iii) For the third calendar month following the Delivery Date, the
Minimum Payment shall be $2,500.00.
<PAGE> 17
(iv) For the remainder of the term of the Equipment Contract
evidenced by this Schedule, the Minimum Payment shall be $5,000 per month.
5. MASTER AGREEMENT: This Equipment Schedule has been entered
into in accordance with the provisions of the Master Agreement and all the
terms and conditions of the Master Agreement are incorporated herein by
reference as if such terms and conditions were set forth in their entirety in
this Equipment Schedule.
6. INSURABLE VALUE: The insurable value of the Product subject to
this Equipment Schedule is $
--------------------.
EXECUTED as an instrument under seal as of the date first written
above.
COSMETIC TECHNOLOGIES MEDICAL ALLIANCE, INC.
INTERNATIONAL, INC.
BY: BY:
----------------------------- -----------------------------------
<PAGE> 18
EXHIBIT C
Service and Maintenance Obligations of CTI
Service and Repairs to Product.
(a) CTI shall service and repair the Products during the term of
this Agreement. CTI will provide all necessary parts, labor and travel
expenses (unless otherwise noted) to meet its obligations under this Agreement.
(b) CTI agrees to use its best efforts to respond to MAI within 24
hours of written notification of emergency service and repairs, and to use its
best efforts complete such service and repairs within 48 hours of on-site
response to MAI.
(c) CTI agrees to provide regular and emergency ON-CALL service as
described in Appendix A.
(d) Preventative Maintenance ("PM") shall be provided as outlined
in Appendix B.
(e) MAI agrees that no Customer service person (unless otherwise
noted) and no third party service person or other personnel not authorized by
CTI will be allowed to perform service and repair or maintenance on the
Products. (A breach of the terms of this section shall be considered a
material breach of this Agreement).
(f) MAI agrees to meet CTI's Product mechanical training
requirements as outlined in Appendix C. Cost of training (including travel,
lodging, meals and other expenses) is not included, and such cost shall be
borne by MAI, unless otherwise noted.
(g) MAI agrees that MAI's factory trained service person will
provide repairs and services as outlined in Appendix D. If MAI is unable to
satisfy this section at any time during the term of this Agreement, and repairs
or services outlined in Appendix D become necessary, MAI agrees to obtain
services from CTI at the current service fee(s). (A breach of the terms of
this section shall be considered a material breach of this Agreement).
(h) MAI agrees that any service and repair or maintenance required
as a result of damage due to shipping of Product(s) or negligence by MAI will
be charged at the then current service fee(s).
Recordkeeping. Upon request CTI shall provide to MAI service reports and other
such documentation describing all service, repair and maintenance activities to
the Product(s). MAI agrees to provide service reports and other such
documentation describing all services provided by MAI's factory trained
technical person.
<PAGE> 19
APPENDIX A
Regular Services
1. Coverage
(a) weekdays, except holidays, from 8:30 a.m. to 5 p.m.
Local Time.
2. Contact
(a) Customer Service Department
(b) Telephone: ____________________
ON-CALL Emergency Service
1. Coverage
(a) weeknights 5 p.m. to 9 p.m. Eastern Time, Holidays
and weekends 8:30 am. to 9 p.m. Eastern Time.
(b) coverage is limited to telephone support only.
2. Contact
(a) Customer Service Department.
(b) Telephone: ___________________
-------------------------------------------------------------
APPENDIX B
Product Preventative Maintenance
Includes labor and travel expenses to complete 6 PM service calls per
Product including system safety and performance checks, calibrations and
optical alignments. Service to be scheduled on a regular basis and require up
to 8 hours for completion. PM service kit replacements are required every ____
pulses or every ____ months which ever comes first. PM services are to be
performed only at agreed upon locations as determined pursuant to each Product
Contract.
<PAGE> 20
APPENDIX C
Mechanical Training Requirements
<TABLE>
<CAPTION>
Type of training: Class Dates:
----------------- ------------
<S> <C>
One day technical training to include: To be completed at time of first scheduled
PM service. Upon successful completion of
(a) System theory of operation technical training repair kits for
handpiece repairs and replacement of
(b) Optical Alignment partial reflector will be provided for each
laser
(c) Handpiece Repair
(d) Focus Lens Replacement
(e) OC Lense Replacement
(f) Do's and Don'ts Laser Transporting
(g) Installation Setup Steps
(h) Troubleshooting Tips
(i) Qualification Testing
</TABLE>
-------------------------------------------------------------
APPENDIX D
Repairs and Services Provided By
MAI's repair services are limited to the following:
(a) Repair of Handpieces
(b) Replacement of OC Lenses
(c) Replacement of Focus Lenses
(d) Optical Alignment
(e) Performance Testing
(f) Handpiece Calibration
(g) Service Documentation
<PAGE> 21
EXHIBIT D
Reporting Requirements
To be determined within 30 days of execution of this Agreement
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (No.
333-9815) and the related prospectus of our report dated July 17, 1996 except
for Note 17, as to which the date is September 9, 1996 on our audits of the
consolidated financial statements and financial statement schedule of Medical
Alliance, Inc. and Subsidiaries. We also consent to the reference to our firm
under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
September 23, 1996
